With Swisscanto’s new growth fund, the Swiss Startup ecosystem will get a large capital injection.

investiere is ZKB’s trusted venture partner. We spoke to Andreas Nicoli, Head Private Equity, about the large interest the fund received from institutional investors.

Swisscanto Invest has just launched a growth fund that will invest mainly in Swiss startups. What is the rationale behind this launch?
We are responding to an increased demand from clients that want to invest in private markets. This is why, at the beginning of 2018, we created a private market initiative in our bank that comprises private debt, private infrastructure and private equity. I am responsible for the private equity team and the fund is an outcome of this initiative.

Why do institutional investors want to invest in private equity?
They are looking for returns and diversification. The search for yield has intensified over the years because returns have been subdued in the fixed income space.

Swiss pension funds have mostly shied away from investments in non-listed equity so far. What was the reason for that?
Compared to listed equities, this space is characterized by an asymmetry of information, and many pension funds lack the size and know-how to build the structures necessary to invest directly. These concerns can be reduced by a transparent fund construct, that invests directly in startups, not in other funds, and coming from a reputable domicile and provider like us. The large interest in our fund underlines this. We have raised commitments of CHF 150 million in three months and will raise a maximum of another CHF 50 million in a second closing until May 2019.

In what kind of startups do you plan to invest?
Since it is a growth fund, we will finance startups that want to accelerate the commercialisation of their products, enlarge their product portfolio or internationalize their offering. We plan to do 20 to 25 investments over four to five years, with initial investments of around CHF 3 to 5 million. We will participate in later funding rounds of successful startups up to a maximal sum of CHF 30 million per company and aim to be a reliable financing partner for the best startups. We will aim for significant participations of between 10% and 40% in a startup and a board seat or at least an observer seat in order to support the companies in their value creation plans

What do you bring to the table beyond the investment?
This will be driven mainly by our two investment directors who will bring considerable experience in this field and a large professional network with them to help companies grow their business.

Can you tell me more about the background of your investment directors?
Nils Granath, who will lead ICT investments, has more than 25 years of experience in the IT industry as investor, founder and manager, and has already accompanied more than 20 growth firms on their journey. Dr. Robert Schier has a PhD in Biotech and more than 20 years of experience in Life Sciences and has been on the board of more than 20 private companies. Taken together, they have already invested CHF 250 million in 40 growth firms.

Are there sectors the fund will not invest in?
In all that we do, we adhere to the socially responsible investing criteria. Therefore, we exclude investments such as the producers of weapons and polluting industries. Other than that, we don’t exclude sectors explicitly.

Who committed capital to the fund so far?
It is open to qualified investors and we have a diverse investor base, ranging from wealthy individuals, family offices to pension funds. ZKB committed itself to the tune of CHF 30 millions, so we have considerable skin in the game.

What is the cost structure of the fund?
We have a flat-rate administrative commission of 1.9% over the first five years. Thereafter the fee steps down significantly.

How do you assess the value of the holdings in the fund?
We will do a quarterly valuation based on rules of procedure approved by Finma, the Swiss regulator. There are different methods that are appropriate for different stages of the life cycle of a company, like market and transaction comparables sales multiples or Discounted Cash Flow method. Our valuations will be audited once per year.

Can you talk about the first few planned investments?
We have already identified several targets but it is still too early to announce them.

If the second closing is successful, the fund will have CHF 200 million at its disposition. Is it even possible to invest that much in Switzerland?
We will deploy the sum over a time frame of four to five years, and we see a high quality deal flow already. With our “ZKB Pionier” program we are already close to the startup scene. We also work together with investiere, which complements our capabilities, so we can count on their large network, knowhow and dealflow as well. In addition, our investment managers have their own network. These three pillars of deal flow make us confident that we can deploy fund in a successful and timely manner.