Campus - 26.09.2022 - 00:00
26 September 2022. In the first six months of 2022, Swiss start-ups received a total of 2.585bn in investments – an increase of almost 50 per cent in comparison with the first half of 2021. Thus, strong growth which has continued for the past ten years continued. Yet now this upward trend appears to be coming to a halt. The Swiss Venture Capital Report 2022 released in July shows that investments are expected to decrease in the next twelve months as a consequence of the uncertain global situation with the war in Ukraine, inflation, the fear of a recession and volatile capital markets. What does this expected decrease mean for start-up founders? One of HSG professor Dietmar Grichnik’s activities is the training of future and current inexperienced entrepreneurs with his Startup@HSG initiative. In the interview, he speaks about what recent developments mean for start-ups.
Dietmar Grichnik, how do you rate the results of the Venture Capital Report?
Of course, a downward trend has been noticeable, but the mood among risk capital investors is not as negative as the mood found in the financial market as a whole. After all, 40 per cent of investors indicate that they still feel positive. At the same time, it can be observed that in current investment rounds, start-ups are accorded a lower value. In view of the current economic situation, investors include a risk premium here, also in order to avoid down rounds, i.e. follow-up funding rounds at a lower valuation.
What do founders have to do in order to be able to survive in this more difficult environment?
It will now be even more important for start-ups to have a unique selling point and to communicate it well. This can be a particularly innovative solution, for example, or a big scaling potential in the business model.
What does this mean in concrete terms for the various industries?
Technology-based start-ups in the fields of food technology and biotechnology or blockchain, for instance, are likely to find things a bit more difficult. Because of medical and other studies, for example, their products take longer to develop and therefore have longer scaling cycles. Conversely, start-ups that focus on digital solutions may well find things easier, for their products can be scaled more quickly. Here, I’m thinking about financial products, ICT developments in general and also digital tools in the health sector. In the field of biotechnology, in particular, the predicted decrease in investments is also a consolidation. Corona was a shock which subsequently massively boosted government investments in pharmaceutical start-ups, for instance. In contrast, the cleantech industry, which is concerned with technological solutions to CO2 reduction and with sustainable energy supply, also gaining momentum.
Does this mean that current affairs have a strong impact on which start-ups risk capital are invested in?
There is a certain herd instinct, yes. Investors are watching what their competitors are doing and following suit. In addition, the swing towards cleantech is strongly influenced by the current energy crisis.
You train current and future founders at HSG. What strategies do you teach to enable them to stand their ground in the competition for investors’ monies?
Funding is a core element in our start-up training. We already prepare students who want to set up a company for this early on – although a start-up primarily takes time rather than money in its early stages, the start-up runway is an issue right from the word go and permanently preoccupies the notoriously impecunious founders. The funding issue has become more complex, but I consider our students to be well prepared for it. Many of them want to solve social problems with their business ideas rather than primarily making a profit. This means that they are profoundly convinced by their ideas, have often already invested a great deal of work in them and therefore have an ambitious vision as well. This is important for them to be able to communicate clearly with potential investors. And the founders’ stronger focus on aspects of sustainability is appreciated by the investors, who in the spirit of sustainable due diligence pay increasingly close attention to whether and how sustainability is integrated in a business model.
Image: Adobe Stock / Alex from the Rock
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