SWITZERLAND Law and Practice Contributed by: Marco Toni, Gilles Pitschen, Leonard Baumann and Lara Pafumi, Loyens & Loeff
flexibility in terms of capital-raising features. While founders often prefer incorporating a limited liability company rather than a corporation, it should be noted that this legal form is usually acceptable at an early stage (family, friends and fools) but that it is market practice to convert a limited liability company into a corporation prior to (or in the context of) a financing round with independent investors. 2.3 Early-Stage Financing As professional investors such as venture capital- ists usually expect a strong equity story backed by technical data and signs of traction towards the com- mercialisation of the product before entering the fray, early-stage financing is typically provided by family and friends, as well as by wealthy individuals (“angel investors”). They do not require an accreditation (or another qualification), professional experience or high net worth. The year 2024 saw a decrease in the number of financing rounds for Swiss start-ups – the first decline since 2012. The total amount invested dropped by 8.5% compared to 2023, which itself had already fallen sharply from 2022. The number of rounds fell by 10.1%, and the invested amount is now similar to pre-pandemic 2019 levels. Despite fewer rounds, the median investment per round rose significantly (CHF3 million, up 40.7% from 2023). The seed-stage median remained at CHF1.3 million, the early stage rose to CHF4.3 million (from CHF2.4 million) and the later stage increased to CHF12 million (from CHF6.3 million). Biotech rebounded strongly, with CHF7.4 billion invested (over 50% higher than 2023, just below the 2020 record). Cleantech set a new record for the num- ber of rounds, with seven of the top 20 investments in this sector. Healthcare, robotics and cleantech are driving a shift towards deeptech. The documentation for early-stage financing for a start-up company in Switzerland is usually rather basic, comprising a subscription form (rather than a written investment agreement) for newly issued shares resolved at a shareholders’ meeting and a basic share- holder’s agreement (including tag- and drag-along
rights, if any). Sometimes, early-stage financings are structured with convertible loan agreements – ie, by granting subordinated loans that are convertible into equity in the context of the next equity financing round (this being the Swiss law-translated equivalent of the US simple agreements for future equity (SAFE)). 2.4 Venture Capital Although the Swiss start-up scene has developed impressively during the past ten years, Switzerland’s venture capital industry is still relatively young. Some of the sponsors are in their second or third fund gen- eration, but a lot are still in their first round. Howev- er, Swiss start-ups are attracting large international investors, owing to attractive valuations and innova- tive ideas. In general, foreign venture capital firms first and foremost provide funds in mid- and late-stage financing rounds. Generally, there is a persistent fund- ing gap at the growth stage, especially for start-ups transitioning from early traction to international expan- sion. This makes Swiss start-ups dependent on for- eign financing. The government may provide funds that grant loan guarantees for investments in start-ups operating in technologies that are in the public interest. By way of example, the technology fund promotes innovative technologies that reduce greenhouse gas emissions, support the use of renewable energy and increase energy efficiency. Companies and start-ups devel- oping such technologies can benefit from loan guar- antees by encountering fewer hurdles to getting the necessary financing in place. 2.5 Venture Capital Documentation The model documentation of the Swiss Private Equity and Corporate Finance Association (SECA) has devel- oped into a well-regarded set of documents that are available on its website. In general, there is substantial standardisation in terms of the documentation. Pri- marily, a term sheet lays out the financial terms of the investment and forms the basis for implementing an equity investment. These terms are subsequently implemented into a legally binding investment and shareholders’ agreement ‒ the purpose of which is to outline the rights, obligations and relationships among the shareholders.
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