Financing your Start-Up in Switzerland

Seminar
The Practice of Entrepreneurship
Fall Semester 2009, Zurich University

Jan Flscher
www.jan.fuelscher.ch

Overview
Introduction

Organisations and Instruments

to Finance your Start-up
Random Thoughts On Financing Your Company

Introduction

Phases, Investment Risk, Capital Need

Risk of loosing the investment (typical case)

Start-up

Seed

Capital requirements (typically)

Growth

Expansion
Consolidation

Investing in Start-Up Companies:

Entrepreneurs vs. Investors View
Probability
Entrepreneurs view:
Success = company
survives

Bankruptcy
10%

ok
Business
80%

Star
10%

Profitability
Probability
Investors view:
Success = investor
gets the investment
back with a multiple
(trade sale, ...)

Bankruptcy
10%

ok
Business
80%

Star
10%

Profitability

Investing In Start-up Companies:

The Portfolio
~10% of the companies are extremely successful
o Can be sold or brought to the stock exchange

The selling price of those that can be sold has to cover

the losses of all other projects + interest
=> In average, selling price must be > 10 x investment
Target selling price (professional investors):
10 30 x the investment
o Depends on the percentage of companies that can be sold
successfully

In practice, the performance of many start-up portfolios

is below the average of the capital market
o Especially early-stage portfolios

The (Active) Start-up Community

In Switzerland

C
B

A 50 to 100 people:
2+ companies started on their own
5+ investments,
1+ bankruptcies,
5+ years in the industry

B 100 to 200 people:

A
50~100

1+ start-ups on their own

2+ investments,
0+ bankruptcies,
2+ years in the industry

C 500+ people:
100~200
>500

0+ start-ups on their own

0+ investments,
0+ bankruptcies,
0+ years in the industry
interested in joining the community

Organisations and Instruments

to Finance your Start-up

Most Important Sources Of Funding (1)

Government / government supported organisations
o Swiss National Science Foundation: Research Funding
o CTI: Know-How, Training, Research Funding, Matchmaking
o Credit Insurance & Surety Associations: Guarantees for
commercial loans

Not-for-profit money:
o Your own money
o FFF / Love Money
o Venture 20xx (ETH, McKinsey, CTI): Know-How, training,
presentation opportunities
o VentureKick, De Vigier, Pionier, Swiss Equity Fair, Heuberger,
Venture 20xx, : Competitions + Awards
o Foundations (Gebert Rf, Avina, Volkswirtschafts-Stiftung, ):
grants, allowances
o Microcredits

Most Important Sources Of Funding (2)

Cantonal banks:
o For-profit-investments and to support the economy of the canton

Groups with mostly financial interests

o
o
o
o
o

Business Angels
Private Equity
Venture Capital Funds
Banks and other commercial loans
Business Partners

Match makers
o
o
o
o

CTI Invest
Business Angel Clubs
Consultants, M&A companies
Match making-platforms

Government And
Government Supported Organisations

Swiss National Science Foundation

(www.snf.ch)
Focus on research projects (before seed)
o The Swiss National Science Foundation (SNSF) is the most
important Swiss agency promoting scientific research.
It supports [] all disciplines, from philosophy and biology to
the nanosciences and medicine.

Total budget: CHF 600 Mio p.a.

Many programs and directions
Direct support of research projects

The Innovation Promotion

Agency CTI: Introduction
Focus on applied research
Seed phase and before
o CTI is the Confederations innovation promotion agency.
o [] knowledge and technology transfer between companies and
universities by bringing them together as partners on applied
research and development projects.
o CTI also provides assistance to start-up companies.

Total budget: CHF 100 Mio p.a.

No direct investments into startups
Programmes:
o Research and Development Project Promotion
o Innovation Management and KTT (Knowledge and Technology
Transfer)
o Start-up Promotion and Entrepreneurship

CTI: R&D Project

Promotion
Incentives to increase co-operation between businesses
and academia:
o For joint projects, CTI pays for the academia part of the project
(but at most 50% of the running cost)

Programmes:
o CTI Micro- and Nanotechnologies
o CTI Life Sciences
o CTI Enabling Sciences
Business Management, Finance, Public Management, Tourism, Urban
Planning, Design, Arts, Architecture, Macroeconomics, Social Sciences,
Public Health, Information and Communication Technologies, Integrated
Production, Logistics)

o CTI Engineering Sciences

o Innovation cheque for SMBs
Incentives for SMBs to innovate

o R&D consortia

CTI: Innovation Management and KTT

(Knowledge and Technology Transfer)
R&D Consortia:
o Financial support of science-business-consortia that create
new knowledge

