What to expect in 2023, according to Swiss VCs

21.12.2022 07:00, Morgane Ghilardi

While developments in the Swiss startup ecosystem this past year reflected economic instabilities and shifting priorities in various industries, the total amount of investments in Swiss startups surpassed those in 2021. But what lies ahead? We asked top VCs to share their insights and gauge investment trends in 2023.

Looking back at 2022, market volatility has had a negative impact on M&A departments and IPOs, as well as has made itself felt in a marked shift towards early-stage investments. However, funds invested in Swiss startups as well as the number of rounds held surpassed the total of 2021 by the end of Q3, with VCs being among the drivers of the innovation ecosystem's dynamism. A notable trend that started in 2021 was the influx of capital from American investors in European and Swiss startups, due to lower valuations, among other things.

ICT, fintech, and biotech startups attracted the largest share of invested capital. It should be noted that two TOP 100 alumni garnered a significant chunk of the total investments of close to CHF 4 billion: the digital insurance innovator wefox, which secured USD 400 million in a Series D financing round, and the direct-air-capture tech leader Climeworks, which raised a whopping CHF 600 million. The financial boost provided to the latter reflects what many had predicted, namely the recognition that mitigating the effects of climate change is absolutely dependent on industrial technology—and, in turn, the growing investment in technologies that enable energy efficiency, reduce pollution, and help implement net zero policies.

But what can we expect in the coming year? We reached out to VCs and asked them to share their expert opinions on the trends and pressure points that will affect fundraising, exits, and IPOs in 2023. Many highlighted that VCs would take a more focused and selective approach next year, although AI and robotics, as well as fintech and cleantech will remain attractive to investors. When it comes to exits & IPOs, the ongoing instabilities will continue to affect the IPO market, although M&A departments will always have a vested interest in diversifying their portfolio, even if they will continue to tread with caution and be more selective. Read on to get the inside scoop.
 

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Teddy Amberg | Founding Partner at Spicehouse Partners AG
   

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Tanmay Annachhatre | Principal at Blue Horizon

How do you see investment activity for 2023?
"Given the market correction of 2022, we saw reduced activity on the part of investors and a massive rewriting of marks across the board. As the market begins to settle, I expect the deployment pace to quicken due to 3 key reasons: 1) better prices on a risk-adjusted basis, 2) heightened focus on profitability in startups (reducing the need for significant dilution), and 3) estimated USD 290 billion of dry powder and the inherent incentives to deploy for funds entering years 2 and 3 of their investment periods."

What will be the relevant trends and topics next year?
"All things AI seem to be having a moment currently, notably highlighted by OpenAI (a 7-year, overnight success). We’re seeing interesting applications of AI in the agrifood space as well and expect this theme to be more pronounced looking ahead. Beyond this, longer-term transitions like precision fermentation, cellular agriculture, food-as-medicine, and agri market linkages will continue to be interesting to us. It's hard to pick which one will be most relevant in any given year, but that's why we have a multi-year time horizon."

How do you see the future exits/IPO market?
"Depending on the source, proceeds from IPOs are down 80-95% from the heights of 2021. While 2023 is likely to have better performance, there will continue to be a notable delta to 2021 due to the change in investor sentiment around the importance of sustainable, profitable growth. Such a swing requires adjustments (sadly including layoffs) on the part of start-ups close to exit, and this takes time which will delay IPO plans further out. M&A markets seem to have bounced a bit quicker (especially during the 2nd half of the year), and we think this will continue into 2023 as deals can be done at more reasonable prices."
 

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Gina Domanig | Managing Partner at Emerald Technology Ventures

How do you see investment activity for 2023?
"Within cleantech/climate-tech, the momentum is still very much behind innovative startups, as many corporations are actively seeking solutions and collaboration. However, if economic uncertainty continues, it may be harder for VCs to raise new funds, and this will have an impact on the amount of money available in the mid-term. Currently, however, we continue to see Swiss climate-tech startups raising mid-sized to large rounds."

What will be the relevant trends and topics next year?
"One topic will be renewable energy for housing. The market pull for renewable energy-based heating and cooling systems for housing (small and large) continues, with a clear need to build technology and software to support the planning and implementation phase of energy systems.

Moreover, which way will battery prices go? After years of steady decline, supply/demand imbalances and massive global disruption finally caught up to batteries in 2022, with cell prices losing several years of progress. Innovation is needed to keep the lithium-ion battery cost curve on track. 

Another trend is sustainable packaging. We see a surge of start-ups trying to innovate to develop commercial sustainable solutions for large corporations in the full value circle, from production to waste management and recycling.

