The weaknesses of the Swiss start-up system and how to fix them

In order to meet the challenges of increasing digitalisation effectively, Switzerland needs to take action in relation to ICT and support the digital economy. These are the findings of a study conducted by the Ecole polytechnique fédérale de Lausanne (EPFL) on behalf of SIX and Swisscom. The EPFL study assesses where Switzerland currently stands in relation to other countries and recommends positive measures for shaping Switzerland’s digital future.

No start-up culture in Switzerland
Switzerland seems to offer ideal conditions for start-ups: innovative people, political stability and consistent economic growth. Yet to date, Switzerland has not been known as a country for start-ups. Why is that?

The Swiss economy is one of the most competitive in the world and has a reputation for being exceptionally innovative. But entrepreneurial spirit is in short supply. The EPFL found that there was no start-up culture comparable with that found in the US, for example. There is no shortage of career opportunities, which eliminates one possible source of motivation. As a result, Swiss people tend to set up companies relatively late in life. Thus existing experience and a healthy awareness of risk mean that entrepreneurs have less fear of failure than in the US and start-up survival rates are higher than average. On the plus side, the study noted that Swiss start-ups tend to have an international focus, which is essential given the small size of the Swiss market. Unfortunately, it often takes a long time to transform the initial idea into a marketable product.

Measures focusing on investments and taxation
There are no Swiss cities in the international ranking for start-up ecosystems, while only eight Swiss companies made it into the list of the top 5000 fastest-growing European companies. The EPFL identified scope for improving the environment for start-ups through financing and taxation. Singapore, the US and UK offer attractive conditions and protection for investors. Switzerland is still strongly rooted in the traditional SME sector, but the conditions for a start-up-friendly environment are clearly in place. This is apparent from the large number of incubators, accelerators and innovation hubs. Not being in the vanguard may well prove to be an advantage, provided that companies know how to adapt “finished” innovations rapidly.

The EPFL criticized the lack of entrepreneurial spirit and the absence of any real start-up culture in Switzerland. The researchers recommend setting the following priorities for the coming years:

• Improving cantonal tax policies. Under current tax legislation, start-ups are taxed in accordance with their market value. This means hefty tax bills for start-ups with high levels of investment. As a consequence, rapidly growing companies tend to relocate to other countries.
• New financing mechanisms are needed to close the gap between seed financing and large-scale investment. Because of the extended idea-to-market processes in Switzerland, many startups leave the country before entering the market due to the lack of capital. Swiss companies need to become more active as providers of venture capital with a view to plugging the gap through peer-to-peer financing. Banks and other institutions could create investment funds, taking on the task of identifying start-ups in need of support and thereby freeing up investors.
• Developing a dynamic start-up ecosystem, with a particular emphasis on incubators, accelerator schemes and activity hubs.
• Thematic areas where Switzerland should build on its strengths to develop strong start-up ecosystems: fintech, biotech, edtech, medtech, clean technology and data security.

The authors of the study are: Christopher L. Tucci, Heidi Gautschi and Gianluigi Viscusi. The detailed findings and a condensed version of the study, along with recommendations and assessments by scientific, business and policy experts, are available here:
www.six-group.com/digitalch
www.swisscom.ch/digitalch

(SK)