Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement SIF – Swiss Investment Fund Fostering Innovative Entrepreneurship in Switzerland Zurich, 3rd of July 2013 Jean-Philippe Tripet, Thomas Heimann (SECA) Jean-Pierre Vuilleumier (CTI Invest) in collaboration with
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Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
SIF – Swiss Investment Fund Fostering Innovative Entrepreneurship in Switzerland
Zurich, 3rd of July 2013
Jean-Philippe Tripet, Thomas Heimann (SECA) Jean-Pierre Vuilleumier (CTI Invest)
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 2
Leadership of the project
Jean-Philippe Tripet Managing Partner and Founder of Aravis, Chairman of Chapter VC at SECA [email protected] +43 499 20 00
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 5
Deal flow of Start-ups in Switzerland
Industrial Focus of Companies entering the Swiss
Coaching Program in 2011 and 2012
12%
17%
36%
22%
4%4% 5%
Biotech/Pharma
Medtech
ICT
Engineering in general
Energy/Green Tech
Micro-/Nanotech
Interdisciplinary
Around 30 companies are VC-ready each year (CTI Phase III and IV)
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 6
The Reality of Fund raising in Switzerland
Average Duration to close a financing round: > 1 Year
Source: CTI Invest Research for 2003-2013 conducted by Jan Sobhani
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 8
19.11.2011 Euro 291 Mio. Private contribution: Euro 36,5 Mio., 12,3% Investments abroad possible (e.g. CH)
Initiatives of our Neighbours: Follow-up Fund of HTGF in Germany (19.11.2011)
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 9
Key Messages:
• start-ups are crucial for the economic development of Austria
• Let us welcome and attract talented foreign people
• Starting 1.1.2013 a first Austrian Euro 110 Mio. fund to support start-ups
• Austria Minister of Finance
Initiatives of our Neighbours: 29.11.2012 in Vienna
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 10
Initiatives of our Neighbours: BA Matching Fund in France (11.12.2012)
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 11
Initiatives of our Neighbours: Merkel with Start-ups in Germany (7.3.2013)
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 12
Initiatives of our Neighbours: 150 Mio. for BA in Germany (23.4.2013)
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 17
Switzerland is Facing a Structural Growth Problem
Average GDP growth way behind (1989-2008: 1.8% vs OECD: 2.8%)* - only Italy behind
Low growth of labor productivity (1994-2008: 1.32% vs OECD: 1.84%) – only Belgium, Danemark, Spain and Italy behind
Technological innovation is one of the most important sources of long
term sustainable economic growth for high-income economies with a
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 18
The Innovation Ecosystem: Annual Budget „discrepancy“
Academia
Incubators
Coaching
Angels & Foundations
Venture
Entrepreneurs
1-2M
9bn 1-2M
180M+ 180M *
30-50M
0.5bn
Source: Aravis Estimates * Swiss and foreign VC’s without Corporate venture funds
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 20
The Risk of Know how and Growth Outflow is accelerating
Investments by Swiss-based VCs is declining faster than overall VC investments
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 21
„Bottlenecks“ of Swiss Innovation – „Demand “ side
330‘000 registered companies, of which 20‘000 (6%) can be considered as innovative
High-income countries, like Switzerland, have relatively low early-stage entrepreneurial activity
Only a small percentage (17%) of new established enterprises in Switzerland have high or very high potential
Low growth expectations – Only 5% plan to recruit more than 20 employees within the first 5 years (one of the lowest percentage worldwide!)
Comparably lower birth rate, but the rate of survival is higher (after 5 years) compared to the U.S. (maybe lower risky businesses = lower innovative businesses?)
