Silicon Alps: An Inside Look at Switzerland's Startup Scene
http://thenextweb.com/eu/2012/05/27/an-inside-look-at-switzerlands-seriously-ambitious-startup-scene/
Ah, Switzerland. The land of chocolate, cow-bells, skiing and prices that make you want to cry. A place that has built a global brand on providing a safe, risk-free haven for other people's money and not being disruptive or belligerent. Clean, orderly and wonderfully peaceful — yes, the clichés are true.
Not then, you might think, a country especially suited to launching a startup — but you'd be wrong. Long a hub for high-tech and medical sciences, Switzerland now boasts an ecosystem of Internet entrepreneurs that's blossoming as fast as the proverbial Edelweiss in spring.
"I don't know any other country on Earth that is so good at seed funding," enthuses Johannes Reck, co-founder and CEO of GetYourGuide. His story is illuminating — after founding GetYourGuide in 2008, his team was approached by a local bank with a seed funding offer, an out of the blue reversal of roles that typifies what's happening here.
"In literally every other country in the world I've been to, entrepreneurs struggle so hard to get their first seed funding," he says. "In Switzerland you have a lot of institutions who provide money, literally for free, very early on."
Government and University Funding
In true Zuck style, Reck founded GetYourGuide from his dorm room at Swiss Federal Institute of Technology (ETH) Zurich, the country's top technical school. The aim was to hook up holidaymakers with tour and activity providers at their destination, making it easy to book everything from Segway tours in San Francisco to kayaking trips in Melbourne. Now, four years later, it's scored two million dollars in funding and is said to bring in over $10 million a year in revenue.
Many of the different cantonal banks scattered throughout Switzerland, I later discovered, act as regional VC funds thanks to a novel agreement with the government, which is keen to encourage entrepreneurs to pursue good ideas. So keen, in fact, that it also helps fund countless other organizations who do the same thing.
To get an idea of how, I met Dominik Wensauer (pictured right), the project lead of a program which is conducting the most complete analysis of the ecosystem to date, the Swiss Start-up Monitor. The idea goes further than the TechCity-like public map of startups available on the website though — as well as using the aggregated data to identify funding gaps and measure the support mechanisms, the project will eventually offer AngelList-like networking, benchmarking and analysis tools to the hundreds of startups that have already signed up to use it. It's a unique, neat solution, all with the aim of building a quantitative understanding of the ecosystem and working to improve it.
He showed me a graph of the number of startups his organisation has been tracking, through various sources, since 2004. It's an impressive growth curve, thanks to an increasingly supportive ecosystem, he says.
"The situation here for startups is very good, they get a lot of help," he told me. "There are several programs, institutionalised programmes, that are very, very good. I think sometimes it might be hard to differentiate which program to use. If you want to get support, you will definitely get it."
Unsurprisingly, Swiss Start-up Monitor is partially government-funded, a chunk of support coming from the Commission for Technology and Innovation (CTI), which seems nearly omnipresent when you speak to Swiss entrepreneurs. The support that it offers, funded by central government, ranges from start-up coaching to investment through its CTI Invest arm, which links investors with entrepreneurs.
Alongside CTI, Wensauer explained, are a host of smaller programs aimed at helping university spin-offs — another phenomenon that seems to define much of the startup activity that happens here. Perhaps because of an aversion to risk (a very Swiss trait, given the size of the banking sector), entrepreneurialism is being specifically nurtured within well-regarded institutions such as the Swiss Federal Institutes of Technology in Zurich and Lausanne and the University of St Gallen, one of Europe's leading business schools. More than 150 of the startups the Swiss Start-up Monitor is tracking are connected to the Federal Institute of Technology in Zurich.
For academics (or even those with the slightest connection to a university) the support available is mind-boggling, ranging from the federal government to university-backed schemes and private enterprise loans. One of the most highly-regarded national programs I came across was VentureKick, a body that has handed out over 220 grants of up to 130,000 Swiss francs to select spin-offs since 2007, with virtually no strings attached. The confusingly similar VentureLab, offered by CTI, provides targeted training modules to entrepreneurs from Swiss universities.
R&D
Perhaps unsurprisingly then, a research-led thread runs strongly through the Swiss entrepreneurial scene. Culturally, Swiss entrepreneurs don't seem inclined to drop out of college to work on their startups, but curiously enough, that's resulted in a startup scene filled with companies that have seriously lofty ambitions.
In the wake of the Facebook IPO last week, Steve Blank asserted that Silicon Valley is dying because VCs have stopped taking risks on the science and technology 'hard stuff', instead preferring social media startups. Here though, the emphasis on a combination of world-class education and strong funding infrastructure means the proportion of high-tech, research-led products is much higher.
Take Dacuda, named by several of the people I spoke to as among the country's most high-potential firms. It launched its Mouse Scanner (pictured right) at CES earlier this year, promising to usher in 'a new era of scanning' thanks to digitisation technology which can stitch together images captured by a low-cost camera on the bottom of a mouse into a larger, complete scanned document. The software is based on research conducted at ETH Zurich, and is being licensed to companies such as LG to integrate — the vision, which seems perfectly plausible given the low hardware cost requirement, is that one day all mice could double up as scanners.
So among the high-tech wizardry, is there space for Internet startups?
"When we started GetYourGuide we were considered completely low tech," Johannes Reck recalls. "Swiss people were very much shaped in the way that they look at business in an old-fashioned, high-technology way. This is currently changing, because there are a couple of Internet startups who were successful and had successful exits."
