You’ve spent almost your entire career in corporate banking, now you’ve joined Verve Ventures as a board member. How different are these two worlds?
When banks give loans to companies they look at the financial statements of the past. They rely on models to assess the creditworthiness and debt capacity, but to be honest, these models are not very balanced, because they fail to take the future into account. Financing a startup with equity is a completely different process because they have new ideas that are without precedent. There are no useful models to assess the probability of a startup’s success. You have to check if the plans the startups have are plausible and if the founders are able to implement them.

ZKB has started to finance startups more than 15 years ago. How did that happen?
We gained the first experience with direct investments in the late 1990ies, out of which the concept of the ZKB Pionier program arose. We learned that it is important to have a big funnel of investment opportunities, and we decided to invest in a large number of startups but with rather small sums capped at CHF 500’000. And we realized that taking board seats would bind to many of our resources and that we should rather concentrate on deal sourcing. Since then, we have already invested in more than CHF 125 million in more than 200 startups.

As you mentioned before, startup financing is quite different from traditional corporate banking. How well can these two worlds be reconciled in a large bank?
First of all, the top management of the bank was committed to this field, which is a prerequisite. The performance mandate of ZKB also stipulates that our mission is to advance commerce, industry, and innovation in the Canton of Zurich. But it is still evident that startup finance always has been and always will be an exotic topic inside a bank, and the people working there are not typical standard bankers. They must more be courageous and take risks, while a typical banker is very prudent.

What is the biggest challenge of running such a program?
Like every other startup investor we look at a lot of companies but finance only a few of them. But ZKB isn’t just a venture capitalist, it’s a bank that belongs to the Canton. This makes it especially delicate to say “No” and makes it very important to do so in a very considerate way. The founders that apply for financing want to realize their dream. But we can’t just hand out money, we have to be selective. This is why we try to show our appreciation of the things they have accomplished even if we can’t finance them.

What are the most important aspects when looking at a startup?
Management, management, and management. What you want to see are signs of entrepreneurial instinct, persistence, and high levels of motivation to execute on the plans. It’s not enough to be a brilliant scientist, you need the ability to build a balanced team that shares your vision. If too much authority is concentrated in one person, this often creates problems. We see the same dynamics at play in succession planning when dominant owners of a company become a liability because they refuse to let go and make themselves irreplaceable. Judging these soft factors is a skill that develops with experience.

Speaking of the ability to select the right startup teams: How much success has the startup-finance program “Pionier” had so far?
The startups we’ve financed have created more than 1200 new jobs, many of them highly specialized. Our investment universe is very broad, but when it comes to fintech investments, its fair to say that there is a gain of knowledge for the bank, even if this is hard to quantify. From a purely financial perspective, it was clear from the start that many startups will fail and just a few become a big success. For the moment, it’s looking not too bad at all. But a startup portfolio takes a lot of time to mature.

In 2020, you joined Verve Ventures board of directors. How different is what Verve Ventures does from what ZKB does in the field of startups?
We’ve worked two decades to refine a way how to build a big funnel of startups and how to invest in the most promising of them. Verve Ventures is doing this on an even larger scale and more digital, it has refined the handmade approach of startup investing to the point of making it truly scalable. Verve Ventures has also built a large network of intelligent investors that don’t want to just invest with the herd, they represent a decentralized intelligence. And there a quite a few eccentric individuals among Verve Ventures team of more than 43 professionals that would probably not fit the culture of a bank. Looking in the future, I’m convinced that Verve Ventures is on a clear growth trajectory and will be able to bring startup investing to an even larger audience than now, creating value for all parties involved.

But aren’t private markets a niche topic in the larger investment world?
As long as the interest rates are what they are, there is a very large appetite for alternative sources of return. Who still wants to invest in the bonds of ailing states in these times? The attractiveness of the returns that venture capital can achieve is very high, which has driven the interest in this topic. And I support the drive to relax the rules by which pension funds have to invest, which are much too rigid for this environment. In Switzerland alone, there is more than CHF 1000 billion entrusted to pension funds, but the amount of it invested in venture capital is next to nothing. This needs to change, but we also need a much broader offering on the product side that allows the pension funds to invest. I’m confident that this will change.