Lack of International Orientation
Majority of patents registered by large (multinational) companies
Source: Global Entrepreneurship Monitor 2011 - Report on Switzerland
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 22
„Bottlenecks“ of Swiss Innovation – „Supply“ side
Money for startups is scarce – Very few Swiss-based (lead) investors and only about 70 early stage companies have received VC funding in 2012, mostly from BA
„The Winner takes it all“ – Top 5 VC Investments in Switzerland account for 54% of total VC transaction volume
Higher barriers of entry for investors compared to other asset classes; no/limit access to high quality managers
Reasons for declining number of Swiss-based professional VCs:
Competitive disadvantage (no access to EIF)
available money is shrinking
VCs are very cost sensitive (cost / income – competence is hardly scalable)
European and Swiss innovation has a problem:
„the lack of private sector investors in Venture Capital“
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 23
„Bottlenecks“ of Swiss Innovation – Government activism
No government action for VC industry until now (other than regulatory)
High budget discrepancy (public vs private)
No lifecycle funding source available (after seed phase)
High geographic discrepancy in VC financing and entrepreneurial actitivity (Arc Lémanique, Greater Zurich Area, Biovalley Basel)
High concentration of VC financing in only few industry sectors (80% Life Sciences)
No immediate pressure for Swiss government
Reluctance of Swiss government to intervene: History shows that (direct) State involvement does not work and provides for inefficient use of funds
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 24
Conclusions – Position Paper „Swiss Investment Fund“
1. Immediate threat to lose the position as a Global Leader in Innovation
2. The risk of know how and economic growth outflow is immense (start-ups go where the money is)
3. Swiss-based VC funds have competitive disadvantage
URGENT action is needed address structural disadvantages for Swiss start-ups and VCs,
including:
Allow new funding sources to reach start-ups and Venture Capital
Allow new VC funds to be created and consolidate existing
Secure stability of start-ups and know how with life cycle funding source
Increase level of investment also in sectors other than Life Sciences
Create incentives for entrepreneurs / investors (regulation, tax, downside protection)
Position Switzerland as a country for start-ups and innovation (raise awareness and attractiveness of and for Swiss VC industry)
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 25
How do we build a concept of Swiss Investment Fund?
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 28
SIF Advisory Board: a fair representation of the ecosystem
SECA Jean-Philippe Tripet, Thomas Heimann, Alain Nicod
CTI Invest Jean-Pierre Vuilleumier, Yvonne Störzer, Christian Wenger
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
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Advisory board next steps
Constitution of working groups, definition of responsibilities of each group incl group leader (contact person to the project leader), definition of timelines
Strategy of SIF (objective)
Set-up, organizational & legal structure of SIF
Fund of Fund porfolio construction
Investment strategy
Fund raising, political activities
PR + Internet presence via LinkedIn?, Twitter ?
Administration & Project coordination
Meetings with WBF (SECO, SBFI) and FINMA
Meetings with Government agencies/initiators from other countries
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 31
Concept
Fund of fund expertise will help us structure an attractive product
Manager selection is critical: this is a people business
Research shows that past returns are important – ie older funds are less risky – but do not forget the performance of first-time funds in particular with former entrepreneurs’
Co-Investment models work well if focused and selective
Must keep operating fees at a TER below 3% for the fund, commercial standard terms
But...FINMA has never approved a Swiss LP as fund of fund
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 33
Portfolio construction criteria
40% early stage 60% later and growth
Diversify tech and non tech Allow first funds
Invested amount must be spent in Switzerland
Build a diversified portfolio
Build a commercially attractive and relevant proposition for investors
Maximum ownership in a single fund 50% - matching principle
Fund: Swiss and non Swiss funds
Contribute to a standardization of Swiss LP to attract international players
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 34
Next steps
Objectives of the fund and key open questions Provide a commercially attractive investment vehicle (financial return focus)
Improve the risk return profile of venture alone
Professionally managed by recognized managers
Hard to get, validating money
Target size: CHF 500M
Legal structure: Swiss Limited Partnership / foundation (?)
Fund life: 10-12 years, Investment period 5 years (CHF 100M/per year)
Swiss Private Equity & Corporate Finance Association Schweizerische Vereinigung für Unternehmensfinanzierung Association Suisse des Investisseurs en Capital et de Financement
Friday, 05 July 2013 Page 35
What’s in for me ?
• I am a start-up
• More money will flow in early stages
• New sectors will get financed
• International growth will become easier to finance
• I am a Venture firm
• New source of capital
• Qualifying and professional LP
• I am a qualified investor
• Venture risk becomes accessible
• Fund of funds offer a professional investment process