Swiss venture capital investment hits new low

Swiss Life is liquidating parts of its venture portfolio Keystone

Investments in Swiss innovative companies fell to a new low in the first half of the year, after stagnating at the beginning of the millennium.

The amount of venture capital invested by both local and foreign investors in Swiss-based companies in the first half of this year totalled SFr60.23 million ($44 million), according to a new report by Tornado Insider Research.

If the trend continues, the amount of venture capital raised in 2003 will be less than half the total for the previous two years.

The report also determined that first round financings were rare.

Three of the eight companies studied – BridgeCo, BeamExpress, and Avalon Photonics – raised significant rounds by syndicates of investors. All are hardware or components vendors, well beyond the research phase.

Two others, Esmertec and The Genetics Company, were given funding to acquire competing firms.

Deal flow

The drop in new investments is being attributed to the severe exodus of Swiss banks and insurance companies from the venture capital business.

Vontobel and Swiss Life, for example, are liquidating parts of their venture portfolios.

Correspondents say only selected investments will receive follow-on capital from the banks’ captive funds.

Traditional fundraising appears to be out of the question for the time being.

The few venture capital companies active in the Swiss market are Venture Incubator, Atila Ventures, SAM Private Equity, and Invision.

HBM Partners also remains active, but seems to have developed an appetite for publicly traded US biotech firms.

Others, such as TAT Capital and Index Ventures, are “on the scene” but traditionally only invest a small portion of their funds in their home base.

Caution

One member of the Swiss Private Equity Association cautions against taking the half-year figures for 2003 too pessimistically.

“Often follow-on rounds are not announced, and in Switzerland even large venture capital rounds are often kept quiet. There is a lot that goes on below the surface,” says the insider.

The drop is also due to the reluctance of new companies to seek capital.

“There are fewer [hi-tech] teams or companies in Switzerland trying to raise money,” says Max Burger Calderon of Apax Partners.

Indeed, start-up managers say they are trying to go for as long as possible without raising capital in the belief that they would have to give up too much equity in exchange for cash.

Positive signs

The dearth of deals is seen by some as positive.

“There’s been a good clean-up on the start-up scene. We are seeing better quality firms, more technology driven solutions and hardware,” says Dr Alex Bezinge, of Atila Venture in Geneva.

But there are too few entrepreneurs in general in Switzerland, according to Bezinge.

Burger Calderon, who is based in Zurich, says that the country as a whole is undergoing a “restructuring” which is contributing to uncertainty on the parts of both investors and entrepreneurs.

It is not clear if the business community is still in the “denial phase”, he said, adding that the next phase is to recognise the problems and to start working on action plans to do something about them.

“In order to generate growth, jobs, and entrepreneurship in the Swiss economy, the country has to acknowledge that it is a part of Europe and that we have to participate with the EU and help solve Europe’s problems,” he says.

by Valerie Thompson