The Venture Capital Law Review: Switzerland

Overview

In recent years, the Swiss start-up scene has developed strongly and the international perception of Switzerland as a start-up and investment location has significantly increased. While the number of new start-ups stagnated between 2009 and 2016, a reversal of this trend has been apparent since 2017, with an increasing number of start-ups and financing rounds. In 2020, venture capital investments in Swiss technology-driven young companies amounted to 2.1 billion Swiss francs, with a higher number of financing rounds – 304 (representing an increase of approximately 14 per cent compared to 2019) – and significantly higher investment amounts per round – the median rising from 1.95 million Swiss francs to 2.9 million Swiss francs.2 According to data available thus far, venture capital investments in Swiss start-ups should experience a massive growth in 2021, with already 202 financing rounds and more than 1,850 million Swiss francs of equity investments during the first two quarters (including a mega-round of 588 million Swiss francs in the Zurich-based insurtech wefox).3

The number of venture capital (VC) funds, including corporate VC funds, has also significantly increased in recent years, especially since 2018. Pursuant to the Swiss Venture Capital Report 2021, at least 25 Swiss VC fund managers were planning to fundraise in the short and medium term, including newcomers and existing actors launching new funds.4 VC as an asset class is thus progressing in Switzerland. However, the Swiss investor scene remains relatively young, which translates into a certain shortfall in professional investors and venture capitalists capable of investing frequently, in particular, in the growth phase.5 By contrast, Switzerland is world-class when it comes to informal private investors, in particular friends and relatives investing in pre-seed and seed rounds: no other country in the world has as many informal private investors as Switzerland. Another feature of the Swiss investor landscape is the very high proportion (about three-quarters) of capital investments coming from abroad. Between 2010 and 2019, only about one-quarter of the capital invested in Swiss start-ups came from Swiss investors, while more than a third came from the US, with the UK and France contributing 12 per cent and 6 per cent respectively; more than 5 billion Swiss francs in foreign direct investment went to Swiss start-ups during the same period.6

Key sectors for VC investments in Switzerland are the information and communication technology sector (ICT), including fintech, and the life sciences sector, including biotech, medtech and healthcare. In international comparison, Switzerland has a particularly high number of university spin-offs, in particular from the Swiss Polytechnic Universities of Zurich (ETHZ) and Lausanne (EPFL). Basel, Zug and Geneva are the other Swiss start-up hotspots. In spite of the covid-19 crisis, Switzerland has retained its reputation as a technology location and remains among the world leaders in terms of innovation.7

Year in review

In 2020, the Swiss VC market remained surprisingly stable, in spite of the covid-19 pandemic, with investments falling only by 7.4 per cent, from 2.3 billion Swiss francs (2019) to 2.1 billion Swiss francs. Venture investors put the brakes on during the first hard lockdown (from March to April 2020). However, the number and volume of engagements increased again from the summer onwards. In the second half of 2020, more funds were invested than in the same period of 2019, which was already a record year.

In terms of sectors, investment in ICT start-ups fell in 2020 from about 1.2 billion Swiss francs to 720 million Swiss francs. For the first time since 2017, more money was invested in biotech than in ICT start-ups; Swiss biotech start-ups alone collected more than 800 million Swiss francs in 2020, corresponding to an increase of 31 per cent. However, ICT remains by far in first place in terms of number of rounds (157 out of 304). As to the investment phases, early stage start-ups stood out in 2020, accounting for almost 50 per cent of all rounds (149 rounds) and approximately a third of the total investment (686 million Swiss francs). By contrast, very large VC investments (mega-deals of 200 million Swiss francs and up) were missing in 2020; GetYourGuide (122 million Swiss francs; ICT), SophiA Genetics (110 million Swiss francs; healthcare IT) and VectivBio (110 million Swiss francs; biotech) were the three biggest rounds.8

Although the covid-19 pandemic has affected numerous start-ups, only a few companies have had to make employees redundant and the number of start-ups has proved to be stable. As a response to the crisis, the federal government and most Swiss cantons launched surety guarantee programmes placing approximately 150 million Swiss francs to the benefit of start-ups.

