Switzerland is home to several tech startup hubs that each has their speciality. Among these tech hubs, Zurich is recognized as the country’s fintech hub owing to the canton’s proximity to financial institutions, a new report published by UBS/Credit Suisse says.
The report, titled “Founders and investors: One aim, two perspectives”, draws on a survey of Swiss startups conducted by Switzerland-based non-profit association the Swiss ICT Investor Club (SICTIC) to shed light on various aspects of the Swiss startup landscape.
According to the study, Zurich is both the country’s biggest startup center and leading fintech hub. In 2022, Zurich secured the highest amount of venture capital (VC) investment, with CHF 2.1 million raised by tech startups located in the canton. The amount represents more than half of Switzerland’s total investment volume that year. Of that sum, CHF 500 million went to fintech startups, the largest amount among all cantons, showcasing Zurich’s leadership in the fintech sector.
Zug is another prominent fintech hub highlighted in the report. In 2022, tech startups located in Zug raised about CHF 250 million in VC funding, making it the second biggest recipient of fintech investment that year. The canton is widely known as the “Crypto Valley”, owing to the high number of startups specializing in blockchain technology and cryptocurrencies located in the canton, including prominent names in the space such as the Ethereum Foundation, Amina Bank, formerly known as SEBA Bank, and Bitcoin Suisse.
Invested capital by canton and year, in CHF million, Source: Founders and investors: One aim, two perspectives, SICTIC/Credit Suisse UBS Group, Feb 2024
Findings from the Credit Suisse and SICTIC study corroborate with other industry research. The last year’s iteration of the IFZ Fintech Study, released in March 2023, reveals that Zurich was the largest canton in Switzerland in terms of the number of resident fintech companies, with a total of 164, followed by Zug with 123 companies.
The IFZ report also highlights that Zurich is not only the leading fintech hub in Switzerland, but also a prominent global fintech hub, ranking second worldwide after Singapore for seven years in a row. Among Zurich’s biggest strengths, the study highlights the canton’s favorable political and legal landscape, advantageous social attributes, and advanced technological infrastructure.
Fintech hub ranking by year, Source: IFZ Fintech Study 2023, IFZ, Mar 2023
A focus on international expansion
Besides its highlight of the dominance of Zurich, the Credit Suisse and SICTIC report also shares findings of a study conducted among Swiss startups and investors to understand the market’s biggest opportunities and issues.
Results of the study reveal that while Switzerland is globally recognized for its exceptional universities and highly educated workforce, local startups are facing challenges in gaining international recognition due to limited visibility and funding within the country. This finding highlights that with a population of just nine million, the local market is just too smart for startups to thrive, forcing young Swiss tech ventures to focus on international expansion early on in their journey.
Of the 100 startup founders surveyed in July 2023, 88% said they were already operating internationally. Even at the pre-seed and seed stages, approximately 78% of Swiss startups indicated being engaged with foreign stakeholders across various levels.
The survey results also shed light on the diverse nature of these international links. Around 72% of the surveyed startups indicated selling products or services abroad, while 60% said they were involved with foreign investors and/or foreign suppliers.
Internationalization ambitions of Swiss startups, Source: Founders and investors: One aim, two perspectives, SICTIC/Credit Suisse UBS Group, Feb 2024
Results also reveal intentions to expand further in the future, with a vast majority of respondents (95%) stating that they were looking to extend their global footprint. Among them, approximately 58% already had specific plans in place, while 37% had yet to develop specific strategies.
An analysis of the current internationalization status showed that almost all startups operating internationally had either concrete or reasonably well-defined plans to further expand abroad in the future. Among the startups not yet operating internationally, about 75% said they aspired to expand internationally.
When asked about the countries they aimed to target in the future, Swiss startup founders named the US, Germany, the UK and France as their preferred destinations. These results suggest that expansion efforts typically occur in a gradual manner, starting with neighboring countries and then progressively reaching other destinations further away. Moreover, the market entry into the US and the UK stand out as significant touchpoints, as both countries are recognized as essential startup hubs for scaleups, the report says.
Future internationalization plans, Source: Founders and investors: One aim, two perspectives, SICTIC/Credit Suisse UBS Group, Feb 2024
Business opportunities, access to investors, talent acquisition among top motives for internationalization
Motivations for internationalization are numerous and varied. A striking nine out of ten Swiss startups cited the desire to open up new sales markets abroad as one of their motivations to expand overseas, a result that comes as little surprise considering the small size of the Swiss market. Better access to foreign investors and the expansion of existing networks were other prominent motivations driving internationalization efforts, cited by about 40% of the surveyed startups. Finally, regulatory inefficiencies ranked third, cited by 20% of the respondents as a reason to expand abroad.
Main motives for Swiss startups to operate internationally, Source: Founders and investors: One aim, two perspectives, SICTIC/Credit Suisse UBS Group, Feb 2024
Access to well-educated workers was named as another motive behind global expansion. This is most relevant to startups in the growth and expansion phases facing labor shortages domestically.
A survey of 65,000 companies in the secondary and tertiary sectors conducted by the Swiss Federal Statistical Office found that recruitment difficulties for Swiss companies are fluctuating over time. Before the COVID-19 pandemic, around 32% of Swiss companies struggled to find skilled workers, but this dropped to 28% in Q1 2020 due to increased unemployment. However, by Q2 2022, the indicator reached its highest level, with approximately 41% of companies reporting difficulties finding qualified workers or not finding anyone at all, a trend that was particularly pronounced in manufacturing and information and communications technology (ICT).
Recruitment difficulties among Swiss tech startups, Source: Founders and investors: One aim, two perspectives, SICTIC/Credit Suisse UBS Group, Feb 2024
A deep dive into the Swiss startup ecosystem reveals a widespread shortage of skilled workers among young tech ventures. 46% of the Swiss startup founders polled by Credit Suisse said that it was hard to fill vacancies with suitable candidates.
An analysis of different startup stages reveal that labor market challenges are more pronounced for those in more advanced stages. 55% of startups in the growth and expansion phase reported difficulties to recruit qualified employees. In comparison, that rate stood at 39% for startups in the pre-seed and seed stages.
Recruitment difficulties according to development stages, Source: Founders and investors: One aim, two perspectives, SICTIC/Credit Suisse UBS Group, Feb 2024
Featured image credit: Edited from Unsplash