On average, Swiss venture capital (VC) funds allocate 30% of their capital to Swiss startups, indicating that the majority of their investments are still directed abroad, according to new research by the University of Basel, Swiss Private Equity and Corporate Finance Association (SECA), and Deep Tech Nation Switzerland.

The US is currently the largest recipient, attracting 31% of Swiss VC capital, while Germany and the UK receive smaller shares of 15% and 6%, respectively.

Despite this, the figure represents an improvement from previous years. Between 2014 and 2023, only 19% of the total capital invested by Swiss VC remained in Switzerland, with 37% of funds going to US startups and 9% each to startups in the UK and Germany, according a Startupticker.ch report.

This overseas bias reflects a long-standing structural trend. Switzerland has a small domestic market with a limited number of startups that can scale to very large outcomes, prompting investors to deploy capital in larger markets that offer deeper pools of high-growth companies and more repeat founders.

Furthermore, exit opportunities tend to be more attractive abroad, as Switzerland has relatively few technology initial public offerings (IPOs) and a smaller venture-driven M&A market compared to the likes of the US and the UK. These environments provide clearer and larger exit paths, which are critical for VC fund performance.

Finally, many founders with Swiss backgrounds move abroad to scale their companies or incorporate in countries like the US or UK. Swiss VC funds often continue to back these teams even though these companies are no longer based in Switzerland.

Swiss VC funds targets and performance

The report by the University of Basel, Swiss Private Equity and Corporate Finance Association (SECA), and Deep Tech Nation Switzerland analyzed cashflow data from 18 leading Swiss VC firms managing more than 40 funds with over CHF 3.5 billion in committed capital. It examines the performance of these funds, their returns, and their investment focus.

Results show that the median Swiss VC fund manages a portfolio of around 17 companies, with an average investment of CHF 2.7 million per company.

Sectoral priorities are information and communications technology (ICT), including fintech, and healthtech, which accounts for 35% of deployed capital by Swiss VCs, making it the top sector, followed by cleantech and energy at 29%, and medtech and diagnostics at 19%.

The research also assessed fund performance relative to the European Venture Capital Benchmark maintained by the European Investment Fund (EIF) and BlackRock. It found that overall, Swiss VC funds perform on part with the European Benchmark.

More notably, Swiss funds with vintage years between 2020 and 2024 outperformed the European Benchmark on both the internal rate of return (IRR) and the total value to paid-in capital (TVPI) measures. IRR is a financial metric used to evaluate the profitability of an investment or project. This metric stands at 12% for Swiss funds versus 2% for the European Benchmark.

TVPI measures the total value generated by an investment relative to the capital invested. This metric stands at 1.3x for Swiss VCs versus 1.1x for the EIF Benchmark.

Swiss VC funds outlook

Despite some challenges, Switzerland maintains a vibrant VC landscape, with about 50 funds available for investment in 2024, according to the Swiss Venture Capital Report by Startupticker.ch.

Sentiment among investors, however, remains mixed. A survey of about 100 investor companies revealed that nearly half (49%) of participants expect fundraising conditions to deteriorate further over the next 12 months, up significantly from 27% a year earlier. At the same time, an equally large share anticipates improvement, an encouraging sign for investors planning to return to the fundraising market in the near term.

Findings further points to cautious optimism regarding investment opportunities. Around 88% of respondents expect more investment opportunities over the next 12 months, higher than 86% in 2024, while 72% anticipate an increase in new investments.

Featured image credit: Edited by Fintech News Switzerland, based on image by Thiago de Andrade via Unsplash