When will start-up investments recover?

The 2008 financial crisis had a severe impact on venture capital investments. In Switzerland, the total amount invested fell by 50% compared to the last pre-crisis year, while in the UK it was 45%. The US came off lightly at the time, with a decline of around 20%.

In the latest Swiss Startup Radar, we examined how the recovery proceeded. These are the main findings:

Low interest rates fuel recovery
The low interest rates in the US led to a strong upswing in new venture capital funds almost immediately after the crisis. As early as 2010, 30 % more new funds were closed than before the financial crisis, and this growth continued unabated until 2019.

Mature markets as driving forces
The post-crisis recovery was driven by the more mature start-up ecosystems, particularly the US. The fastest recovery was in the US and Israel, which exceeded their pre-crisis levels in 2011. However, the slump in both countries, at 18 % and 27 % respectively, was not as severe as in Switzerland. The UK, which, like Switzerland, recorded a slump of about 50 %, exceeded the pre-2008 venture capital volume in 2012, as did the ecosystem here. Other countries, such as France and the Netherlands, took longer to recover.

Considering the depth of the collapse in invested capital in the crisis of 2008, Switzerland’s return to growth was relatively quick. One reason may have been the strong inflow of capital from the US at the time.

Exits first
All countries in our comparison were affected by a clear decline in exits after 2008. After 2008, exits increased ahead of investments in almost all countries. In Switzerland, the US and Israel, exits exceeded the pre-2008 record a year earlier than investments. In the UK, the difference was two years and in the Netherlands three years.

Investment ahead of the economy
GDP, on the other hand, is not suitable as a leading indicator. After 2008, exits and investments increased practically everywhere before the overall economy returned to pre-2008 levels. In Switzerland, exits in 2011, investments in 2012 and GDP in 2013 were above pre-crisis levels. In the US, the respective years were 2010, 2011 and 2013.

The current situation
The analysis reveals four early indicators of an end to the crisis for Swiss start-ups: the number of exits, falling interest rates, the launch of new funds. If these indicators are compared with the current situation, it becomes clear that an overnight recovery is not in sight. Although interest rates have fallen, they are still significantly higher than in the years after the financial crisis. Further interest rate cuts are not imminent.

Exits remained at a low level in 2024. However, many experts expect the number of trade sales and IPOs to increase again in 2025.

Although money raised by venture capital funds in the US was 2024 slightly higher than in 2023, it is mainly older VC companies that have been successful. A new fund boom such as in the years after 2009 is not currently observed. The situation is not much different in Switzerland.

To identify the start of the recovery, attention should be paid to the development of exits, fundraising activities of VCs and developments in the leading VC markets, particularly in the US. For Switzerland, we will provide figures on exits in 2024 and on new funds in the next Swiss Venture Capital Report, which will be published on 4 February. A more detailed analysis of the current financing crisis and the financial crisis of 2008 can be found in the latest Swiss Startup Radar.

(Stefan Kyora)