«Many start-ups begin under precarious conditions – that doesn’t have to be»
03 March 2016
Basel region. The entrepreneur has a large network of contacts that allows him to establish access not only to investors, but also to know-how and talents.
Roger Meier. (Img: Clarena AG)
In our interview he explains why trust is so important in his work and why he is convinced there is still a lot more that could grow in the fertile soil of the Basel region.
You are known as a co-initiator and coach of some successful start-up projects in the Basel region. How did this come about?
Roger Meier: I believe it comes from the combination of my different previous activities. Shortly after my banking apprenticeship in Basel, I assisted in consultations with wealthy private customers on investment issues. Many of them were customers whose wealth comes from chemicals and pharmaceuticals. At a very young age, I went through a pretty fast career phase that took me from investment consultancy to stock exchange trading with a private bank in Geneva and eventually to an investment bank in New York, London and finally Zürich. For this bank I helped to establish an institutional client base in Switzerland. After that I decided to study business administration at a university of applied sciences and, in the mid-90s, joined STG-C&L (now PwC), where I worked in management consultancy providing support for change projects in risk management. Eighteen years ago, I went independent. At the time I was helping a friend find a job – and actually found one after a few months. What was initially intended as a friendly turn, proved to be a valid business model, which we call inplacement today. This begins with the person and ends with the company – not the other way round, as is the case with most headhunters. Today our clientele includes almost all well-known companies, and we have helped a great many highly qualified people searching for the optimum career challenge. Quite a few of them have realized a business idea and completed the leap into independence.
What is the recipe for success in your work?
“Success” is a big word. If you mean, for example, the regulatory approval of new medicines or a successful exit, then we have not yet been very successful – we are still working on it. But it’s nice to see how gratifyingly well the companies I have supported are developing. So far at least numerous jobs have been created in the region and considerable value has been created. As far as the concept is concerned, my previous activities have evidently resulted in a suitable model for the identification and support of start-ups. An estimated 20,000 to 30,000 hours of consultation with people in career change processes with a wide variety of qualifications have led to a vast network of contacts. We help people and go out on a limb for them. And they pay us back with their trust. So I can quickly validate new business ideas through suitable network partners. As an economist of course I quickly reach the limit of my expertise in the field of life sciences, so I very much appreciate the advice of experts. It is through network contacts incidentally that almost all new projects find their way to me. I pay very close attention to the quality of recommendations and where they come from – trust can reduce transaction costs enormously and is key, especially in the case of young companies, which are usually lacking in everything.
How do you approach a start-up project in concrete terms?
Actually there are five steps: validation, communication, building trust, team building and funding. Funding without trust is impossible. After the validation, for which I can usually fall back on my network, the business idea is usually first translated into a generally comprehensible form. Most ideas, after all, come from scientists and technology specialists, who are not necessarily used to communicating with investors or people outside their own accustomed field. The third step is all about gaining trust. If independent, competent third parties who carry a certain weight in the industry or the region find an idea good and also communicate this, then it sends out a strong signal. This establishes the ground for successful funding. The fourth factor – and here the network helps again – is that we can mobilize people with complementary talents to get involved or to act as “guiding spirit”, as it were, providing support and advice during the birth process. Ideally, this can lead to the formation of a complete and effective team that is able to create a successful company out of an idea.
And why do these people become engaged?
Being able to help gives a good feeling. It is not uncommon for successful people to be attracted by the possibility of giving something back. But altruism alone is not enough: Anyone who gets involved in a project very early on also gains options. If it is a success, he can say “I was involved from the outset” and may even invest in the future company.
So ultimately it is about making big money?
No! If earning money is the only motivation, for founding a start-up, then this usually leads quickly to ruin. You have to be able to share if you want to be successful. The strongest entrepreneurs are often possessed by their vision of doing some good for humankind and thus generating something of lasting value. The business is then only a consequence of this drive.
It sounds easy – where do the problems lie?
Hardly any founder is a universal talent. Many lack an objective and realistic assessment of their idea and the risks of implementation. Unrealistic dreams are often seen through very quickly. It is by no means the case that most people overestimate themselves – on the contrary: I have known founders who underestimated the value of their invention. Most founders are venturing into unknown territory: they are taking a leap out of the comfort zone of their labs and have to convince investors not only of their idea, but also that they can successfully master the development steps of their company. Here it is all about finding a healthy balance between confidence in one’s own abilities and a certain level of humility. Not every innovator is also a good entrepreneur or leader. The days when you could get many millions just with an idea are definitely over. You have to exceed the expectations that are aroused. And finally many founders make mistakes in the choice of their very first partners which they later find it difficult to correct.
And what motivates investors?