Knowledge and Technology Transfer Consortia:

o Financial support of organisations that help transferring
knowledge from science to business

CTI: Start-up Promotion

and Entrepreneurship (1)
CTI Entrepreneurship (www.venturelab.ch)
o
o
o
o

Seed phase and before

Venture Apros: Know-how for entrepreneurs
Venture Ideas: Entrepreneurs tell their stories
Venture Challenge: 1-semester course to develop your business
idea
o Venture Plan (free of charge, if qualified):
5-day-workshop, result: business plan & pitch
1st investor presentation (feedback from A+B people)

o Venture Training (free of charge, if qualified):

5-day-workshop, result: refined marketing strategy, pitch
2nd investor presentation (first contact with real money, A+B
people)

o Venture Leaders (free of charge, if qualified):

10-day trip to Boston; trainings, meetings with VCs, ...

o VentureLab operated by Institut fr Jungunternehmen, IFJ

CTI: Start-up Promotion

and Entrepreneurship (2)
CTI Start-Up: Coaching for startup companies
o
o
o
o

Seed phase, start-up phase

Up to CHF 30000 worth of consulting
40 coaches (A+B people)
Result (if qualified): CTI Startup Label (~ 20 startups per year),
easier access to financing

CTI Project Support

CTI Invest => cf. matchmakers

Credit Insurance & Surety Associations

(CISAs)
Entrepreneurs often do not qualify for a bank loan
Start-up phase
CISAs: self-help organisations that provide securities to the
bank, for loans up to CHF 500000
CISAs in Switzerland are backed by government
o Carries 2/3rds of eventual losses of the CISA, carries some of the
management cost

Customers: Mostly commercial shops, craftsmen, ...

Total debts in CISAs: CHF 150 Mio (2008)
o Total commercial credits: 210 Billion CHF (w/o mortgages)
o Some CISAs are closing down because of lack of customers

Regional organisations, except SAFFA (women only)

Not-for-Profit

Not-for-Profit

Your own money

FFF / Love Money
Venture 20xx (ETH, McKinsey, CTI)
Competitions / Awards
Foundations
Micro credits

Your Own Money

Most important source to set up a new company
Seed phase, start-up phase
Sources:
o
o
o
o

Your personal savings

2nd, 3rd pillar savings (use with caution!)
Free-of-charge work
Loans on your personal assets

Cheap, no securities required, no strings attached

First and best source of funds, unless you need to

use your 2nd / 3rd pillar savings

FFF / Love Money

FFF = Family, Friends, and Fools

Love Money = money from people who like you
Start-up phase
Sources:
o
o
o
o
o

Personal loan to you

Loan to your company
Share capital
Inheritance or anticipatory succession
Guarantee / security on a loan

Excellent source of funds

o Relatively easy to access, if you have wealthy friends / family
o Use with great care

Venture 20xx (www.venture.ch)

Training / Coaching: Seminars, workshops,
and coaching sessions
Seed and start-up phases
Networking Platform: Apros
Competitions:
o Business Ideas (Oct Jan): CHF 2500 for top 10 Ideas
o Business Plans (Jan May): total CHF 125000, First price CHF 60000
o Excellent media presence for the winners

Initiated and supported by ETH, CTI, McKinsey, and 17 Swiss companies

Open to anyone who lives in CH, FL and > 18yrs old, company less than one
year old
Participating teams: ~100
Experts: ~80 jury (A, B, C), ~200 coaches (A, B, C)
o Many CTI coaches and well-known business angels involved as jury, coaches

Go there!

Awards and Competitions (AC)

Feedback from experts (A, B, C)
Media presence
o Can be positive or negative

Broader visibility with experts

o Mostly positive

Money
o generally, no strings attached =>
better than investors money

Free-of-charge services
o Coaching, training, offices, ...
o Beware of the decoy!

Entry tickets to other events

o Venture Kick Stages 1 => 2 => 3
o Zurich Equity Fair / Aargauer Equity
Fair => Swiss Equity Fair

Normally, the winner takes it

all: A few startups grab all the
awards
o Same jury members in all
competitions

Joining competitions and

constantly winning:
o Can pay the salaries
o Gives media presence => Easier
access to investors, experts,
customers, ...
o Needs lots of time (one 100% job if
youre serious about it)
o Can be bad for your reputation
(dont they have better things to
do?)

