Is venture capital a universal solution?

Following my post from last Friday, here is a series I have been asked to write for EPFL start-ups. It is logical that it appears also here. This first chronicle is about Aleva, a great EPFL start-up, and it is also abotu venture capital. Here it is.

10.02.12 – Aleva Neurotherapeutics has succeeded in raising 10 million Swiss francs in venture capital. The EPFL start-up has shown that this type of financing is not out of reach for young Swiss companies.

For this initial article in the “start-up of the month” column, it was a “must” to talk about Aleva Neurotherapeutics. Andre Mercanzini, its founder, got his PhD at the Microsystems Laboratory (LMIS4) headed by Prof. Philippe Renaud. What was my motivation? André is a shining example of the enthusiastic and persevering entrepreneur. He obtained an Innogrant in 2008. This grant enables apprentice-entrepreneurs to devote their time to their start-up project for one year. The life of an entrepreneur is not exactly a bed of roses, and as well as enthusiasm you need courage. And you shouldn’t do it alone. By persuading another entrepreneur, Jean-Pierre Rosat, to join the adventure, Andre convinced three venture-capital funds (based in Lausanne, Basel and Zurich) to invest. But it was only in August 2011 that the raising of the 10 million francs became a reality, a full three years after Aleva was founded!

I’m not going to say much about the activity of this start-up. Aleva develops electrodes for neurosurgery and these are implanted in the brains of patients suffering from Parkinson’s disease or severe depression. I am not going to say more about Andre Mercanzini either; he can describe his adventure better than anyone else. On the other hand, I’ve noticed that Andre has already become a role model for other entrepreneurs from EPFL and that he himself had the opportunity to prepare his thesis in a very entrepreneurial laboratory. If you go to the page of LMIS4 mentioned above, you will see that no fewer than 13 start-ups originate from there. Emulation is a key element here.

Risk capital: for start-ups with rapid growth

What matters also to me, beyond the entrepreneurial qualities of the two founders, is to show that venture capital is not an unreachable objective. About 10% of EPFL start-ups have raised such funds. Some entrepreneurs who appeal to institutions in the venture capital area subsequently complain about their conservatism. Others avoid them like the plague, referring to them as “vulture capitalists”. This is open to debate. It’s undeniable that this type of investor is looking for companies with a potential for rapid and global growth, and not all start-ups can fulfill this criteria.

There is now available in the world, in Europe and in Switzerland, much more money than there was 20 years ago, even if there is a lot less than during the “irrational exuberance” period of the Internet bubble. It always has been, and will continue to be, difficult to find money (for any kind of project in fact). However, Aleva, but also Biocartis and TypeSafe (other start-ups from EPFL) have shown that it is possible. Is venture capital a must? I sometimes tend to think so when it concerns high-tech start-ups and I know that I’m sometimes reproached for giving it too much importance. I simply note that a very large number of successful American companies have applied for these funds and that boot-strapped companies are the exception in the USA. In Europe, it’s the opposite!

“In Switzerland, we prefer a small entity that you can control from A to Z”

I would like to finish with a quotation from Daniel Borel, another entrepreneur who studied at EPFL. “The only answer I can suggest is the cultural difference between the United States and Switzerland. When we founded Logitech, as Swiss entrepreneurs, we had to play the internationalization card very early on. The technology was Swiss, but the United States, and later on the world, defined our market, whereas the production quickly became based in Asia. I wouldn’t be at ease with myself if I were to paint a negative picture, because I think that many things evolve and that many good things happen in Switzerland. But it seems to me that in the United States, people are more open. When you obtain funds from venture capitalists, you automatically accept an external shareholder who helps you manage your company, but who can also sack you. In Switzerland, this vision is not so widely accepted: we prefer a small entity that can be controlled from A to Z, rather than a big undertaking that you can only control at 10%, which can be a limiting element.”

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