Legal framework for fund formation

i Laws and regulations

VC fund formation, management and marketing in or from Switzerland are primarily governed by the following laws and regulations:

  1. the Collective Investment Schemes Act (CISA) of 23 June 2006 and its implementing ordinances – the Collective Investment Schemes Ordinance of 22 November 2006 (CISO) and the Ordinance of the Swiss Financial Market Supervisory Authority (FINMA) of 27 August 2014 (CISO-FINMA);
  2. the Financial Services Act (FinSA) of 15 June 2018 and its implementing ordinance – the Financial Services Ordinance of 6 November 2019 (FinSO); and
  3. the Financial Institutions Act (FinIA) of 15 June 2018 and its implementing ordinances – the Financial Institutions Ordinance of 6 November 2019 (FinIO) and the ordinance of the FINMA of 4 November 2020 (FinIO-FINMA).

    ii Vehicles used for fundraising

    VC promoters active in Switzerland generally adopt the following structures:

  4. Swiss limited partnerships for collective investments (Swiss LPs);
  5. Swiss unregulated investment companies; and
  6. offshore vehicles often structured as Luxembourg specialised funds or, more recently, as special limited partnerships, as well as Delaware, Cayman Islands, Jersey or Guernsey limited partnerships.

A Swiss VC fund may also be structured as an investment club exempted from CISA, subject, however, to several limitations, including on the maximum number of members (which may not exceed 20) and the obligation for members (at least some of them) to make investment decisions. Certain data sometimes also count actively managed certificates (AMCs) as VC fundraising vehicles,9 even if traditionally AMCs are not categorised as investment funds or investment companies.

Swiss LPs

Swiss LPs introduced in 2007 face strong competition from offshore vehicles (see Section III.ii, 'Foreign vehicles'), they tend to be limited to local investors and focus on local niches. Several factors account for this situation, including, among others, the limited access to the EU market (through private placement exemptions (when available)) due to the absence of passporting available for Swiss investment fund managers.10 Against this background, the forthcoming Limited Qualified Investor Fund (L-QIF; see Section VIII) may be a welcomed legal innovation to boost the local market for fund domiciliation.

A Swiss LP is a closed-ended fund subject to regulatory approval and subsequent ongoing prudential supervision by FINMA. The creation of a Swiss LP requires a partnership agreement and a prospectus that must be provided to FINMA (although its approval by the regulator is not a requirement). The general partner (GP), who is responsible for the management of the Swiss LP, has unlimited liability, while the other members (limited partners) are liable only up to their respective capital contribution. All investors in a Swiss LP must be 'qualified investors' within the meaning of CISA. Limited partners are granted by law with certain information and governance rights but are deemed to be 'passive investors' in the sense that they may not become involved in the day-to-day management. In practice, it is common for the GP of a Swiss LP to appoint an investment manager.

Swiss LPs are treated as tax-transparent entities. As a result, they are not subject to corporate income tax. Income taxes are levied at the level of the investors, except for Swiss LPs, which directly hold real estate. However, Swiss LPs are not transparent for withholding tax purposes (WHT). Distributions and undistributed incomes reinvested at the level of the Swiss LP are generally subject to 35 per cent WHT (except for distributions deriving from capital gains and directly held real estate). Investors who are Swiss tax resident are in principle entitled to receive a full refund. Investors who are non-Swiss tax resident may receive a full or partial refund in accordance with applicable double taxation treaty between Switzerland and the jurisdiction of their tax residence. A full refund for non-Swiss tax resident investors may be applicable if at least 80 per cent of the underlying income is derived from non-Swiss sources (the so-called 'affidavit procedure'). The Swiss GP, as a legal entity, is taxed on its annual net profit (typically its management fee and carried interest) and on its equity.

Swiss unregulated investment companies

A Swiss unregulated investment company is a company limited by shares, which is not subject to CISA and CISO requirements and thus needs no authorisation by FINMA, provided that (1) its shares are listed on a Swiss exchange or all of its shareholders are 'qualified investors' within the meaning of CISA; and (2) its shares are registered shares. Swiss unregulated investment companies are quite commonly used by local VCs.

These vehicles differ from SICAFs, which are Swiss companies limited by shares regulated under CISA and subject to regulatory approval and subsequent ongoing prudential supervision by FINMA. The sole purpose of a SICAF is the investment of collective capital. The SICAF regime was introduced in 2007 but so far not a single SICAF has been incorporated in Switzerland. Such lack of interest results primarily from the possibility of using the CISA exemption allowing the incorporation of unregulated investment companies, but also derives from the SICAF's tax treatment regime – they are not transparent entities and are subject to corporate income tax (the same tax treatment is also applicable to unregulated investment companies).