Investors want a return on investment that matches the risk. This should be very high with start-ups in view of the considerable risks of failure. But I believe private investors in particular enjoy being part of an interesting story. It is certainly more attractive to earn money with a new medicine that treats hitherto incurable diseases than with an anonymous share in a fund. Today, many investors are seeking opportunities for investment whose performance is dependent not on the European Central Bank, but on an objective scientific advance. Early-phase companies are usually also extremely attractive in historical comparisons. In the age of negative interest rates it is probably a good idea to invest a small part of one’s cash assets in this sector. It is precisely here in this region that private individuals who have not infrequently acquired their wealth in the pharmaceutical industry like to invest in the early financing rounds of promising start-ups. Unfortunately, our pension funds cannot yet invest substantially in this sector today, which is utterly absurd. For this reason, Henri B. Meier’s Future Fund project deserves every possible support. And then of course there are the venture capitalists (or VCs): professional investors –a very difficult field for founders.
In what way?
Usually founders in the early phase of their company are told by the representatives of VCs that, while their idea is interesting, the valuation of the company is too high and the data not yet persuasive enough. But they should come back again later when more detailed data are available. This may well be unsatisfactory, but it does help the founders to practise their story. And those who listen closely get valuable tips on the expectations of future financial partners. When it comes to later, larger-scale financing rounds in particular it is important to establish a relationship of trust with the VCs. When you speak with VCs, you also need to be able to put yourself in their position. The investors who invest in these venture funds usually have very high expectations. Their managers are therefore also under enormous pressure. It is worth also casting an eye at the investment cycle that a venture capital fund is in at the time. Does it actually have money to invest? Or does the remainder of a fund still have to be topped up? The decisions and impulses of VCs tend to follow the priorities of the fund management – for example with regard to quick exits – more than the needs of the companies. A good VC also brings considerable expertise and networks to the company that can be critical to success. And they also often have a disciplinary effect on the management of the companies, which certainly does no harm. Most VCs look for as much control as possible and prefer to invest large sums in later development phases than small sums in early phases. But with this approach I believe they run the risk of missing out on some of the most exciting early-phase companies. This is increasingly the problem of VCs: It is difficult to find the needle in the haystack.
And how do you find the needle in the haystack?
I don’t look for it – it tends to be the other way round: The projects come to me through my network. People are always at the heart of good ideas. There should then be a reasonable scientific rationale and ideally sound patents. My due diligence, so to speak, begins with the people and not with the science, which is how VCs operate. A good team can mould a bad product into a good product, but not into a bad product. When I approach a potential investor with a project, I attach a lot of importance to making sure the investor gets information presented in the appropriate form. This includes a concise and informative fact sheet that presents the idea and its implementation. The founders often assume a level of knowledge on the part of the recipients which they don’t actually have. So a presentation has to explain the important points and include all dimensions – including financial planning and the outlook with regard to future milestones – when value should be created. A presentation of this kind can be expanded into a business plan without a huge effort. I’m not a great fan of business plans – they are usually already out of date when they are completed. But writing business plans shows inexperienced founders which issues they still need to address outside their specialist field. But ideally the talents needed for his are already in the team, so that a start-up can pick up speed as quickly as possible.
When you look back on your many years of experience, what do you think has changed for start-ups?
Start-ups today have much better access to much more information that a few years ago was the preserve of large companies. Networks are also a lot more open. Information flows quicker and the quality of the founders, the companies and their level of organization are vastly better than they were ten years ago. They progress better and more quickly. In short, all this provides a very favourable environment for investing in start-ups.
What role does the Basel region play in your work?
The Basel region has been my adoptive home for many years. I’m extremely happy here and really appreciate the mentality here. To my mind there is no better place in the world particularly in the life sciences sector. You have almost everything here – on every subject throughout the value chain you can find know-how here in the network that radiates over the entire planet as a result of the great mobility of people who work in the sector. The university is a constant source of fantastic young talent and outstanding basic research. The whole region has been familiar with this very scientific industry for 200 years. And its extraordinarily good experience with this is shown by the fact that some of the world’s most successful pharmaceutical companies are based here. Part of the prosperity that has been created has fortunately flowed back into young start-up companies. But it is noticeable that new investors from the other side of the Jura have also recently expressed interest in young start-ups in the region. VCs with global operations have also set up branches in Basel.
How do you think the region should develop?
We should take care of our big companies and must definitely get a better hearing in Bern for their concerns. The life sciences sector brings by far the most value added to Switzerland, but this is far too little known. The pharmaceutical industry here has a unique power of implementation and marketing, but makes too little of its possibilities in innovation. We need to find ways to spawn more innovative growth companies from our big corporations and universities or get such companies to settle here, since companies of this kind become established here primarily because of the unique know-how, not because of tax gifts.
So is the region underselling itself?
The modesty in not showing off what you have is a really endearing, but it sometimes seems to me as if people in Basel are not aware of its strengths. Few Basel people know they have been among the world champions for years when it comes to per capita growth in GDP. It is showing nominally much stronger and faster growth than the Chinese.
Do you also see clouds on the horizon?
