The Pros and Cons of Starting a Business in Switzerland
When asked where the best places launch a startup in Europe are, most people would say Berlin or Barcelona, London or Lisbon. However, few would think of Zurich or Zug.
Despite maintaining the leading position on the Global Innovation Index for many years in a row, consistently making the top 10 in terms of quality of life, work balance and safety, boasting the highest number of patents per person in the world, and being a world leader in the fields of pharmaceuticals, life sciences and healthcare, Switzerland's startup scene is often overlooked. However, while we may still be a few steps behind bigger European hubs, our local ecosystem is developing rapidly, and creating many innovative, and interesting products and companies.
Based on our company's experience, and those of others from within our local startup community, let's look at the realities of setting up a startup in Switzerland:
Funding and government support
Access to seed and early stage funding in Switzerland has improved over the last few years. However, while investment in Swiss startups nearly tripled between 2012 and 2017 -- peaking at roughly CHF 1 billion according to a recent VC report from Startupticker -- A and B finance rounds ranging between CHF 5-20 million still remain a challenge.But, different initiatives and funds are trying to fill this gap. And the government has started to take more of an active role too. Swiss Economics Minister Johann Schneider-Ammann announced a new initiative to support Swiss startups last year. This private fund aims to raise as much as CHF 500 million and includes funding from Credit Suisse, UBS, Mobiliar and a number of large banks and insurance funds.
The minister has stipulated that at least 60 percent of this fund should be invested in Switzerland. Initiatives are also looking to government bodies to start pumping more money from Swiss pension funds into our ecosystem, which to date are only putting less than 1 percent of their funds into venture capital.
While the government may be keeping a tight grip on pension funds, it has taken more of an interest in making life easier for startups. While founders in countries like Germany or France are constantly slowed to a snail's pace by bureaucracy, the Swiss tax administration and the social insurance institutions are comparatively simple to navigate.
In other neighboring companies, officially founding and registering a company can be a slow process with lots of paperwork, however in Switzerland the government has put many functions online to speed things up.
Nicolai Altwegg, the CEO of Ayoo AG, a startup launching out of Zurich, explained to me, "To date, the biggest roadblocks to our launch have been external, such as the extremely slow process of getting our app accepted to app stores. The things which usually take time, like raising seed funding, and registering our company locally were a breeze in comparison."
While homegrown funding is still tricky to come by, we have one thing in abundance: high quality technical talent.
Switzerland is home to the École polytechnique fédérale de Lausanne (EFPL) in Canton Vaud and the Swiss Federal Institute of Technology (ETH) in Zurich, which both ranked high in Reuters's list of most innovative European universities, and the remaining majority of Swiss major higher education institutions feature in the top 200 of the prestigious Shanghai rankings.
The EFPL campus is home to the Innovation Park, a center that hosts over 120 startups and 23 global enterprises such as Intel, Logitech and Siemens. Famous graduates include Mindmaze, a startup that specializes in VR technology that's primarily been used in the healthcare industry, and AC Immune, a startup developing treatment for Alzheimer's. The ETH has also marked itself as a great support network for early stage startups, and has pumped as many as 2,500 jobs into the local economy in recent years.
The high level of secondary education offers a steady flow of motivated and high-qualified applicants, and thanks to the above average living standards and salaries, low tax rates and one of the lowest unemployment rates in the world, most young Swiss graduates are happy to develop their careers close to home, rather than heading to other European cities with more competition.
The fact that Swiss graduates are sticking closer to home means that while smaller, our talent pool is much fuller of fish. François Briod, CEO of Lausanne-based Monito, told me via email, "Less digital startups are fighting for the exceptional talent we have here, both homegrown from our great universities, or drawn here by the Swiss quality of life."
If startups are not able to find the right person locally, there is a growing foreign talent pool, too. In an email exchange with Johannes Waibel, head of marketing at Frontify, he explained, "The high quality of life here is attracting more and more talent from abroad. In larger cities like Zurich, Basel or St. Gallen, most young people and professionals are bilingual, which is making Switzerland an attractive place to set up homes and businesses."
