SVC Ltd. is an investment company. In what way does it differ from other investment companies?
Our aim is not to generate the highest possible return. It should be high enough to cover our operating costs. But to understand SVC Ltd, you have to understand its historical origins: SVC Ltd. was founded in May 2010 following the financial crisis as a joint venture with the Swiss Venture Club, as a 100% subsidiary of Credit Suisse. The shared objective was to strengthen Switzerland as a workplace and labor market, or more specifically to preserve jobs and create new ones.
So the focus is on the promotion of entrepreneurship in Switzerland?
Indeed. We are first and foremost focused on sustainability rather than the maximization of returns. Capital should be preserved so that financing can go on indefinitely, like in an infinite loop. The fact that we are more driven by value preservation than return generation is also evident in the composition of our portfolio: We are more interested in financing established companies than classic start-ups.
What characterizes the companies in the SVC Ltd. portfolio?
The first key criterion is for the SME to be domiciled in Switzerland. We are very broadly diversified when it comes to industry sectors, and indeed when it comes to Swiss regions. Other important criteria are as follows: We want to see a strong management team and a stable shareholder base. The submitted business plan must be based on a mature business idea involving innovation, and it must be possible to validate this business plan. Furthermore, a certain degree of market acceptance must be in place, be it in the form of sales already booked or agreements already signed with strategic partners.
How does SVC Ltd. get involved, other than injecting capital into its portfolio companies? Does it also get involved as a shareholder, for example?
That's another major distinction between us and a traditional venture capital or private equity company. We typically do not play any "participation management" role, and are very reluctant to accept board mandates, as commitments of this kind would generate significantly higher costs and also raise questions of legal responsibility. These would have to be compensated for by a higher return. Which is why we tend to avoid getting involved in this way.
How do you have an influence on companies? How do you respond if a company is not developing in the way you would like?
Our Investment Committee, the operating team headed up by Frank Naumann, and Helvetica Capital as Investment Manager keep a very close eye on the portfolio companies, and have an overview of developments at all times thanks to a professional reporting system. If a company is in danger of getting into serious difficulty, we can offer an entire spectrum of targeted instruments that can help ‒ from coaching and contacts within our network through to interim finance solutions.
And what is your key area of focus as a board member?
We have clear demarcation between two different areas. The Investment Committee decides on specific investments, whereas the Board of Directors is responsible for governance, investment strategy and policy, controlling, and compliance. As representative of the Swiss Venture Club and independent board member, I see it as my task to contribute the entrepreneurial SME perspective. Given my professional background, this obviously includes the legal side.
What do you consider the perfect investment?
We want to see development potential. And we also invest in situations where no one else would, be it because the risk is too high or the potential return too low. The perfect investment might simply be a financing need, e.g. for the development of a new product for which a patent is already in place. As the company does not have access to traditional bank financing, we invest a sum to enable the new product to be realized. After four to five years, a certain market success becomes apparent: Sales and earnings have increased, perhaps new employees have been recruited, and a strategic investor now shows an interest, wanting to take a stake or even purchase the whole company. This is then the ideal time for us to exit the investment – a classic win-win situation: We were able to help at a point no one else was prepared to come on board, we were able to achieve a return on our participation, a new product was launched, and new jobs were created.
Why is there a greater "investment reticence" apparent in Switzerland than in the US, for example?
The fact of the matter is that while the Swiss may be a pioneering force when it comes to inventions, we are a little bit lacking when it comes to bringing products and services to market maturity. Though it is not the only reason, a lack of risk capital financing is certainly one factor. Regulatory hurdles are one obstacle in this regard, but so too is our conservative "failure culture", i.e. our attitude toward errors and failure. On the one hand, a bankruptcy is viewed as a major failure by our society, and people point the finger at those who have failed. By contrast, commercial failure is part and parcel of everyday life in the US: "Ever tried. Ever failed. No matter. Try again. Fail again. Fail better." On the other, there is the problem of the lack of responsibility shown by bankrupts, who often adopt the approach of "après moi le déluge." It's rare that someone really tries to take responsibility and repay their debts in the absence of a legal obligation to do so. Accordingly, the fear of failure on the part of the entrepreneur and the fear of making a disastrous investment on the part of the lender prevent the realization of many an innovative idea.
So would you say Switzerland is now innovation-friendly or innovation-hostile?
If you look at the number of patent registrations per capita, we are the world champions of innovation. Indeed, this was recently confirmed once again by the Global Innovation Index. In other words, we are demonstrably a pioneering force when it comes to research and development. But what we clearly lack is the ability to consistently drive forward that R&D advantage to market maturity.
And how can we change that?
It should start during childhood. Errors have to be permitted, and children should understand how to learn from them. And so on through school and university, where students should be encouraged to assume responsibility and learn from things going wrong, without being pilloried or made a laughing stock. However, I would say this problem is true of Europe as a whole rather than just Switzerland. We are less forgiving than Americans.
Now for the crystal ball question: Where do you see Switzerland 10 years from now?
I am essentially an optimist by nature, and I think we will continue to grow. The parameters in place are solid: We have our dual education system, tertiary education institutions working closely with companies, political stability, a perfect infrastructure, and a well-trained labor force. These are benefits that we need to exploit and not put in jeopardy ‒ by cracking the regulatory whip too zealously, for example, or being overly restrictive in our approach to labor migration. I can also see opportunities in digitalization and industry 4.0: The world's first plastic 3D printer that combines seven different types of plastic is currently being assembled in Bienne, for example. Whereas heavy industries will probably increasingly locate to cheaper Central European or Asian countries, research-intensive areas and industries will remain alive and well, and advance us further.
And what role will SVC Ltd. play in all of this?
Our raison d'être will remain very much the same ‒ to invest in innovative products and technologies in order to preserve and create Swiss jobs.
Dr. Beat Brechbühl, LL.M. (Chicago), 47 years old, is a member of the Board of Directors of SVC Ltd. as well being a board member of a number of other Swiss companies. He is the managing partner of Kellerhals Carrard, a leading Swiss law firm, as well as founding member and secretary of the Swiss Venture Club (SVC). Among other things, he lectures in the area of entrepreneurship in the University of Berne.