In 2018, the Swiss Supreme Court considered that VC financing activities do not always qualify as collective investments, which is the key trigger of Swiss fund regulations. In substance, if a VC investment vehicle participates in the companies in which it holds a (minority) stake, it does not qualify as a collective investment inasmuch as the following conditions are cumulatively met: (1) there is no external management; and (2) any participation in the underlying portfolio companies is actively managed by the VC (i.e., the investment has an entrepreneurial nature). In the absence of other case precedents, this 2018 ruling of the Swiss Supreme Court illustrates that VC activities alone do not necessarily trigger Swiss fund regulations.

From a tax perspective, SICAFs and Swiss unregulated investment companies are treated as separate business entities and are not tax transparent. Such companies are thus less attractive than Swiss LPs from a tax perspective. WHT is also applicable to such companies and distributions to the shareholders are subject to 35 per cent WHT. Investors who are Swiss tax resident are in principle entitled to receive a full refund. Investors who are non-Swiss tax resident may be entitled to a full or partial refund in accordance with the applicable double taxation treaty between Switzerland and their jurisdiction of tax residence. Finally, the issuance of shares of a SICAF or an unregulated investment company incorporated as a Swiss company limited by shares is subject to the Swiss issuance stamp duty.

Foreign vehicles

It is common to see foreign investment funds involved in VC transactions and fundraising even when the venture capitalists or part of their operations are based in Switzerland. There are multiple reasons for using foreign structures, including (1) favourable tax treatment; (2) absence of authorisation requirement or simplified registration and approval process abroad; and (3) international limited partners' circle familiar with foreign vehicles and their management.

There is no general restriction to invest on Swiss markets through a foreign vehicle. The offering of foreign vehicles' units (shares or interests) to Swiss-based investors may, however, trigger FinSA and CISA requirements (see Section III.iii). In addition, when the (non-discretionary) investment adviser is based in Switzerland, careful attention should be paid to the structuration of the carry and the portion allocated to the investment adviser in order to prevent a requalification of the investment advisory services as investment management.

iii Fund marketing

Overview

No FINMA approval or registration is required for foreign funds offered to Swiss 'qualified investors', including, without limitation, VC funds. However, depending on the type of investors that are targeted, a Swiss representative and a Swiss paying agent may have to be appointed (see Section III.iii, 'Concept of 'qualified investors'').

The reverse solicitation exemption is now generally recognised under Swiss law in cross-border situations. In particular, the following services are not deemed to be provided in Switzerland: (1) financial services rendered by foreign financial service providers under a client relationship entered into at the explicit initiative of the client; and (2) individual financial services requested from foreign financial service providers at the explicit initiative of clients. To benefit from this exemption, the foreign promoters or managers (or their representatives, e.g., a placement agent) must not have initiated the contact with the client, meaning that no prior marketing or advertising is allowed. While this condition is not expressly mentioned in FinSO, it should nonetheless remain relevant as it is consistent with previous rules on reverse solicitation.

The notion of 'pre-marketing' is not legally defined under Swiss law. Contrary to the European Union, Switzerland has no specific regulatory regime applying to early-stage marketing. However, general and abstract discussions with investors, which do no refer or relate to a specific fund should not qualify, in principle, as a' financial service' or an 'offer'.

Finally, any marketing activity in Switzerland is also subject to the Swiss legislation against unfair competition or business practice, which prohibits market behaviour or business practice that is deceptive or that infringes upon the principle of good faith in any other way that may affect the relationship between suppliers and customers. These rules may also apply in conjunction with CISA provisions prohibiting the use of confusing or deceptive fund designations.

Concepts of 'advertising', 'offer' and 'financial services' and their consequences

FinSA and FinSO (both entered into force on 1 January 2020) repealed the notion of 'distribution' and the corresponding exemptions applicable to fund marketing under the old CISA. Instead, they introduced three new concepts: 'advertising', 'offer' and 'financial services' and their respective exemptions.11

The concept of 'advertising' is broadly defined as any communication aimed at investors that draws their attention to certain financial services or instruments. Any advertising must be clearly identifiable as such and must refer to the prospectus and the key information documents (if any), as well as the location where such documents are available. Any communication about a foreign fund (regardless of its legal form), which amounts to an advertising, is assimilated to an offer of such fund triggering FinSA and CISA applicable requirements. Certain communications do not constitute 'advertising' within the meaning of FinSA, such as, for instance, publication of the nominal references of funds, whether or not related to the publication of prices, rates, net asset value (NAV), price list or changes or tax-related data, or transmission by the financial service provider of an issuer's communications to existing clients.

