A few words in advance

Financing is one of the central building blocks of every business start-up and plays a decisive role in the survival and growth of start-ups and young companies. Especially in Switzerland, which is known for its stable economic conditions, there are a variety of financing options and channels that company founders should be aware of. Below we highlight the most important points you should consider when financing your company in Zurich or the rest of Switzerland.

First, however, we would like to draw your attention to the "Business plan" section if you have not yet looked at it. A well-structured, well-considered business plan is an important basis for decision-making for potential investors. It is particularly important that the capital requirements are realistically estimated and that targets and milestones are defined. Equally convincing is good cost management and clear cash flow forecasts. If you still need inspiration, take a look at "Business plan".

 

The different types of financing

Weighing up equity and debt capital

Financing can essentially be divided into two main categories: equity and debt capital.

• Equity capitalThis is the money that you or your investors contribute to the company. The advantage of equity financing is that you do not have to make regular payments - as in the case of debt financing. If you are able to pay in the equity yourself, you also retain maximum control over your company. However, if this capital comes from investors, they will receive a certain share of your company in return and therefore also have a say. However, they usually also bring experience and industry connections to the company. The individual structures of an investment naturally vary. Investors in this area are usually so-called venture capital companies, which specialize in investments in early-stage companies or start-ups.

• Debt capitalDebt capital comprises credits and loans granted by banks, state institutions or private investors. However, this capital must be repaid in regular installments, often with interest. In Switzerland, numerous banks and development institutions offer special programs for start-ups (e.g. the Zurich Cantonal Bank or the Swiss development bank (SIF)).

For young entrepreneurs and start-ups in Switzerland, especially in the economically dynamic Zurich area, there are various types of financing. Each has its own advantages and disadvantages and the choice of the right source of financing depends on the stage of the company, the capital requirements and the willingness to take risks. The most important types of financing are equity, debt and alternative financing methods. Many start-ups rely on a mix of both forms of financingto both promote growth and minimize the debt burden.

In the following, we take a detailed look at three key forms of financing: seed financing (private equity), start-up loans and start-up competitions.

 

Equity

Seed Financing (private equity)

Seed financing is an early financing round in which companies receive capital to develop their business idea and take the first steps. In return, they often sell company shares to investors. As a rule, this capital comes from so-called business angels, venture capitalists (VCs) or specialized seed finance investors.

Note that this type of company profits from your company in two ways, to put it simply. Either the investor seeks an initial public offering (IPO) so that shares in your company can be bought publicly, or the investor sells their stake, of which there are various options. Ultimately, however, the investor's goal is the same: to increase the valuation of your company as much as possible.

When talking to potential investors, you should therefore make sure that you find out as much as possible about the people who will influence the decisions in your company. There are many great articles on the internet about possible questions you can ask.

Seed Financing in Switzerland and Zurich

As one of Europe's most important financial centers, Zurich is also a strong location for venture capital and start-up investments. Investors here are specifically looking for innovative ideas, particularly in the areas of fintech, life sciences and technology. Seed financing is a popular method of supporting start-ups with high growth potential in the early stages of development.

Some of the best known venture capital companies based in or around Zurich that support start-ups are Redalpine Venture Partners, Swisscom Ventures and Invest. Also business angels such as the "Swiss ICT Investor Club" (SICTIC) also offer valuable support for young companies.

Requirements and procedure

In order to receive seed funding, a start-up usually needs:

• A clear and convincing business plan
• A scalable business model
• A motivated and competent founding team
• A minimum viable product (MVP) or at least a concrete concept

Seed investors are prepared to take risks, but demand high returns or shares in the company in return. In many cases, seed investors offer not only capital, but also networks and mentoring.

Advantages of seed financing

• Enables rapid growth and the development of prototypes or initial products.
• Investors often offer additional support in the form of know-how and networks.
• Enables the company to grow without taking on debt.

Disadvantages of seed financing

• The sale of company shares leads to a dilution of the ownership structure. If you had previously received 100% of the proceeds from the sale of your company, your share will be reduced in accordance with your agreements.
• Investors often expect a high return and want to be actively involved in the company's decisions.
• Since maximizing the value of your company is usually the top priority for investors, your expectations may differ.
• It can be difficult to find seed investors as they have high requirements for business potential.

Seed Financing in Zurich: Success stories

A prominent example of seed financing in Zurich is GetYourGuidean online booking platform for travel activities, which was founded in Zurich in 2009. The company received several seed investments and quickly grew into a global player.