Lastly, there's hyper-automation: Robotics and automation is one of the unique areas that hasn't experienced fall back in 2022, and with a continued clear market pull (labor shortage, aging society, remote work after COVID) and a technology push (affordable and powerful AI, computer vision and control), we expect to see some interesting investment opportunities."

How do you see the future exits/IPO market?
"Corporate M&A will continue as long as the corporations remain cash-rich and continue to diversify their product offering to become more sustainable."
 

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Andreas Göldi | Managing Director at btov Partners

How do you see investment activity for 2023?
"While 2022 was a year of a sudden slow-down, we are probably going to see that VCs are investing more selectively and thoughtfully in 2023. Funds will more closely stick to their strategy in terms of sectors, valuation ranges, and due diligence principles. For founders, this means that they have to expect longer fundraising timelines and need to get selective about which investors to pitch. Overall, it will be a return to the 'old normal' before 2018 to some extent."

What will be the relevant trends and topics next year?
"AI is currently the hottest technology topic, particularly generative AI, and we are going to see a broad range of AI-enabled software and hardware products that attract investors. SaaS is experiencing a return to more normal valuation and growth expectations, but the best companies will thrive. Other sectors such as crypto and direct-to-consumer are in a fundamental reset mode and will likely struggle."

How do you see the future exits/IPO market?
"With the continuing uncertainty in financial markets and geopolitics, it's likely that the IPO market will stay largely closed. We will see more selective M&A activity because larger companies with strong balance sheets will have a lot of attractively priced opportunities. Overall, 2023 is likely not going to see a great exit market, but it's going to have more momentum than 2022."
 

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David Hug | Co-Founder of Marcau Partners AG

How do you see investment activity for 2023?
"We do believe that the market will be difficult. The macroeconomics are not in favor of business. A lot of funds have still a lot of dry powder but also have adapted their investment strategy. We believe especially international and in the later stage, Series A/B+ will be a concentration of capital into the good-performing cases. Early-stage will be constant as good companies are started all the time. Founders also need to adapt their focus to more healthy growth with good unit economics and only the necessary burn."

What will be the relevant trends and topics next year?
"With regard to B2B, companies with product-led growth will be at the forefront in all sectors. We expect also more focus on software parts which are key for a company and not only add-ons. In the B2C segment, it's also companies that have diversified the customer acquisition channels and chances for high lifetime value. General trends will be sustainability, security, eHealth, and Web3."

How do you see the future exits/IPO market?
"The IPO market stays difficult and we expect a low amount of IPOs. When it comes to M&A, potential buyers will focus on their core strategies and if you fit into it, M&A will happen but the classical buyer range will be lower."
 

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Aleksandra Laska | Partner at Redalpine

How do you see investment activity for 2023?
"I believe that the most challenging but also exciting time is still ahead of us. Every economic crisis brings new opportunities and over the years we have seen some of the most successful startups being launched during such times. Good teams and sustainable business models combined with real tech hedge will still have plenty of dry powder in the market to raise. I do expect investors to become more picky, deploying more slowly and paying greater attention to profitability rather than growth at all costs. Early-stage businesses will be less impacted than the later-stage ones."
 
What will be the relevant trends and topics next year?
"I believe that a lot of trends that we are already beginning to see now will continue into the next year and be driven by the geopolitical and economic situation. Sustainable energy technologies, cyber security, and food tech are areas that we think might continue to get a lot of attention next year."

How do you see the future exits/IPO market?
"There will be a lot of cash on hold for IPO activity so I expect the market to pick up and come back with a backlog of deals that have currently been put on hold. However, I am not sure whether this will still happen next year. Most certainly, we may have to wait until the second half of 2023 to see that shift. In terms of exits via M&A activity: I believe that there will be further consolidation in the market and more announcements in the coming months about such deals being closed."
 

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Michelle Tschumi | Co-Lead Innovation Lab at Zürcher Kantonalbank

How do you see the investment activity for 2023?
"We do not expect the macroeconomic situation to change drastically in 2023. The Ukraine war, fears of recession, and inflation scenarios are currently leading to volatile and uncertain markets. As a result, the fundraising and financing environment for startups and VC funds is becoming increasingly challenging. We have noticed more and more this year that startups are struggling to fill their investment rounds. Especially for larger rounds (CHF +5 million), it was difficult to find a lead investor and therefore the fundraising process took significantly longer."

What will be the relevant trends and topics next year?
"Start-ups and scale-ups with a high level of innovation and a strong constellation of founders and teams, which also operate in a rapidly growing market, will continue to be of the greatest relevance for us in the upcoming year. We also expect the trend towards sustainable business models to continue, as the market, politics, and society are increasingly demanding such business models. Along with this, we see a great need and shift towards improved data analytics."

How do you see the future exits/IPO market?
"We were able to participate in some successful exits this year and hope that this will also be the case in 2023."
 

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