The concept of 'offer' in the context of fund marketing is defined as any invitation to acquire a financial instrument that contains sufficient information on the conditions of the offer and the terms of the fund. Certain communications do not constitute 'offers' within the meaning of FinSA, such as the provision of information in reverse-solicitations, where no advertising related to any specific financial instrument is made by either the financial service provider or an agent thereof, or the publication of nominal references of funds accompanied, where applicable, by factual information, such as international securities identification number (ISIN), NAV, prices, information on risks, price trends, or tax information, the provision of factual information, as well as the preparation, provision, publication and transmission to existing investors or financial intermediaries of information and documents required by law or contract relating to financial instruments, such as general meeting invitations.

The concept of 'financial services' includes, inter alia, the purchase or sale of financial instruments,12 such as shares, units or interests in funds. In short, the active offering of funds is qualified as a 'financial service'. Certain activities, however, are excluded from the scope of FinSA, such as M&A and corporate finance advisory services as well as the provision of market research, unless such research contains a personal recommendation to buy or sell specific financial instruments. More generally, the following activities do not qualify as 'financial services': (1) advice on structuring or raising capital as well as on business combinations, acquisition or disposal of participations and the services associated with such advice; (2) placement of financial instruments with or without a firm commitment as well as the corresponding services; (3) financing within the scope of services provided in accordance with (1) and (2); and (4) granting of loans to finance transactions provided that the financial service provider is not participating or otherwise involved in these transactions.

In essence, to the extent that the activities conducted in Switzerland qualify as financial services consisting in proposing funds' units, shares or interests to Swiss-based qualified investors, the following requirements may apply:

  1. certain rules of conduct, in particular information and reporting duties (unless institutional clients are targeted, it being specified that professional clients may waive some of these rules);
  2. certain organisational rules, in particular as to conflicts of interest;
  3. registration in the so-called 'register of clients' of employees of the foreign promoter providing the financial services (exemption is available if only institutional or per se professional clients13 are targeted and the foreign promoter is subject to a prudential supervision abroad14); and
  4. affiliation with a mediation body (ombudsman office) (exemption is available if exclusively institutional or per se professional clients are targeted15).

In this context, only interactions with 'end investors' qualify as financial services under FinSA. Accordingly, the provision of information on funds to prudentially supervised financial intermediaries (e.g., Swiss banks or Swiss asset managers) is generally not regarded as a financial service (triggering the consequences described in (a) to (d) above), provided that the supervised financial intermediaries are acting on behalf of their clients.

At product level, the foreign funds may have to appoint a Swiss representative and a Swiss paying agent before starting to market the funds if 'elective professional clients' (see 'Concept of 'qualified investors'' below) are targeted. No such appointment is required when the relevant foreign fund is exclusively proposed to institutional or per se professional clients.

Concept of 'qualified investors'

FinSA classifies clients (investors) into three categories: private clients, professional clients and institutional clients. FinSA also provides for opt-in and opt-out mechanisms to certain categories of clients. All investors who are not private clients must be informed of any opting-in possibilities prior to receiving any financial services.

CISA refers to FinSA for the definition of 'qualified investors': professional and institutional clients under FinSA are treated as 'qualified investors' under CISA. In this context, (1) supervised financial institutions such as banks, securities firms, fund management companies, asset managers and insurance companies, as well as (2) pension funds and companies with professional treasury operations, (3) large companies, and (4) elective professional clients, i.e., high net worth individuals (HNWIs) and related investment vehicles set up for the latter (upon provision of an opting-out declaration) are defined as 'qualified investors'.16 Private (retail) clients who are not HWNIs under FinSA, but who have concluded a long-term asset management or investment advisory agreement with a supervised financial intermediary, may be classified as 'qualified investors' (subject to certain requirements).

