Swiss Fintech Made a Big Step Forward Last Week
Last week I went to see the unveiling of the SIX F10 Fintech Incubator and the inaugural Swiss Fintech pitch event, both in Zurich.
Both would have been routine in London, but are newsworthy in Zurich. This feels like the sort of activity that one saw in London a few years ago. This is early days for Fintech in Switzerland, but the key ingredients are in place for an ecosystem to take off.
As Paul Graham of Y Combinator famously said,
“You only need two kinds of people to create a technology hub: rich people and nerds. They’re the limiting reagents in the reaction that produces startups, because they’re the only ones present when startups get started. Everyone else will move.”
Switzerland has lots of nerds and rich people thanks to:
- Great educational establishments creating a pool of developers/engineers/inventors/quants. In short – lots of nerds.
- A thriving Financial Services business. Zurich is # 6 on the Global Financial Center (GFC) and Geneva is # 13. In short – lots of rich people. The reason that Fintech is where the nerds and rich people should connect is that the rich people who made their money in financial services will understand a Fintech pitch.
The SIX F10 Incubator is noteworthy for two reasons:
- SIX call it an Incubator rather than the more trendy term Accelerator. This is accepting that the need is to fund the earliest stage of a venture. Plenty of investors are ready to fund a venture once it reaches Product Market Fit (PMF). Post PMF, Supply (of capital) exceeds Demand. Pre PMF, it is the other way around. Given how cheap it is to create a Minimum Viable Product (MVP) today it makes sense to fund the early stage with lots of little bets that can produce a small number of winners.
- SIX has a far bigger functional footprint than is normal. SIX has 4 divisions that are usually independent companies in other markets such as America:
– Payments
– Stock Exchange
– Securities Data provider (the old Telekurs business).
– Post Trade Services (including Clearing and Custody).
This is like combining Visa and NYSE and Reuters and DTCC and State Street into one company.
Whether this is an advantage (integration) or a disadvantage (focus) is an open question. What is surely true is that this bigger footprint will be an advantage for ventures in their Incubator. The SIX F10 Incubator should be able to offer a greater depth and breadth of expertise as well as the data and test environment that early stage ventures need before getting their product to market.
The Swiss Fintech pitch event was remarkable because this was a highly professional event that was created by volunteers (with some cash from Sponsors). I have noticed in a village in the Alps (dependent on tourism) how much activity is created almost entirely by volunteer energy. This is the same spirit that has created so much value in open source (which I can relate to because Daily Fintech is an open source research site monetized through Daily Fintech Advisers).
These were the ventures at the Swiss Fintech pitch event:
Working capital finance
Online Insurance broker for Swiss market
Real estate crowdfunding
Alternative assets access
Angel Investing crowdfunding
Smart securities on Blockchain
Mobile E-commerce connecting clicks and bricks
Data analytics for compliant marketing
Structured securities products
Comparison site for Remittances
We will cover these as part of our research in different domains (Investing, Insurance. business banking, consumer banking). For now I want to focus on 2 themes:
– The absence of investors in the room. Hopefully that will change. If not, both Swiss investors and Swiss entrepreneurs will continue to fly to London in order to meet. The nerds and rich people should be connecting in Switzerland. I think this will only change once we see some exits from the current batch of startups or at least a big funding round that demonstrates a big step in valuation. Yes, that is a chicken and egg problem!
– The debate about how Swiss to be. Some great Swiss Fintech ventures from an earlier generation such as Temenos and Avoloq were in the room. They built before venture capital was so plentiful. Times are different now. Now that we have billions of people with mobile phones, ventures that get traction scale at an incredible speed. Patient execution to get to Product Market Fit is followed by intense and rapid scaling. If you don’t scale at that speed, another venture from elsewhere will do that and your early success becomes a footnote in history. That needs large pools of risk capital.
The Swissness debate has three aspects. The easiest one is capital. This is easy because capital is mobile and will follow success.
The second is talent location. This part is also relatively easy. Switzerland is expensive, so the team has to be global from day one with nearshore, offshore and close to market teams ready to kick in during the scale phase. That is pretty much accepted.
The third aspect is harder. It is risk aversion. This relates to the lack of early stage investors. In Silicon Valley most rich people became rich backing early stage ventures. The risk aversion of Swiss investors will change when they see some exits or big funding rounds. The risk aversion that is much harder to change is the risk aversion of Swiss consumers who are risk averse for a lovely reason – most things work pretty well in Switzerland (so there is little reason to take a risk on change).
So I think the success stories will come from global plays, specifically global plays that leverage Switzerland’s strength as a global Wealth Management center. Fintech ventures seeking expertise, partners, distribution and clients have plenty of choice in the Wealth Management space. If that combines with the kind of jurisdictional advantages that made Xapo and Ethereum choose Switzerland, one can envisage Fintech in Switzerland taking off like the proverbial rocket.
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