Big Corporations Have Made Switzerland the World’s Innovation Capital – Can it Become a Startup Hub Too?

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To say Switzerland has a reputation for innovation would be an understatement. Since 2008 it has ranked first on the Global Innovation Index eight of nine times. It also has the highest number of European patents per capita: in 2015 Swiss citizens made 873 applications per million people, followed by the Netherlands’ 419.

That innovation has come thanks to an open-arms attitude to major corporations, that have flocked thanks to Switzerland’s generous tax regimes and supply of highly-educated technicians. Over a thousand multinationals have regional or global headquarters in the country.

Google has its largest R&D center outside the US in Zurich, employing over 1,500 people. Companies with a hundred or more employees carry around 82% of R&D expenditure of Swiss ventures.

Switzerland’s pharmaceuticals industry, particularly, has flourished: Novartis, Hoffman-La Roche, Basilea Pharmaceutica and Actelion are among its biggest industry assets.

Food technology giant Bühler recently announced the creation of a $51.4m innovation campus in Uzwil, near the Swiss-German border. SpacePharma, an Israeli-Swiss venture, has even moved to innovate outside the earth’s atmosphere, researching the effects of microgravity on various experiments.

Until recently, though, Switzerland’s startups have struggled to compete with their neighbors across Europe. Most graduates seek jobs at large companies and hubs in Germany, France and other neighboring states have developed more established reputations as entrepreneurship hubs.

Switzerland did not rank among the top five VC exit countries, in this year’s Tech.eu European Tech Exits Report. According to a 2016 CB Insights report the country placed 20th in terms of tech exits.

Thing are changing–albeit slowly. Local firms are winning success on the global stage, capitalizing on a host of favorable local characteristics. SMEs have now found fans in the Swiss government, which is eyeing law changes and funding options to give its entrepreneurs a much-needed boost.

BestMile is one such example. The Lausanne-based firm was a finalist for the 2015 Swisscom Startup Challenge. Since then it has developed the world’s first cloud platform for the “operation and optimization of autonomous vehicle fleets.” In July 2016 the company won a $3.5m seed round from investors in Switzerland and abroad, followed by a $2m round this April comprised of multinationals Airbus Ventures, Partech Ventures and Serena Capital.

Transport tech is a natural target for Swiss entrepreneurs, BestMile’s corporate operations manager Maud Simon tells Red Herring. “Swiss transport is very reliable, so the transport industry is very valuable.”  Switzerland’s transport infrastructure isn’t just reliable, it’s outstanding: from Zurich International Airport, for example, it’s possible to be in the city center within 25 minutes of landing, at a cost of just $3.40. Tell that to Londoners.

According to Simon it’s part of a national trend towards innovation that grows from a historic lack of natural resources. The country is small–its 16,000 square miles makes it the 135th largest country on earth–and Swiss terrain is dominated by lakes and mountain ranges. Little wonder that instead of digging up its fortunes, Switzerland has carved out riches developing items like clocks, army knives and confectionary.

The country’s education system is exemplary. The majority of Swiss major higher education centers fall within the top 200 of the prestigious Shanghai rankings. The Swiss Federal Institute of Technology ETH is deemed the eighth best university in the world by QS.

Like its neighbor Germany, Switzerland places huge emphasis on vocational training. That makes it a prime target for public-private startup programs. Shopping data platform CodeCheck, based in Zurich, went through several of them. “There were coaching programs in Switzerland like CTI Startup and IFJ Startup that have helped us a lot as well as the cooperation with other start-ups from the ETH university environment,” says co-founder Roman Bleichenbacher.

Increasingly, Switzerland’s government is taking notice of startups. But as Raymond Cron, CEO of public foundation Switzerland Innovation has written, the country’s first priority is attracting established companies. “Seeing as the basic mission of Switzerland Innovation is to attract R&D investment into Switzerland, our focus is of course on the larger companies with significant investment capacity,” he says.

“In Switzerland, we differentiate between technoparks, which are purely startup focused and essentially infrastructure providers, and innovation parks which have a broader focus and provide services and partnership opportunities around the university ecosystems,” adds Cron. “That said, if you go to the Swiss Innovation Park you will find startups as well. They are very important for the ecosystem and have a catalytic effect as well.”

It has been left to the private sphere to advance the local startup scene. Groups like ImpactHUB Zurich and Digital Switzerland have helped birth a vibrant if modest ecosystem. Firms like Bexio, Ava, L.E.S.S, Faceshift and HouseTrip have begun to make headlines outside the country with high-tech solutions coming straight out of Swiss university programs. Fifteen of Red Herring’s Top 100 Europe 2017 finalists came from Switzerland, an all-time high.

Switzerland has a strong history of federal independence and direct democracy. That has translated to its cantons, or districts, competing for tech excellence with war chests its startups can access. The fact the country is divided across language boundaries–it speaks German, French and Italian–also helps create a culture of competition among regions, aided by liberal contract laws.

“You are not capped as a big corporations would be, because when you’re raising money you say your value is $18m but it’s not what the company has,” says Simon. “So they know, and you can discuss and base a value on the market, not just the numbers.”

But there is plenty to be done. Everybody spoken to for this article complained that wage and rent costs are far too high for young firms to compete with their multinational neighbors. A political lurch to the right is unlikely to make the hiring of foreign talent any easier. “Recent immigration laws have made the search for talent harder as well,” says Christian Langenegger, a consultant at Swiss Approach. “If I could change one thing, it would be to re-liberalize immigration for talent.”

As Switzerland is not a member of the European Union, hiring from other nations requires a work permit. Hiring outside Europe is even trickier. “You have to prove you couldn’t find anyone in Switzerland, or Europe,” says Simon. “You have to make a case.” The country has a quota of such permits it can reach per year. Once the quota is full, nobody can come in. There are no exceptions for startups.

Like many European nations Switzerland’s startups can expect a venture capital shortfall. The local scene is too “cliquey,” says Langenegger. “It is very small and if you don’t appeal to a major funder you most likely won’t appeal to any. There is an over emphasis on co-operation as well, which means that challengers to previously funded startups are shunned by the startup community and their investors.”

These are considerable setbacks. But between Switzerland’s talented tech professionals, its wealthy economy and high innovation, expect to see far more Swiss startups making news on either side of the Atlantic soon. After all, local entrepreneurs are building on centuries of innovation success, and a reputation for punctuality, efficiency and reliability.

As Simon puts it, “It’s always an asset being a Swiss company.”