Swiss Investors Still Too Risk Averse Toward Fintech Startup Investment

Swiss VCs and institutional investors are largely still shy about investing huge sums into fintechs, a fact that is hardly a secret to those who are familiar with the scene.

This fact is made clearer when you contrast the recent massive fundraising round by 10 year old travel startup GetYourGuide who raised US$ 484 million, which granted the startup a ticket to the unicorn club.

Undeniably, investment into Swiss fintech companies has experienced steady growth in the past years, recording a record of CHF 187.9 million (15%) out of the nearly CHF 1.24 billion that flew into tech startups in 2018.

However, the figure is still small compared to international counterparts and considering the size of the Swiss fintech industry, which counted more than 310 fintech companies as of February 2019, according to Swisscom’s monthly Fintech Startup Map.

Last year’s largest funding round went towards fintech startup SEBA Crypto, which “raised” CHF 100 million in September from investors including Swiss-based BlackRiver Asset Management and Hong Kong-based Summer Capital, among other backers from Switzerland, Singapore, Malaysia, China and Hong Kong. However, in reality, even this funding round is bound on some success conditions and should not fully be counted into the Swiss fintech fundings stats.

Switzerland is late to the VC game

Until just a few years ago, Swiss institutional investors had not been interested in VC investment, and it was financiers from the US and elsewhere that bridged the funding gap for Swiss startups.

But in recent years, growth stage financing has become all the rage with a horde of funds being launched to invest in domestic startups and entrepreneurs.

Swisscanto, which belongs to Zurich Cantonal Bank, the country’s largest cantonal bank and the fourth largest bank in Switzerland, raised CHF 150 million for its growth fund last year. Swisscanto participated in GetYourGuide’s US$484 million funding round.

UBS and Credit Suisse have the Swiss Entrepreneurs Fund, which has a target size of CHF 500 million. The fund already has CHF 100 million in committed capital. Credit Suisse Asset Management’s fintech fund NEXT Investors closed US$261 million of capital commitments in July 2018. Zukunftsfonds, another fund, is looking to raise at least CHF 500 million.

According to Investiere, an online startup financing platform, investment volume rose from CHF 300 million in 2012 to CHF 1.24 billion in 2018, an average yearly growth of 27%. The reasons for this growth include the low-rate investment environment and the growing Swiss startup ecosystem.

Investiere says it has seeing numerous successful entrepreneurs turn into startup investors on the platform after selling their firm. In addition, a growing number of foreign investors are discovering Swiss tech startups as an interesting target.

Though the 27% annual growth rate may seem too good to last, Investiere says there is still plenty of room for growth. It cites the case of Israel, a country with about the same population size as Switzerland that had seen its VC market increase from CHF 1.3 billion in 2010, to over CHF 5 billion in 2018, a growth rate of 25% annually.

Featured image credit: Photo by Louis from Pexels