Fund agreements

The Asset Management Association Switzerland (AMACH) and the Swiss Private Equity & Corporate Finance Association (SECA) have issued a model prospectus with an integrated partnership agreement, which serves in any FINMA filing of Swiss LPs as it facilitates the review by the regulator. However, it may be adapted and modified depending on the outcome of negotiations between the GP and its limited partners or the GP's own preferences. When the limited partners are willing and able to negotiate the terms of the partnership, discussions with the GP regarding preferred rate of return, catch-up structure, management fee offset, clawback, GP removal, most favoured nation (MFN) and key man may not come as a surprise.

A Swiss-law governed partnership agreement for a VC fund typically contains the following provisions:

  1. name of the partnership, registered office as well as corporate name and registered office of the GP;
  2. purpose of the partnership, in particular the sector or sectors in which the partnership will invest (ITC, biotech, etc.);
  3. duration and extension of the partnership as well as the competent body that may decide on such extension;
  4. investment strategy, including eligible investments, restrictions, investment techniques, risk diversification and risks associated with investments;
  5. initial and additional subscription and investment periods;
  6. total capital commitment and repayment of capital as well as capital call modalities;
  7. partnership expenses and management fees;
  8. conditions for admission and withdrawal of limited partners as well as interest transfer restrictions and conditions;
  9. limited partners' information, including GP's reporting duties (as a rule, reporting on a quarterly basis and issuance of annual reports, while it is generally possible to obtain an exemption from FINMA for the issuance of semi-annual reports);
  10. co-investment conditions;
  11. delegation of certain tasks by the GP (such as risk, compliance, investment management, accounting and maintaining the limited partners' interest register);
  12. appointment of a limited partners' advisory committee (LPAC) as well as its composition and its attributions;
  13. organisation of the partners' meetings and communications to the limited partners;
  14. appointment of a custodian or paying agent;
  15. distribution of proceeds (waterfall); and
  16. dispute resolution clause (generally arbitration).

Other contractual provisions may be included in the partnership agreement, subject to FINMA's review and approval. Additional limitations may result from the general principles of Swiss contract law (which, however, remain rather flexible). Side letters are not prohibited under Swiss law, but GPs must ensure that any side letter complies with their duty to act loyally and treat limited partners equally.

Fund management

As a rule, Swiss VC investment managers, whether of Swiss or foreign funds, are subject to a mandatory licensing requirement in Switzerland under the FinIA. By way of exception, de minimis managers17 are only required to be authorised as individual portfolio managers and not as asset managers of collective assets. All VC managers are subject to ongoing supervision and audit. In the case of a partnership, both the Swiss LP and its GP are subject to FINMA licensing and ongoing supervision. GPs without authorisation as managers of collective assets may only be active as GPs in one Swiss LP.

GPs generally abide by the 2016 SECA Guidelines for the calculation and disclosure of costs of private market funds. These Guidelines are relevant for both domestic and foreign funds. Total expense (TE) for domestic products must be published in the annual financial statements or be specifically communicated to investors.

Furthermore, Swiss GPs and investment fund managers must comply with the AMACH code of conduct, which implements the general legal principles set out in CISA/CISO. In line with FinSA, the code of conduct provides for certain disclosures both at fund manager and GP levels. Disclosures concern, in particular, fees, costs, existence of commission-sharing agreements, soft commissions as well as risk associated with investments. According to the revised code of conduct, significant changes in personnel or in the organisation, as well as conflicts of interest must be disclosed to investors. In addition, fund managers are subject to FinSA applicable disclosure obligations regarding the financial services they provide. The partnership agreement may provide for additional contractual disclosure requirements that exceed those set forth in the SECA Guidelines and AMACH code of conducts.

Raising capital by start-ups

In Switzerland, VC investments (whether in seed, early-stage, late-stage or growth start-ups) are generally made in exchange for equity, that is, by subscription of newly issued shares of the investee company as part of a share capital increase. It is not unusual for common shares to be issued to investors in pre-seed and seed rounds, but in practice, venture capitalists generally receive preference shares, providing for preferential rights relating to dividends, subscriptions and, predominantly, liquidation and sale proceeds. Certain preferential rights (e.g., as to dividends) may be reflected in the articles of association of the company, while others, in particular, preferences on proceeds in the case of a trade sale, are contractual in nature and must thus be specifically agreed with the other shareholders. Convertible loans and similar debt instruments are also common in practice, especially in pre-seed and seed rounds, notably to bridge finance the start-up until the next round. As a rule, convertible lenders are granted the right to convert the loan (with or without interest) into equity of the company at a reduced issued price in the next round or at an agreed maturity date (discount). In addition to investing, VC firms generally take an active role in the funded company, advising and monitoring its progress before releasing additional funds.

