Swiss innovation is on a roll

Look beyond the dramatic mountain scenery and ski slopes, and Switzerland is becoming a hotspot for innovation and university technology spin-outs. The alpine country with a population of 7.6 million is home to 61 technology parks, and its universities are churning out dozens of science-based start-ups every year.

Perhaps the most famous Silicon Valley-type success story is that of GlycArt Biotechnology, a spin-out from the Swiss Federal Institute of Technology Zurich (ETH Zurich), which was acquired in 2005 by pharma giant Roche for CHF 235 (€150 million).

That sum - for a company founded only five years earlier - caught the eye of global investors. “It put us on the radar for venture capitalists overseas,” says Silvio Bonaccio, head of ETH Transfer, the university’s technology transfer organisation. “There were even cold calls from VCs.”

GlycArt’s success highlights how smart policies can transform the environment for entrepreneurs in relatively short order. Switzerland only began to develop federal and local programmes to support campus start-ups and entrepreneurship in the mid-1990s.

Those policy efforts are paying off. “Over the last 10 to 12 years start-up activities [in Switzerland] have vastly increased,” says Christian Nagel, managing partner at Earlybird Venture Capital in Hamburg, Germany. “Today there is a nicely developed ecosystem with repeat entrepreneurs, role models and well-organised business angels, as well as state funds for seed financing. It’s not yet on a par with Silicon Valley, but they are on the right path.”

ETH Zurich, which set up a technology transfer office in 1995, has played a major role in nurturing new businesses, creating 104 companies over the past five years. Last year, ETH students and faculty launched 20 start-ups, including six in information and communications technologies (ICT), and four in medical engineering.

Since the late 1990s, when the ETH Zurich management decided to support start-ups, its spin-outs have raised more than CHF 200 million in seed and early-stage funding. So far, founders, angels and venture capitalists have achieved capital gains of some CHF 500 million, says Bonaccio.

Coaching Entrepreneurs

And the new generation of ETH Zurich spin-outs is particularly resilient. Those formed in the late 1990s have an 88 per cent survival rate after five years, and have created some 1,500 jobs since 1998.

One thing Switzerland may be doing right is putting money into coaching for entrepreneurs. The Swiss Commission for Technology and Innovation (CTI), which brings together business angels, venture capital and universities, has a strong focus on entrepreneurship training and start-up coaching.

In 2004, the CTI set up venturelab to provide free training for those who launch start-ups. Its goal is to help increase student awareness of entrepreneurship and “trigger a new wave of Swiss entrepreneurs.” 

Since its inception, venturelab has organised a total of 1,800 days of training throughout Switzerland, and more than 13,000 students and other entrepreneurs have developed start-up projects. In total, around half of the high-tech start-ups from Switzerland's universities have received coaching. “This is a very cost-effective initiative for the government,” says Walter Steinlin, president of CTI.

For proof of this, a recent study of ETH Zurich’s spin-outs showed that with annual revenues of some CHF 250 million, the 130 new businesses set up before 2007 have created close to 1,500 direct and indirect jobs. They also generate tax revenues to local and federal government estimated at CHF18 million per annum.

Government stamp of approval for start-ups

While CTI does not put money into start-ups, it has strong connections to financial institutions and investors. “We just help them to find the money,” says Steinlin. “As you might have heard, there is money around in Switzerland. And not just in the banks."

CTI can also provide an important seal of approval for new ventures. “One of the cheapest but most effective government things that you can do is to put a stamp on something and say it is good. People will believe you and put their money on it,” says Steinlin.

Strong government and institutional support for technology spin-outs in Switzerland may explain why four of the 15 finalists in the Science|Business 2011 Academic Enterprise Awards were Swiss. The final ACES competition took place on 3 February at ETH Zurich and two of the four Swiss finalists won in their categories – Mirasense in the Fast Start category and Dybuster for ICT.

Switzerland is a “good breeding ground” for start-ups even though the country is “small and complicated”, says Steinlin. “The good news is that in this country, you are not alone if you are an entrepreneur.”

A wealth of start-up capital

For technology students with good ideas, start-up capital is plentiful in Switzerland. A national programme called Venturekick raises money from private foundations based in Switzerland to invest in Swiss start-ups.

Venturekick offers campus entrepreneurs three phases of funding and coaching support, starting with CHF 10,000 to help them develop an idea for a business. Company founders compete for the money and Venturekick judges select eight winners a month to go on to a second phase, in which winners receive CHF 20,000. The final competition is for a company with a viable business plan, which is ready to launch a product on the market – and the award for that round is CHF 100,000. Winners receive coaching from a serial entrepreneur.

Alongside this national scheme, ETH Zurich decided to launch its own funding programme for campus entrepreneurs in the 1990s. The so-called “pioneer fellowship” offers proof-of-concept funds, starting with a CHF 150,000 Swiss franc grant for the first 18 months of development. This money allows students to contact the potential users of a new technology and carry out additional verification of the research, says Roland Siegwart, ETH’s Vice President of Research and Corporate Relations. Siegwart believes too much venture capital too early can actually stifle university spin-outs, putting them under enormous pressure from investors to deliver revenues and profits. “Proof-of-concept funds help campus entrepreneurs to do the first steps without external money,” he says.

While there is significant government support for innovation, says CTI’s Steinlin, much is left to the wider community. “We rely very much on the experts and coaches.”

Size matters

Size is another important factor in Switzerland’s success, says Bonaccio. “We are very small. The technology transfer offices know each other very well and exchange best practice, ideas and so on. We work closely together with other universities. We Swiss have realised that we are too small for each university to fight for itself.”

Swiss universities also collaborate in running competitions for academics who would like to set up their own companies. Business-plan competitions have proved to be a successful way of promoting entrepreneurial thinking, says Bonaccio.

The number of spin-outs at Swiss universities is now one of the criteria used to rank them.ETH itself has several additional support mechanisms for start-ups, including providing incubator space for the first two years. This includes access to ETH’s scientific equipment, an especially valuable facility for life science companies as investors are often reluctant to finance the instruments they need.

Here too, says Bonaccio, there are time limits, partly to avoid any accusation of subsidising businesses. “We have to be careful,” he explains. “You can skew the market with public money.”

Initially, ETH researchers who set out to create a company were opposed by other academics. Over the years, says Bonaccio, opposition to ETH’s spin-out activities has dwindled, partly because the campus mindset has been altered by the arrival of younger researchers.

University entrepreneurship also benefits the institution itself as young scientists are attracted to help transferring the university’s cutting-edge technologies to the market and to society which, Bonaccio says, is one of the goals of academic research.