Joining competitions and

constantly losing:
o Waste of time, bad for your
reputation

AC: VentureKick
3 rounds:
o CHF 10000 (academia project, company not set up yet)
8 candidates per month, every other gets the price money and qualify for
the next round

o CHF 20000 (business case prepared)

4 candidates per month, approximately every other gets the price money
and qualifies for the next round

o CHF 100000 (ready to enter the market)

~ 2 candidates per month, few get the price money

Foundations involved: Gebert Rf, Ernst Ghner, OPO

100 jury members (A, B, C)
Great starting point if you have an academia project

AC: De Vigier

Foundation in Solothurn
Start-up phase
5 winners per year, each gets CHF 100000
Huge formal event, media presence, ...
(A, B, C people)
cooperation with CTI
Good place if you dont mind the media
o See and be seen

AC: ZKB Pioneer Award Technopark

Award donated by Zrcher Kantonalbank
o Start-up phase
o CHF 98'696.04

For academia projects and businesses

Award assigned in April, huge event in Technopark
Zrich
Good place if you dont mind the media
o See and be seen

AC: Swiss Equity Fair

Regional contests with local awards in August ... October
o Start-up phase
o Award, no financial benefits
o Managed by Swiss Equity Magazine and local parties
AG: Aargauer Kantonalbank + Technopark Aargau
ZH: StartZentrum Zrich + J. Flscher

Main contest beginning of December

o Award, no financial benefits
o Huge investor presence (because of combination with other
private equity events)
o Variable locations
o Managed by Swiss Equity Magazine + experts of ZKB,
Technopark, CSEM, CTI, Wenger & Vieli, ...

Good place if you dont mind the media

High exposure to medium-term investors

AC: More Awards

National:
o Swiss Economic Award (Swiss Economic Forum):
3 awards, each CHF 25000
Huge media presence, professional movie
der bedeutendste Jungunternehmerpreis der Schweiz (the most important
award in Switzerland)

o Some more

Regional:
o Heuberger (3 awards, each CHF 150000, Winterthur only),
o Basel, Thun, ...

Industry-related:
o ICT, Sports, Media, Medtech, ...

Many, many more

Comprehensive List: www.gruenden.ch
Zusatzinformationen > Wettbewerbe

Foundations
Industry on its own
About 11000 foundations for public welfare
o Little regulations, no directory

Total assets: About 30 Billion CHF

Donations total: About 1 Billion CHF per year
Donations for startups / innovation projects: Unknown
Three examples (not representative)
o Gebert Rf Foundation (Geberit): CHF 8 10 Mio per year, currently 84
projects
o Avina Foundation (Stefan Schmidheiny): CHF 14 Mio per year (2008), 66%
social projects, currently 203 projects
o Volkswirtschafts-Stiftung: Interest-less loan, max. CHF 300000 (in combination
with a CTI project)

Finding the right foundation needs time

Typically seed and start-up money
Excellent source of funds

Micro Credits
Loans for people who want to start a new business but
cannot offer securities to the bank
Start-up money
Foundation Go! Ziel selbststndig in Zrich
o Financing by Zrcher Kantonalbank
o Credit risk insurance by the foundation
o Maximum CHF 40000, market-based interest rates

If you need a smaller loan and have no other

sources

Cantonal Banks
For-profit-investments
Support the economy of the canton

Trend Setter:
Zrcher Kantonalbank
Pioneer project
Start-up money
20+ investments per year, each up to CHF 500000
o Criteria: Innovation, business model, management
o Geographical focus: Zurich economic area

Current portfolio: 120+ investments

Total investments of CHF 10 Mio per year,
o One of the biggest investors in start-up companies in Switzerland

Other cantonal banks

o Same idea (economic pressure between cantons)
o Various implementation models
o AG, LU, SG, SZ, ...

Excellent opportunity if you match their criteria

Groups With Mostly Financial Interests

Groups With Mostly Financial Interests

Business Angels
Private Equity
Venture Capital Funds
Banks and Commercial Loans
Business Partners

Business Angels
Types
1. Entrepreneurs who have sold
their company (A)
2. Wealthy families who invest part of
the wealth in start-ups (B, C)
3. Wealthy line managers looking for
a challenge (C)

Invest time, money to support

the company
o Start-up, expansion money

Typical investments:
o
o
o
o

CHF 25000 to CHF 250000

Minority shareholders
Wants to sell after 3 to 5 years
Invested in 5 to 20 companies

Most business angels do not

want to spend too much time on
one project - but some do
Finding Business Angels:
o Through business angel networks
(=> match makers)
o Through your personal network
(especially industry-related)

Work with Business Angels if:

o they understand your industry
o can and want to support you

Beware of Business Devils

Private Equity
Money from wealthy and
extremly wealthy individuals/ families
Start-up, expansion money
Directly or through their family office
Mostly well-known people / families
o Receive extremely many offers
o Generally not interested in start-up financing
o Very difficult to get funds

Typical investments:
o CHF 100000 to CHF 1000000
o Portfolio of 5 to 20 investments
o Not interested in shares, but takes them

Can sometimes be unreliable:

o Medium to low interest in your project
o Main interest: management of portfolio, network, ...

