Venture capital — the fuel for innovation
What is venture capital?
Venture capital, including venture capital called, is a type of private equity (private equity), in which investors invest in promising, mostly innovative start-up companies. These start-ups are often characterized by strong growth potential and technological approaches. Since such investments involve a high level of risk, investors expect a potentially high return. Investments in these companies are often made through venture capital funds. The investors in such funds are often private individuals (even successful entrepreneurs, such as Roland Brack), although large companies or asset managers can also provide money to the VCs.
Types of venture capital investments
Venture capital is divided into two types of investments:
- Direct involvement: The investor invests directly in a start-up, usually without the intermediary of a fund.
- Indirect participation: Here, the investment is made through investment funds, which are managed by venture capital companies. These funds can operate independently or be managed in a bundled venture capital company.
The process of venture capital investments
Venture capital investments typically begin with an investor's participation in the fund of a Venture capital company. The fund managers review potential companies and invest the capital step by step (in tranches) in selected start-ups. Instead of relying on repayment, investors receive shares in the company and thus Have a say. If successful, the investor can sell his shares at a later date (secondary) or convert them into shares during an IPO. To minimize risk, most fund managers rely on a diversification of investments, which means that the capital is distributed over several investments, with the majority of them being written off to zero. The duration of such investments is usually between five and ten years.
Advantages and disadvantages of venture capital investments
advantages:
- Know-how and experience: Investors contribute valuable knowledge and industry-specific experience, which contributes to company growth.
- Financial security: Venture capital provides a solid capital base that provides the start-up with the necessary liquidity and planning security.
- Network and attention: Investors promote important contacts and collaborations, which can also attract media attention to the start-up.
- Impact and return: Investors benefit from increases in value and long-term returns through their corporate investments.
Disadvantages:
- Loss of control: In return for capital, investors often get extensive say. For founders, this also means a certain transfer of control over business decisions.
- Risk of loss: Venture capital investments carry the risk of total loss, particularly if the company is unable to realize the planned increases in value.
Venture capital market in Switzerland
In Switzerland, the Venture capital market It has historically developed dynamically, but was slowed down in 2023. According to the Swiss Venture Capital Report 2024, around CHF 2.6 billion was invested in start-ups in 2023 — a decline of 35% compared to 2022.
The industries developed differently:
- ICT and fintech: down by over 60% to CHF 786 million
- Biotech: up 22% to CHF 492 million
- Medtech: increase of 41% to CHF 379 million (record figure)
- Cleantech: Leading with CHF 630 million
The following cantons were leaders in the region:
- Canton of Zurich: CHF 872 million
- Canton of Zug: CHF 457 million
- Canton of Vaud: CHF 444 million
- Canton of Basel-City: CHF 248 million
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