There’s an apocryphal ancient Chinese curse –
May you live in interesting times
It implies that interesting times disrupt the rhythm of life, bringing hardship and difficulty.
It would be a considerable understatement to say that the past eight years since the financial crisis began have been interesting for the financial services sector – and they have certainly been hard and difficult. But out of this are emerging some incredible opportunities to change the way things are done; life really is about to get interesting in a good way for financial services and in the financial technology sector in particular.
Fusion, Switzerland’s first fintech start-up accelerator which was set up by venture capital company Polytech Ventures in February this year, has just completed its first selection process. From a field of more than 100 applicants, we have chosen 10 of the best ideas from across the world to move to Geneva for 12 months. They will be coached, mentored and supported by some of the world’s finest academics, bankers, IT professionals, entrepreneurs and businessmen.
The sheer size of the field amazed us – we were hoping for 50 applicants in our first year – and the standard was truly incredible, reinforcing our view that there are some fantastic ideas out there to address issues facing the financial services sector.
It also makes it clear that what we are offering is highly valued by the start-up community. Fusion is different from other accelerators. Rather than the typical 1-3 months’ support to help refine the start-ups’ business models and prepare a pitch for investors, we introduce them to companies in their field for marketing, software development, and legal and help them find routes to market. In return, we don’t charge a fee nor do we take an equity stake, rather we levy a commission on any funding they receive during a 24-month period. Finally, we are offering and encourage a collaborative approach with our partners and other participants in the incubator, anchored in our belief that fintech is a movement to complement and enrich the existing industry. We believe our model will deliver a substantially higher chance of success than the usual incubator as we offer a far longer, deeper and more rigorous preparation for market.
Start-ups fail not because they don’t have good products, but because they lack core business skills to overcome the barriers to entry. They have great ideas, but lack sales and marketing, management or sales support skills. We will help with all that and refine their go-to-market plan.
Our corporate members, who act as mentors, are drawn from right across financial services including banking, wealth management, insurance and commodity trading. We have academic partnerships with some of the world’s top engineering schools and research institutes, and venture capital support to syndicate funding.
What’s needed now is support from the Swiss authorities. One of the conditions for entering the incubator is that the company moves to Switzerland. While Switzerland is undoubtedly beautiful, well connected, centrally located and full of financial sector expertise, it is also expensive and most entrants need visas. While we have selected companies from Switzerland, we have also invited companies from the UK, Poland, Romania, China, the Netherlands, Singapore and Argentina to participate in our programme.
Other countries such as the UK have realised the importance of encouraging innovative start-ups and offer tax breaks, help with visas, accommodation, public relations and even easy relocation finance. Similar assistance in Switzerland would be a huge benefit, not only for the start-ups but for the country itself, which is having to reinvent itself as a financial centre after losing its banking USP of secrecy.
Banking remains a key sector for the Swiss economy, contributing 10.5% to Swiss GDP, compared with 6.8% for the UK. It employs 5.8% of the workforce. But the sector is undoubtedly under threat and the government needs to look for ways to reinvigorate it. Creating a successful fintech hub that distinguishes itself from others in the world would go a long way towards that.
There has already been success with medtech, which last year contributed more in terms of GDP to the Swiss economy than in any other country – 2.3% of GDP or SWFr14bn, according to Medical-cluster.com and SMTI. Similar attention to the fintech sector would see it develop into an equally important sector, particularly if it encourages focus in areas where the Swiss already lead the world: commodities, wealth management, insurance, unstructured data and core banking.
We would also like to see the government encourage a more vibrant venture capital environment that embraces a collaborative approach. Switzerland has lots of available finance, but rarely does it make its way to the start-up community. If the government were to force Swiss pension funds to invest just a tiny proportion of their wealth in venture capital we would see a huge boost. A 2% switch would see $16bn made available for VC investment.
Such assistance would help develop a distinct ecosystem where start-ups thrive. As experience grows and more knowledge is acquired, more start-ups will arrive, expanding experience and knowledge, creating a virtuous circle.
Investing in fintech now is a hedge against the future. The current Swiss banking model is in decline despite being a world centre and having leading academics and research. Concentrating on developing fintech excellence would create a whole new industry for the country based on what it already excels at.
We are really excited about Fusion and the futures of the 10 companies in our first intake.
The next year will be hugely interesting – and in a good, positive way.