Lists: SECA (Swiss Private Equity Association), www.seca.ch

Venture Capital Funds

Organisations that (usually) invest in companies in
expansion stage (sometimes start-up stage)
Investments normally starting at CHF 1 Mio
o Time, effort required to assess the project (CHF 30000 +) must be
in reasonable relation to potential profit

Examples:
o New Value => focus on renewable energy
o Red Alpine => also start-up money
o Novartis venture fund => total investment USD 15-20 mio per
project, initial investments starting at USD 100000, life science
o Many, many more...

Understand the goals, focus of the fund

Ask them only if you match their goals

Banks and Commercial Loans

Banking business is nowadays heavily regulated
o No room for negotiation for your account manager
o For consolidation phase
o Generally, finding money with a bank is easy if the risks are very
low
o Exceptions:
start-up funds of some cantonal banks
Loans / investments of banks with a specific focus, e.g. Freie
Gemeinschaftsbank Basel: Slight focus on people-centric projects
(anthroposophic background)

o Difficult to find financing from a bank if you cant offer securities

Banks will ask you to back their investment through personal securities
=> dont

Ask your bank but dont be disappointed if they cant

help
Avoid loans where personal backing is required

Business Partners
Some of your customers or suppliers might be
interested in helping you
o Diversification of their business
o Access to interesting technology

Start-up, expansion phases

Ask for rebates, pre-payments, delayed payments,
strategic research co-operations, ...
Talk to R&D person, CTO or CEO
Excellent financing opportunity if you understand
the risks
o Always work with a lawyer to check the fine print

Match Makers

Match Makers
Events (open to the public or closed user groups):
o All public awards the bigger, the better
o CTI Invest
o Business Angel Clubs

Web-based:
o Match making electronic platforms

Individual match-making:
o M&A Consultants
o M&A companies

CTI Invest

www.cti-invest.ch
Formally independent NPO, subsidized by CTI
Various networking events
Quarterly matchmaking events with investors
(A, B, C people)
o 5-10 startup presentations per event
o About 50% of the companies that have presented at CTI Invest
will eventually get financing

Investment volume ~ 10-20 Mio CHF p.a. (???)

Business Angel Clubs (1)

Theres a number of clubs in Switzerland where
Business Angels (and would-bes) meet to check out
projects
o Start-up and expansion phase
o A, B, C people

The club board members and management are

normally very well networked
Investments in down-to-earth projects preferred
Most but not all are NPOs
o Avoid mixing for-profit and not-for-profit organisations in
the same financing round

Business Angel Clubs (2)

Larger organisations:
o Business Angels Switzerland => 20 events per year, 40-50
presentations, total investment volume n000000 CHF
o Start Angels => ~ 5 events per year, 20-30 presentations, total
investment volume n000000 CHF
o BioValley Business Angel Club => Focus on life science
projects
o B-to-V => for-profit, focus on Germany

Many smaller clubs

Absolutely talk to them
o Learn how theyre set up and financed => success fees?
o Most A people are attached to one or more clubs

Match-Making Web-Based Platforms

www.startfinance.ch
o Not-for-profit, free of charge (for
the time being)
o For startup projects in
Switzerland and investors in
Switzerland
o Selected projects, selected
investors
o New (Spring 2009), little traffic,
60+ projects, 130+ investors
o German only (for the time
being)
o www.startzentrum.ch/de/
startfinance/matchingplattform/login/

www.businessbrokers.ch
o For selling your business
o For-profit, CHF n00 per month
for an ad
o Many ads, many visitors
o Add-on to M&A business
o Reported to be large (n000
visits per month)

www.sb24.ch
o For selling your business
o For-profit, CHF n0 per month
for an ad
o Probably smaller platform

More?

