A comparative analysis of venture capital in Switzerland and the United States
Creators: name: Fahr, Rafael
Publisher: name: ZHAW Zürcher Hochschule für Angewandte Wissenschaften
Year: 2023
Subjects: 332: Finanzwirtschaft

description: In recent decades, there has been a notable expansion of the venture capital (VC) industry on a global scale, despite facing diverse regional dynamics. These local variations have led to significant differences in the behavior of VC firms. Since venture capitalists can enhance the competitiveness of an economy and create new jobs, it is crucial to strengthen the VC industry to establish a favorable climate for entrepreneurs and foster innovation. Thus, the aim of this paper was to examine the differences in the way VC firms operate in Switzerland compared to the United States (US), the market from which the industry emerged, and to explore what the Swiss ecosystem may be able to benefit from. The emphasis was placed on deal flow generation, selection, postinvestment involvement, and exit.

To investigate the research question, a mixed methodology combining quantitative and qualitative approaches was chosen. First, within the quantitative part, the backgrounds of VC employees were classified into categories. In addition, investment patterns of VC firms were observed with respect to the stage of investment in the respective start-up. Second, as part of the qualitative research, interviews were conducted with Swiss VC firms to obtain data on the situation in Switzerland.

The results showed that, on average, Swiss VC firms had significantly more employees with a background in banking or finance and fewer employees with science degrees or entrepreneurial experiences than US VC firms. This led to differences in how they interact with universities and start-ups. The US VC firms seemed to pursue an even more co-entrepreneurial approach. Furthermore, while US VC firms, on average, were more stage-generalists than Swiss VC firms, there were indications that the Swiss VC industry moves from early-stage investments backwards to later stages. In addition to the average deal size in Switzerland being about half that in the US, US VC firms had stronger contacts with potential buyers and exit partners, whereas in Switzerland, most deals happen indirectly through M&A advisors. Finally, Swiss VC firms displayed greater activities in early stages versus later stages investments compared to US VC firms. Hence, there is still a notable difference in how venture capitalists conduct business relative to a more experienced VC market. However, the Swiss VC industry is showing signs of development and is still gaining experience to potentially close the gap with the US VC industry. Moreover, based on this study and the data collected on the Swiss VC industry, future research could incorporate the return on investment as further variable to quantify the results.

Finally, the outcomes of this paper are particularly beneficial for VC firms in Switzerland. The findings suggest that VC firms should diversify their team and add more employees with scientific and portfolio company backgrounds as this positively impacts the deal flow generation and post-investment involvement phase. Furthermore, by responding to the identified lack of late-stage VC supply, Switzerland may be able to further contribute towards economic growth.