The SECA has published a VC model documentation, in particular, a model investment agreement and a model shareholders' agreement, for investments by business angels and similar investors in the range of 500,000 Swiss francs to 5 million Swiss francs (model documentation light) and for VC investments by institutional investors in the range of 5 million Swiss francs and above (model documentation large). SECA's VC model documentation is widely used by Swiss practitioners and has become the standard for VC investments in Switzerland.

From a practical perspective, and depending on the investment's stage, VC investors usually insist, in order to protect their investment, on certain key contractual clauses and mechanisms. In particular:

  1. control-related or veto rights in relation to certain important matters (whether falling within the competence of either the shareholders or the board of directors);
  2. rights of first-subscription of new shares and, conversely, waivers by the existing shareholders of their legal rights of first-subscription in certain circumstances;
  3. anti-dilution mechanisms in the case of down rounds (narrow or broad-based weighted average adjustments being common in practice, while full-ratchet mechanisms are only rarely agreed upon);
  4. preference rights relating to dividends (rare), sales and liquidation proceeds (e.g., up to a liquidation preference amount);
  5. restrictions on transfer of shares (e.g., lock-up period, rights of first refusal and pre-emptive rights, drag-along and tag-along rights, and call-options in certain triggering events), it being specified that the start-up's articles of association usually provide for the board's right to refuse share transfers in certain circumstances;
  6. right to be represented on the board of directors;
  7. information and inspection rights;
  8. representations, warranties and indemnities typically granted by all or some founders; and
  9. non-compete and non-solicitation obligations imposed on the founders (which, however, are subject to limitations under Swiss law).

Exit

Sales of the entire start-up company to a third party (trade sales), in particular to large foreign groups, represent by far the most common exit used by VC funds and investors in Switzerland. In comparison with initial public offerings (IPOs) and among other benefits, trade sales can be implemented within a shorter time frame and at (much) lower costs. On the other hand, M&A transactions may entail deferred purchase price payment mechanisms (e.g., earn-outs) and thus delay or affect the VC investor's final payout. According to market surveys, more than 400 trade sales of Swiss start-ups were carried out between 2000 and 2018, including the acquisition in 2017 by Johnson & Johnson of the Swiss biotech company Actelion for US$30 billion (which remains to date the biggest sale exit in the history of the Swiss start-up scene). In 2020, two transactions were reported exceeding one billion: the acquisition of NBE Therapeutics (biotech) by the German pharma giant Boehringer Ingelheim for €1.18 billion, and that of Avaloq (fintech) by Japan's NEC Corporation for 2.05 billion Swiss francs.

By contrast, exits via IPOs remain rare. In 2020, only three Swiss venture-backed start-ups have gone public, none of them in Switzerland: Implantica, a Swiss-grown medtech company that was listed on Nasdaq First North in Stockholm; HeiQ, a spin-off of the Swiss Polytechnic Universities of Zurich (ETHZ) that completed an IPO on the London Stock Exchange; and the biotech company ADC Therapeutics that went public on the New York Stock Exchange. Generally, an IPO requires significantly more time and entails much higher costs compared to other exit routes. In addition, with its listing on a stock exchange, a company becomes subject to additional and more comprehensive obligations, restrictions and requirements (e.g., financial reporting, management and directors' compensation, ad hoc publicity, disclosure of major shareholdings, etc.), as well as to strict supervision by regulatory authorities and increased scrutiny by the public. As regards the access of venture-backed companies to Swiss public markets, the SIX Swiss Exchange (Switzerland's main and leading stock exchange) has recently announced the launch of SPARKS, a new equity segment for small and medium-sized enterprises (SMEs), with a trading model specifically designed for companies with lower capitalisation.18 It is expected that the new segment will provide SMEs, including Swiss venture-backed growth start-ups, with better access to the Swiss public equity capital market.

Secondary transactions, where existing shareholders sell their shares to other investors, may be an alternative exit option. However, there is no later-stage fund in Switzerland that routinely buys out earlier investors.