M&A Consultants
Individuals who know the market very well and understand where
to find investors
Normally, they are quite selective
o depending on the fee structure

Fee structure:
o Payment in advance: Dont
o Payment per hour: Dont, unless you need to work with them
o Payment based on success: Fees in the range of 3% ...5%
(... 10%) of the transaction volume

Sometimes related to an incubator / bank / VC

May help you with your documentation (dressing the bride)
Their network can be of great help, but try other sources first
o Try to negotiate transaction-based fee
o No exclusive mandate

M&A Companies
Consultants who live off helping finding and selling
companies
o Very often, excellent network
o Most companies work in specific industries

Will work extensively with you to make you more

attractive to the buyers
Hourly and transaction-based fee
o Often require a certain minimum transaction value, i.e. CHF 1
Mio

For expansion and exits

Random Thoughts
On Financing Your Company

Random Thoughts:
You Get What You Pay For
Theres no free lunch!
o If you accept money from somebody else, you usually have to give
something to them
o Is the upside potential of taking the money worth the downside risk
of loosing it?
o Do you really need money from outsiders?
o What happens if:
You arent successful at all (10% probability)?
You can live (nicely) with your business, but its not a huge success?
(80% probability)?

Media presence can be very useful

o Theyre interested in the story, not in you
o You might not like the story they put together
o You cant manipulate the media

Random Thoughts:
Understand Your Investors
Work (with) the investors you might need them again
o Angry investors are bad news: Small community...

Fundraising needs a lot of work

o 10% to 50% depending on your schedule, money required, business plan, ...
o Understand the community and the players

Start with money that comes without obligations

o Foundations, Competitions, Awards
o Publicity for reasonable cost

Work with investors that have a certain investment pressure

o You might be lucky...

Reasons why an investor might decide for you:

o
o
o
o
o

Cool technology, high potential

Good management team
Board members who are good to know
Good pitch
Good business plan

Random Thoughts:
Valuation
Dozens of methods to calculate the value of the company
The only correct value is the actual transaction price
Net present value (NPV):
T

NPV I CFt (1 i) t L (1 i) T
t 1

NPV = sum of the discounted future cash flows CF

Future cash flows are estimations, discount the estimations to factor in
the risk of errors
Best indicator for the future: the past
Budgets are wishful thinking youre a new business, theres no
experience
NPV based on budgets is just a random figure

Use a number of different methods

Choose a result which is reasonable, comparable to similar
projects
o Use this as a starting point for the negotiations

Random Thoughts:
How to Start

Check out www.gruenden.ch

Apply for VentureLab
Make a business plan and have it verified
Understand the implications and benefits of your business
idea
Develop an elevator pitch
o 10 seconds to explain your new business in general terms
o 10 seconds to explain the opportunities of your business to the
person talking to you customized version of the elevator pitch

Develop a 10 minute pitch

o
o
o
o

Used for investor presentations

Know it letter-perfect
Develop a show to go with the presentation
Seeing is believing demonstrate whatever you can

Random Thoughts:
The Pitch

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Q&A:
More:

Event, logo, date, speaker, contact Info

The market problem
Our solution
Why it works and how it works
The market (size, potential, segments)
Competitors and our strategies
Business model and value chain
Next steps
Financials (revenue, profit, cash flow, # employees)
Management team, board (key figures + photos)
Offer to investors
Links to additional pages
Well-structured additional pages about specific
subjects (IP, market strategy, detailed financials, )

Random Thoughts:
The Investors View
An average professional start-up investor...
o Reads 50 100 business plans per year
o Sees 20 to 50 pitches per year
o Invests in 1 to 2 cases per year

Selection criteria:
o
o
o
o

Knows the industry

Can add value to the company through his/her network
Fits into the portfolio
Many negative criteria:

Too expensive
Dont like the team
Difficult market, unsuitable market strategy
...

Random Thoughts:
The Information Problem
Information problem:
o Deciding whether a specific project would be a good investment requires a
lot of time and some money
o Investor: Too many candidates, not enough time => partly emotional
decisions:

Cool technology, high potential

Good management team
Board members who are good to know
Good pitch
Good business plan

Your job as a startup: help the investor come to a decision!

o
o
o
o
o

Be as honest and open as possible

Never waste the investors time
Provide all information required promptly and accurately
Get yourself a board and an advisory board with excellent reputation
If you already have well-known investors on board, new candidates will be
more interested in joining:
theyve made the analysis
they are good to know

Random Thoughts:
Concluding Remarks
If you dont need investors, avoid them.
o It might not be worth the effort.
o Start acquiring money that comes without obligations.

Dont waste the time of your investors:

o They read your business plan in their spare time.
o They may have lots of experience in your industry much more than you
have.
o Theyre well networked, they talk to each other, they probably know each
other.
o Be clear, open, honest. Never lie or play games it will be found out.

Work with the investors.

o They want to become rich, but not at your cost (mostly, anyway).
o They want to help you they might have been in the same situation as
you were.
o Ask them for advice they will probably like it and you actually might learn
something...