Yes. Success always tends to tempt people to rest on their laurels. But our big pharmaceutical companies are very well managed. There is another development that concerns me: We appear to be better at buying innovations in their late phases for a lot of money than we are at producing it ourselves. This does not have to be. I would prefer it if the big companies acquired more innovative Basel companies. In this way the value added would remain here. It is worrying that the big companies apparently find much more innovation abroad. I don’t believe the Basel people are fundamentally less innovative than others. But I do see various reasons why we remain well short of what is possible when it comes to founding new companies. Just take a look: most companies that we have financed with very large sums in the last few years only managed to start up initially under very precarious financial conditions. That’s crazy! We see innovators and potential founders of companies between thirty and fifty who can’t afford to realize their idea because of the high cost of living. It’s typical that all the companies to which I lend my support could only start up because the founders were able to take garden leave, early retirement or unemployment benefits. It is clearly unacceptable that the innovative strength of the most important export industry of Switzerland should be dependent on this kind of rather randomly available sources of finance! Everyone knows that huge risks of implementation lurk between the initial idea and the first financing round. I believe it is precisely for this reason that lots of brilliant ideas in the region never come to fruition.
So what needs to be done?
Basel could do with an innovation foundation to plug the funding gap that exists between the idea and the first private-sector financing round. This could involve perhaps not more than a low six-figure sum per project. Plenty of money already flows into diverse areas of society today, such as culture, social affairs and sport. Don’t get me wrong: I’m very grateful that our city and its patrons do so much good. But I find it equally important that our future generations will still be able to afford such patronage. So why not selectively finance good ideas that have a good chance of coming to fruition and providing sustainable progress for the region? This would make a lot of sense both for the economy and for society. The foundation would have to use its money according to objectifiable, benefit-oriented criteria, leaving responsibility in the hands of the entrepreneurs and in the best-case scenario, following successful very early investments, reinvesting any income earned. It should be measured by the number of good ideas it can support through to successful financing. It should also be of assistance in scouting for ideas and the search for investors, as well as providing support in the setting up of companies. And it should be proactive in approaching partner organizations such as universities and companies to bring together innovation potential with founders willing to make the most of this potential.
And who pays into the foundation?
In view of the considerable implementation risks, a foundation of this kind can hardly be profit-oriented and would have to be set up for an indefinite period. I believe all sections of society would benefit from such a foundation in the medium to long term, so it could also be financed by everyone. In other regions, such foundations are mostly funded by wealthy private individuals and families, who show a sense of responsibilities for generations and thus earn enormous social recognition and appreciation. Ideally, a foundation of this kind would survive us all.
How concrete is this project?
Let’s put it this way: at the moment it is somewhat more than an idea. In Basel especially, there is a great tradition of foundations that have achieved fantastic things over the centuries. Why not do something good for the future?
What role does Big Pharma play?
I think Big Pharma has an ambivalent relationship with spin-offs. I’m convinced they have drawers full of far more great ideas than they could ever realize. One could also invest in a junior campus for young start-up companies. We know that not every member of the junior football team has what it takes to be a Shaqiri and to play in the first team of FCB. But that’s ok – maybe one day he will also play for Bayern Munich. Encouraging, accelerating and in some cases even co-financing spin-offs would be tantamount to a strong statement – namely, that we believe we have huge innovation potential that could produce a lot of Shaqiris.
Is Basel such a strong centre that it could also attract leading talents in new areas, such as digital medicine?
Yes, absolutely! The field is big enough. In many disciplines in the life sciences, this region has some world-class know-how. It is often between the disciplines that innovation occurs, which is why the linking of information technologies, medicine, research and development definitely offers fantastic opportunities for development. And if we found that we were still lacking some important know-how, then we should make sure we get it here as quickly as possible. We should do our utmost to link these disciplines in a smart way so that something useful can come of it.
A lot of people say that industry needs to go some way to reinventing itself and Big Pharma has had its day.
Has it not always had to do this? Industry in Switzerland and especially in our region did a pretty good job in the last three industrial revolutions and has thus shown that it can always reinvent itself. That’s one of the greatest strengths of Switzerland and the region. Big Pharma will also play a major part in the future, although it will be focused increasingly on its strengths and will have to make its interfaces more dynamic.
What do you mean by that?
Big Pharma is especially good in the late phase of development, in regulatory approval, market access and actual sales. And it knows how to earn money. If it manages to open up to the opportunities of the fourth industrial, “digital” revolution and tap into new value models, it will be successful in the long term and thus remain the strongest economic pillar of Switzerland – in the best-case scenario thanks also to many innovative young start-up companies in the region that have yet to be found and whose products they can then hopefully carry out into the world one day.
|Roger Meier is a co-founder of Strekin and Cellestiabiotech and a non-executive member of the Board of Directors of Piqur Therapeutics and other start-up companies. He is the founder and owner of Clarena Ltd., a company that serves corporates and executives in the fields of corporate finance, change management, coaching and HR.
In his earlier career, he consulted medium-sized to large multinational companies at Coopers & Lybrand (later PwC) in the field of financial and risk management. In the 80s, he helped US investment bank Salomon Brothers Inc. in the US, UK and Switzerland to establish a Swiss client base with institutional investors. Before this he worked as a trader with a Geneva private bank and in Private Banking at Swiss Bank Corporation in Basel.
In the past few years, Roger has assisted numerous start-up and growth firms in their search for funding and talent and co-founded several companies. He holds a finance degree from the University of Applied Sciences in Basel.