In spite of great interest from investors, special purpose acquisition companies (SPACs) are not yet authorised on the Swiss stock exchange. According to reports, in March 2021, FINMA blocked an attempt to have the first Swiss SPAC listed on the SIX Swiss Exchange under concerns about investor protection, market transparency and integrity. Currently, it is thus not possible to use a SPAC to go public in Switzerland. However, the SIX Swiss Exchange has recently opened a consultation on a revised regulatory framework to address FINMA's concerns and enable the listing of SPACs. It is expected that SIX's new rules on SPACs will enter into effect before the end of 2021, after approval by FINMA.

Outlook

In 2020, the Swiss Federal Council (the federal government) proposed to introduce in CISA a new fund vehicle, the so-called 'Limited Qualified Investors Fund' (L-QIF), with a view to creating a more flexible form of collective investment scheme. Among others, the L-QIF (which is still at draft law stage) would not be subject to FINMA's approval and could thus be launched more quickly while being more cost-effective. L-QIFs would be limited to 'qualified investors' as defined in CISA (see Section III.i) and be subject to audit by a qualified auditing firm. In addition, while the L-QIF itself would not be regulated, the investment fund manager in charge of managing an L-QIF structured as a Swiss LP would have to be a FINMA supervised institution and, more specifically, an asset manager of collective assets. Swiss authorities also expect that the L-QIF would make Switzerland more attractive and competitive as a place for fund incorporation and domiciliation. For the time being, the draft law provides that L-QIFs would not benefit from a favourable tax regime and would be taxed as any other CISA regulated vehicle. The law introducing L-QIF is expected to enter into force on 1 January 2023 at the latest.

Footnotes

1 Jérôme Levrat and Vaïk Müller are partners at CMS von Erlach Partners Ltd.

2 All data stem from the Swiss Venture Capital Report 2021, Edition No 9 (http://www.startupticker.ch/en/swiss-venture-capital-report), published by the news portal startupticker.ch in collaboration with the Swiss Private Equity & Corporate Finance Association (SECA).

3 Swiss Venture Insight, Report 2021 – Q2 (http://www.startup.ch/swiss-venture-insights).

4 Swiss Venture Capital Report 2021, Edition No 9 (http://www.startupticker.ch/en/swiss-venture-capital-report).

5 For instance, in the 18-month period between January 2020 and June 2021, almost 80 per cent of the investors made only one investment and only 3 per cent have invested in a start-up at least five times.

6 All data stem from the Swiss Startup Radar 2020/2021, Volume #3 (http://www.startupticker.ch/en/swiss-startup-radar), published by the news portal startupticker.

7 See, e.g., the latest Bloomberg Innovation Index (http://www.bloomberg.com/news/articles/2021-02-03/south-korea-leads-world-in-innovation-u-s-drops-out-of-top-10) or the Global Innovation Index published by Cornell University, INSEAD, and the World Intellectual Property Organization (http://www.wipo.int/global_innovation_index/en/2020/).

8 All data are from the Swiss Venture Capital Report 2021.

9 See Swiss Venture Capital Report 2021, p. 40.

10 Despite the fact Switzerland successfully passed the technical review of the European Securities and Markets Authority (ESMA) in 2015 for the purposes of extending the benefit of passporting of the Directive 2011/61/EU (AIFMD) to non-EU managers.

11 Some new rules, in particular the rules of conduct under FinSA, will only enter into force on 1 January 2022. This chapter does not deal with such transitional rules.

12 Other financial services include (1) receipt and transmission of orders in relation to financial instruments; (2) administration of financial instruments (portfolio management); (3) provision of personal recommendations on transactions with financial instruments (investment advice); and (4) granting of loans to finance transactions with financial instruments.

13 As per the practice of the authorities in charge of maintaining the registers. Certain practitioners consider that this exemption should also apply when elective professional clients are targeted.

14 Employees of unregulated Swiss financial services providers must register in any instance.

15 Exemption is also available to Swiss-based institutions.

16 HNWIs and related investment vehicles must meet the following requirements to be able to opt out: to have either (1) financial liquid assets of at least 2 million Swiss francs; or (2) financial liquid assets of at least 500,000 Swiss francs and market knowledge based on individual education and professional experience or similar experience to assess the risks of investments.

17 A fund manager will be considered as de minimis if all investors of the funds it manages are 'qualified investors' and either (1) the assets under management (AuMs), including the assets acquired through the use of leveraged finance, do not exceed 100 million Swiss francs; or (2) the AuMs do not exceed 500 million Swiss francs and consist in non-leveraged collective investment schemes where investors are not permitted to exercise redemption rights for a period of five years from the date of their first investment.

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