A look at the "Swiss Startup National Team," a group of businesses recently selected by VentureLab to travel to the US as part of a mentorship and networking programme, suggests he might be right. Although the majority are high-tech and med-tech firms, several web startups made the cut too, including the Newscron news aggregator, gamified 'actions' app DidThis and philanthropic marketplace for entrepreneurs, SoSense.
Zurich
The undisputed hub of consumer-facing web technology is Zurich, home of ETH and its Technopark complex, as well as names such as GetYourGuide, note-taker Memonic, GroupOn rival DeinDeal and gaming platform Gbanga.
Switzerland's largest city is also the base of Google's largest engineering office outside of the US. Inside, it's jokingly referred to as "the real Mountain View," thanks to the vista over the Alps. Though undoubtedly an encouragement, several people told me Google is something of a mixed blessing, giving support to the entrepreneurial community with one hand and taking with the other by hiring the best engineers.
Indirectly, it's exacerbating the blindingly obvious problem facing all startups based in Switzerland — scaling in a country where developers expect around 150,000 CHF a year as a basic salary, eating up capital as quickly as it can be found. In fact, the cost of living is a problem for most people who don't earn the average Swiss wage of 5,979 francs (approximately €5,000, or £4,000) a month, but for founders that need to attract talent, it can be a killer. No wonder then that GetYourGuide and several other names made the jump from Zurich to Berlin once they came to scale.
The flipside of the high cost of living is that the quality of life in Switzerland is incredibly high, making it easier to recruit and retain top-notch talent for those that can afford it. "Switzerland has a number of great advantages in terms of living here and building a company here, and they have to do with living quality. Many people like the idea of moving here, whether that's on a permanent or a temporary basis," explains Michael Näf, who heads a team of locals and expats at Doodle.
With partner Paul Sevinç, Näf has built online scheduling service Doodle into one of the country's most successful web startups, with over ten million users a month. Conceived nearly a decade ago, the pair went professional in 2007, scoring funding in 2008 and 'partially' exiting by selling a 49% stake to Swiss publisher Tamedia last year. Doodle's premise is simple but incredibly useful, with a registration-free process that allows anybody to poll participants for convenient time slots, or book time in an 'open' diary which can be synced to other calendars such as iCal.
Location
The advantage of fast, punctual air and rail connections to neighbouring France, Germany and Italy shouldn't be overlooked either for founders who will one day need to sell overseas, Näf tells me. "It helps that Switzerland is so well connected. It takes me from my office to the airport maybe 15 minutes, and that's a big advantage."
Although Näf notes that internationalisation isn't always as easy as it looks, it's hard to overlook the additional language advantages the Swiss have when it comes to tackling foreign markets. Almost all Swiss startups operate in English and French, German or Italian, enabling them to build a product in Switzerland before rolling it out to one of the country's larger neighbours. Mindful of their homeland though, many will actually begin building products for other local markets before expanding overseas, helping to build brand awareness in each language before a full market launch.
"Swiss people do this better than anywhere else in the world, because they grow up with three languages — four actually (English)," Wensauer says. "Many will think about expanding in Switzerland first, even though it's harder because of the language barrier."
Fortunately, it's much easier to get around a language barrier when there's a ruthlessly efficient transport system available to take you the short distance in person — and in Switzerland, that's definitely the case.
"Switzerland is really tiny," says startup observer Sébastien Flury. "If you compare it to international cities like Paris or Berlin or London where it takes an hour or two to get to work — you've made the journey in Switzerland to get from one point to another in two hours."
That helps startups both to meet their customers and to meet each other, leading to a nascent networking scene that's creating a 'big change,' according to Flury, a long-time observer of startups through his position as Entrepreneur-in-Residence at Jura's startup support organisation Creapole.
He speaks of entrepreneurs coming together with a new cadre of Swiss investors, with fewer who have made money in investment banking and more successful entrepreneurs who have 'made' it and have a better understanding of what it is to start a company. Increasingly, those mentors are turning out in force at events such as Startup Weekend, which jumped from two occurrences last year to five this year. At the most recent event in Jura earlier this month, 50 people pitched 23 ideas, and turnout is much higher at the longer-established events in Zurich and Lausanne. Networking in a country of just eight million people is pretty easy.
For all of the advances, it's clear that Switzerland has some way to go before it's the perfect environment though, particularly when it comes to further funding. "All support provided is something good. Technology parks, support programs, are all great, but that's for the first steps, that's not what builds successful international companies," concludes Flury. "To close a seed round of 800,000 to one million francs is not so tough in Switzerland — perhaps difficult, but not as difficult as finding Series A of two or three million."
And that's not the only thing standing between the Switzerland and the dream of building the 'Silicon Alps'. A phenomenally high rate of employment may act as a safety net for entrepreneurs willing to give it a go, but it also leads many into the trap of 9-5 work — nobody here is being forced to start a company, that's for sure. Stock options are immediately taxed on issue (although capital gains tax isn't payable later), making awarding shares a tricky business. The help for non-high-tech entrepreneurs isn't as good as it should be, although that's changing fast. And it's a tiny market, which leads many to forfeit global ambitions in favour of a big-fish, small-pond strategy.
It's not immediately obvious that Switzerland, or more likely Zurich, will be able to overcome these hurdles in order to become a European startup powerhouse like Berlin and London. But look at the impossible railways that climb and weave their way over the Alpine peaks, and it's obvious that this is not a country that shies away from a challenge. With the amount of support on offer here to help entrepreneurs achieve their dreams, reaching the top has never looked easier.
Peter Wey, Image Focus, S.Borisov, Fedor Selivanov, Stee via shutterstock
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