What innovators say: Interview to Umberto Milano (Kellerhals Carrard)

Umberto Milano from Kellerhals Carrard talks about the evolution of the Swiss VC market, the impact of COVID-19, his experience on cross-border transactions between Switzerland and Italy and the most challenging clauses recently negotiated.

Umberto Milano, Esq., LL.M., Kellerhals Carrard

1. How did the Swiss start-up/VC market evolve in 2020? What was the impact of COVID-19?

In 2020, the Swiss start-up/VC market proved to be surprisingly robust and consolidated its growth from previous years. Based on the newly published Swiss Venture Capital Report 2021 (available here), for the second time the overall amount of invested capital in Swiss start-ups exceeded the record threshold of CHF 2 Bn (CHF 2.124 Bn, corresponding to approximately EUR 1.962 Bn, as of December 31, 2020). The number of rounds increased from 266 in 2019 to 304 in 2020, thus showing less dependency on a small number of mega-rounds. (In 2019, GetYourGuide AG alone raised almost CHF 500 Mn, thereby achieving unicorn status).

COVID-19 had little or no adverse impact on the Swiss start-up/VC market overall. Liquidity was always sufficient (across all development stages), in part thanks to a booming stock market, low interest rates, and good opportunities offered by the life-sciences industry and digitalization.

2. Which sectors proved most attractive in 2020?

As mentioned, life-sciences played a dominant role in 2020. The money invested in this sector grew by 31.3% in 2020, as compared to 2019, to over CHF 800 Mn. The Basel hub, traditionally important for the life-sciences industry, consequently gained more prominence. It is interesting to note, however, that only a few projects were COVID-19-related; nonetheless, the virus has focused investors’ attention on this sector.

Among the successful examples is CUTISS AG, which ranked first in the renowned TOP 100 Swiss Startup Award. I mention this also because it has ties to Italy: its founder, Daniela Marino, in fact, is Italian. Moreover, the company managed to raise funds from Italian-related investors, among others, thus highlighting the connection between the two countries.

3. What is your experience with respect to cross-border transactions between Switzerland and Italy in the start-up/VC industry?

Our firm’s start-up desk advised on both outbound and inbound transactions, with a particular focus on inbound transactions (where Swiss law is more relevant). Often, a team of Italian founders sparks the interest and facilitates the scouting effort and mutual understanding of Italian VCs/buyers, thus helping to push through a cross-border investment/exit.

We also advised on flip transactions, where Italian founders aimed at establishing a holding company in Switzerland to make themselves more attractive to international investors. Indeed, despite efforts to create a favorable legal and tax framework, Italy still suffers from uncertainty at both the political and macroeconomic growth levels that, internationally speaking, undermines the competitiveness of its start-up ecosystem.

4. What were the most challenging clauses that you negotiated recently?

Representations and warranties and remedies in investment agreements, as well as governance, transfer restrictions, liquidation preferences, and anti-dilution adjustment provisions in shareholders’ agreements are evergreen. Luckily, the setting of market standards (including among lawyers) facilitates negotiation on these issues.

Since the recent entry into force of an amendment to the Swiss Code of Obligations, we are currently witnessing a sharp interest in the possibility of issuing tokenized shares (although that potential will be fully realized only when a proper secondary market has been established).

5. What kind of exit opportunities does the Swiss market offer?

2020 counted two IPO and 33 trade sales. In two instances, the sale price exceeded the threshold of CHF 1 Bn.

Also in this respect, connections with Italy are significant. For example, in 2020, the helicopter manufacturer kopter group ag became part of the Leonardo group, with a transaction volume of USD 185 Mn. Despite the fact that kopter group ag was an exception to this rule, similar cross-border exits are usually possible thanks to the presence of Italian talents exploiting the Swiss innovation framework to ripen their ideas and then succeeding in drawing the interest of established Italian industrial groups for buy-outs.