However, it should be noted that being outside of the EU, foreign nationals who want to work in Switzerland will require a work permit. While the visa process is quite simple for those from within the EU, Swiss immigration laws are much stricter for applications from outside of Europe. Unlike in other countries like Estonia, Canada, Argentina and Chile, where special startup visas are available, Swiss startups need to prove that an applicant has a skill set that cannot be sourced locally, and once yearly quotas are filled, the government simply stops issuing visas.
But, it's also true that hiring in Switzerland is expensive for employers, whether hiring homegrown or foreign talent. Switzerland has the highest average wage for employees in Europe, and for highly sought after technical roles such as developers or data scientists, employers will need to pay a pretty penny, which can be challenging for young businesses.
Andreas Brenner, CEO of Avrios, explained in an email, "Starting a business and hiring a team in Switzerland is expensive, which means creating value from Day One. We used this as a motivator rather than a roadblock."
As such, most local startups develop through recruitment and onboarding processes to filter out the most talented individuals to bring on board. Most local startups use lean methodology, and optimize every process from the get-go to keep the cogs turning with a limited team. Many go down the common route of opening remote offices or outsourcing to other, more affordable hubs in central and Eastern Europe for sales, marketing and development teams, while maintaining their home base in Switzerland.
With a population just over 8 million people, roughly the same size as London, the market size in Switzerland forces startups to think globally from Day One. However, in the early years, there is a back-up plan. Swiss consumers have a lot of buying power, and are traditionally loyal to homegrown, established retailers, even if more popular global giants enter the market.
This offers a good springboard for companies in their early years.
This market gives Swiss companies the chance to flourish locally, and bring on teams and develop technology that can then allow them to scale internationally. It also offers market freedom for "clone" companies to emerge. Swiss founders effectively have the chance to see what is working in other countries and built their own version for their home market.
One needs only look at the success of local companies like Digitec and Ricardo.ch, which remain much more popular in Switzerland than Amazon, Zalando or eBay, or Deindeal.ch which pushed Groupon out of the market.
Switzerland is home to 15 Fortune 500 companies, and a wide range of global banks, insurance companies, telecoms and pharmaceutical companies such as Swisscom, Tamedia, Ringier, Novartis and Roche. This offers opportunities for startups looking to partner with, or be acquired by larger companies, or enter corporate accelerator programs.
Basel -- home to Roche and Novartis -- offers a great location for healthcare and life science startups, and Zug has earned the title cryptovalley as a hub for blockchain and cryptographic technology.
And while support from corporates is increasing, the support of other startups is important, too. Things are moving in the right direction thanks to organizations like Impact Hub Zurich, which includes more than 800 innovators, and recently launched a new innovation hotspot; the aforementioned EFPL and ETH centers; and a number of startup events, programs and meetups, like Venture Kick, TOP100 Swiss Startups Award and Startup-weekend CH.
However, inevitably our young ecosystem still has growing pains. Briod argues that Swiss startups need more of a Silicon Valley mindset, and to start opening up, speaking about failures and focusing on constant improvement. We also need more local mentors, and experienced VCs who can help push businesses forward.
After speaking to Brenner, I learned that he agrees the problem is primarily cultural. He argued, "I feel as though most startups here do not communicate enough about their achievements as companies do in cities like London or Berlin." In his opinion, Switzerland has "a culture of creators rather than attention seekers, which means that startups don't share enough outside their communities. This is something we need to change to bring more attention to the talent available here and the successes created here."
For me, this is something we need to change to bring our ecosystem together, and push forward into more of a "Silicon Valley" culture of mentorship, communication and cooperation.
The Swiss ecosystem may still be developing, but we are definitely moving in the right direction. For such a small country, in less than a decade we have laid the roots of a solid startup ecosystem with talent, funding and support networks, based in a small, but powerful market. I am positive that in the next decade, Switzerland will continue to mark its territory as a startup hub. Growing a startup isn't as easy here as in other hubs, but edelweiss is known to flourish on the most challenging slopes.