Combining the strategic vision of start-ups with the expertise of long-standing institutions
Patrick Odier, Senior Managing Partner of the Lombard Odier Group

in the news

Combining the strategic vision of start-ups with the expertise of long-standing institutions

Article published in Le Temps on 8 June 2020

The current crisis is highlighting the need for digital financial services and innovation, but start-ups are concerned for their future. According to a survey1 by the Swiss Blockchain Federation, five companies out of six fear becoming insolvent within six months. Nearly two-thirds of those questioned said they would not survive the Covid-19 crisis without state aid. This should be a cause of concern for the Swiss financial centre. It looks like the financial sector will be seeing a great deal of change, especially when it comes to blockchain.

In response to the crisis, the Confederation and the Swiss financial centre put rapid and direct measures in place to support the economy. Other countries were slow to make arrangements to grant bridging finance, but Swiss banks have already paid out loans to large numbers of companies so they can stay in business. Temporary loans as originally designed were not really suited to start-ups and their particular situation, however, as the loan amount was related to revenues (up to 10%) – which are low when a company is in its initial phase. And many start-ups prefer to finance themselves with equity rather than debt. We should therefore welcome the response by the Swiss government, which heeded their appeals: on 22 April2, it announced it would operate a guarantee system with the cantons to save promising start-ups from insolvency due to Covid-19.

Adopting digital innovations

The acceleration in the use of digital technologies is unprecedented, but the pandemic has reinforced a number of underlying trends. This crisis is also revealing how far behind Switzerland lags in terms of integrating IT and digitalisation into its economy. It’s all very well for Switzerland to regularly score well in the rankings as one of the world’s most innovative countries, but unlike other economies, some innovations struggle to be adopted.

The acceleration in the use of digital technologies is unprecedented, but the pandemic has reinforced a number of underlying trends

Blockchain is one of the technologies that are crucial for the future of the country. It has been hailed as transforming the value chain in the capital markets and the way players trade and hold securities. Digitalising assets will make it easier for companies to access financing, by simplifying procedures and reducing costs. A digital distribution channel like this will potentially facilitate investment in the country’s 550,000 or so companies, fewer than 300 of which currently have a stock market listing. The Swiss financial sector must stay in the vanguard, seize the significance of particular technological advances and anticipate the impact these will have on its business model. This is a matter of survival. So it is essential to support the blockchain hubs around Geneva and in German-speaking Switzerland, particularly by improving the framework conditions in which they operate.

Digitalising assets will make it easier for companies to access financing, by simplifying procedures and reducing costs

Alliances that transform the economy

There is another important element to the equation, however: collaboration between start-ups and well-established companies. In an era of digitalisation and globalisation, alliances are needed to find lasting solutions to the challenges we face. Innovation appeals to a wide range of players. A combination of the technological vision at start-ups, such as spin-offs from the Federal Institutes of Technology or new companies set up by former senior bankers with the expertise of long-standing and financially robust firms and institutions, will transform many aspects of the economy and financial services.

Taurus is a start-up from Geneva that is one of the Swiss leaders in digital asset infrastructure, and Impaakt from the same city has a collaborative platform for measuring the real ESG impact of listed companies: these stand out for their vision, which is based on the specialist banking knowledge their managers have gained in the industry and a pipeline of innovations you would expect from young companies. The arrival of strategic investors allows them to develop and conquer new markets, while helping established players to stay at the cutting edge of technology and enhance their client offering. These are the sort of win-win partnerships that will keep our country at the forefront of innovation and allow it to continue to export services on a global scale.

The collaboration between start-ups and well-established companies … are the sort of win-win partnerships that will keep our country at the forefront of innovation and allow it to continue to export services on a global scale

The global competitiveness of Switzerland is at stake

The number of companies being set up has fallen sharply since the lockdown. In April, start-ups were down by one-quarter on their normal level, a sign of the prevailing uncertainty. However, the Confederation has shown that it is aware of the key role of start-ups. Because they drive innovation, start-ups will play a decisive part in the economic recovery that is emerging in Switzerland. In the past, the Swiss authorities have shown their determination to encourage the development of expertise and create the conditions needed for Swiss champions to emerge. It is therefore entirely logical for the Confederation to take account of the special position start-ups find themselves in and give them its support in this crisis. Innovative companies must be supported, otherwise we may as well just turn our backs on years of development – and a major aspect of our competitiveness.

1 Source: https://mcusercontent.com/31e17f4dda489ed5ea930cfd0/files/66093541-33ce-499e-a376-0b360187b07d/SBF_Corona_Umfrage_Resultate.01.pdf
2 Source: https://www.admin.ch/gov/fr/accueil/documentation/communiques.msg-id-78872.html

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