 

Debt capital: Start-up loans

Start-up loans are loans that have been specially developed for young entrepreneurs. In contrast to seed financing, the company remains entirely in the hands of the founder, as no equity is provided. In Switzerland, and especially in Zurich, there are a large number of banks and public institutions that offer start-up loans. Note that lenders are not necessarily interested in maximizing your company's valuation, as this usually involves high risks and investments. Instead, lenders focus on a clean cash flow forecast, which includes interest and capital repayments that are as secure as possible.

Start-up loans in Switzerland and Zurich

One of the best places to go for start-up loans in Zurich is the Zürcher Kantonalbank (ZKB)which is considered a strong development bank for start-ups and young companies. It offers various financing options, including specially tailored start-up loans. The Credit Suisse and UBS also have programs to support start-ups. At a national level, the Swiss development bank (SIF) also plays an important role in supporting founders.

Guarantee cooperatives like BG Mitte or BG OST-Süd also offer founders the opportunity to obtain collateral for their loans that would otherwise be difficult to obtain. It is best to compare several providers to find the most favorable conditions for you.

Requirements for a start-up loan

The requirements vary depending on the bank, but the following points are generally of great importance:

• Solid business planA clear plan outlining capital requirements, use of funds and sales forecasts.
• CollateralThese can be equity, guarantees or personal liability.
• CreditworthinessSufficient creditworthiness of the founder or the shareholders.
• Capital requirementsThe start-up loan is usually requested for specific investments, such as the purchase of machinery, software or the hiring of staff.

Advantages of start-up loans

• You retain complete control over your company, as no shares have to be sold.
• Favorable interest rates, especially with state-subsidized loans or with cantonal banks.
• Start-up loans can be available quickly, provided the necessary collateral is available.

Disadvantages of start-up loans

• Depending on the type of company chosen, there is a risk of personal liability if the company gets into difficulties and is unable to repay the loan.
• Repayment can be a financial burden, especially in the early stages of the business when profits are not yet being made.
• Many start-up loans require collateral, which is particularly difficult for young founders to provide.
• There may be contractual restrictions, for example with regard to taking out further loans.

Examples of start-up loans in Zurich

The Zurich Cantonal Bank offers a Startup Finance Programwhich is aimed specifically at young, innovative companies. The Business Angels Club and SEF4KMU also offer start-up financing and support.

 

Start-up competitions

Start-up competitions offer not only financial support, but also access to valuable networks and mentoring programs. These competitions are widespread in Switzerland, particularly in Zurich, and aim to promote innovative business ideas and support young entrepreneurs.

Zurich, for example, is home to many important start-up competitions where start-ups can win prize money, investment and mentoring. Some of the best-known competitions are:

1. ZKB Pioneer PrizeZürcher Kantonalbank awards an annual prize for innovative young companies. In addition to prize money of CHF 100,000, the winners receive support and access to networks.
2. Venture KickThis competition, known throughout Switzerland, offers start-ups the opportunity to win prize money of up to CHF 150,000 in several rounds. Venture Kick has already supported many Zurich start-ups.
3. Swiss Economic AwardThis prestigious award is aimed at young companies throughout Switzerland. In addition to financial support, it offers comprehensive mediation and mentoring.

Advantages of start-up competitions

• Financial supportStart-up competitions often offer prize money that can be used as equity or working capital without the need for investors or loans.
• Networks and visibilityParticipation in prestigious competitions provides access to potential investors, partners and customers.
• MentoringMany competitions offer not only money, but also support from experienced entrepreneurs and experts.

Disadvantages of start-up competitions

• High competitionAs the competitions are open to many start-ups, it can be difficult to prevail against the competition.
• Time consumingApplying for a competition often requires a lot of time and effort to prepare presentations and documentation. Note, however, that this preparation is just as necessary for investors.
• IrregularityNot all competitions take place on a regular basis and it is not always certain that you will win a competition.

Examples of successful start-ups from competitions

A well-known example of the success of a start-up that has emerged from competitions is Climeworksa Zurich-based company that develops CO2 capture technologies. Climeworks won several competitions and was thus able to quickly bring its innovative technology to market maturity.

 

Tips and tricks

Choosing the right source of funding and successfully raising capital can make the difference between success and failure for a start-up. Here are some practical tips:

1. Optimize your business planA well-thought-out business plan is the key to convincing investors or banks. Focus on clear figures, comprehensible market research and a scalable business model.
2. Use networksThe Swiss start-up scene, especially in Zurich, offers a variety of events, meet-ups and networking events where you can get to know investors. Use platforms such as Swiss Startup Factory, Venture Kick or SEF4KMU.
3. Using support programs and advisory services: In Switzerland, there are numerous government state support programs and start-up initiativesthat are specifically geared towards young companies and start-ups.

Even if there is no such thing as perfect financing, don't be tempted to make rash decisions! Compare several providers, ask critical questions and find out about the experiences of other founders.