FINANCIAL ASPECTS

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Handbook for Entrepreneurs 2022 FINANCIAL ASPECTS

You need to find funds to launch your business, of course. Different sources of financing exist. The following pages give you some ideas to help you find the capital to start up.

FINDING FINANCE

The entrepreneurs or business project owners should be able to provide as much equity as possible themselves. However, finding the funds to launch and develop your business is not always easy.

THE LIFE OF A BUSINESS AND ITS FINANCING NEEDS

Example of a business in a technological field :

PHASE ACTIVITIES AMOUNT (CHF) TIME (MOS) INVESTORS

Concept Development of business concept 10,000 to 20,000 2 to 6 * Founders, 3Fs (Friends, Family, Fools)

Seed funding

Creating the business plan, looking for financing, setting up the group of founders, feasibility study 50,000 to 500,000 6 to 24 Founders, 3F, business angels, venture capital (in seed phase), banks with start-up financing activities

EARLY STAGE Start-up

Product/service development, preparation for market entry 500,000 to 2,000,000 6 to 24

Phase 1 Market entry

Phase 2 Scaling up products/ services

EXPANSION

Phase 3 Market expansion

Bridging loan

Intermediary financing for the preparation of the IPO 2,000,000 to 20,000,000 6 to 36 Venture capital

1,000,000 to 5,000,000

2,000,000 to 20,000,000

2,000,000 to 20,000,000 Business angels, co-investments, venture capital

6 to 12 Venture capital

12 to 48 Venture capital

6 to 36 Venture capital

The federal government and the cantons provide only subsidiary financial support for companies. However, below are some possible sources of support in Valais:

CENTRE DE CAUTIONNEMENT ET DE FINANCEMENT (CCF)

www.ccf-valais.ch

The CCF (centre for surety bonding and financing) offers the following financial assistance and services:

• Capital investment in your company via seed funds, from the very start of your project. Maximum investment of CHF 50,000*, or CHF 100,000 for projects with exceptional potential.

• Investment in the development of high-potential companies via a venture capital fund.

• Support and/or local capital investments at various stages of your company’s development*.

• Guarantees that make it easier to obtain bank loans or leases, as well as bank guarantees*.

• Subsidies for steps to improve competitiveness*.

• Co-financing advice: financing part of the studies prior to an investment.

• Assistance in financing participation in trade and/or technology fairs. Financing up to 50% of the costs.

* Minimum conditions to obtain support from the CCF: innovative project, significant turnover outside Valais, significant impact on employment.

THE ARK FOUNDATION

www.theark.ch

The Foundation does not offer direct financing but supports companies through coaching and accommodation services.

Through its business incubator, it also finances services provided by specialised partners (patents, law, communication, etc.).

The Ark Foundation can help your start-up or company set up Innosuisse projects or obtain its support.

INNOSUISSE

www.innosuisse.ch

Innosuisse, the Swiss Innovation Agency, is affiliated to the Federal Office for Professional Education and Technology. It provides customised support for start-ups and business creation projects through its Start-up Coaching/Training programme. This national organisation also supports companies involved in international co-operations and start-ups that wish to establish themselves internationally.

Additionally, Innosuisse promotes science-based innovation projects that companies, mainly SMEs, carry out together with research partners.

Finally, it supports networks and events in important innovation areas. Its mentors help companies to launch their projects.

FINANCING A COMPANY OR A PRODUCT VIA CROWDFUNDING

How can you finance your company or product launch via crowdfunding platforms ? Crowdfunding, also known as participatory financing, is a fast-growing source of financing. A five-step method will help you to raise funds effectively.

1. Define your project

Before applying to a crowdfunding platform, it is important to be well prepared and to have a coherent, viable project ready to submit to the public. Most platforms require complete documentation on the project so they can check it thoroughly for an eventual fundraising drive.

This documentation (videos, images, texts) must answer questions such as:

• How much is the funding target?

3. Plan your campaign

To encourage your contributors to invest in your project, you must first develop a communication strategy. The questions you need to ask yourself are: Who do you want to reach? When? How? Communication is essential in crowdfunding, and that is why it is important to inform your network of friends and family – not only so that they will be the first to support you, but also so that they talk about it to others. In general, small investors follow the big ones, so it is important to convince the big investors first if you want to have a chance of succeeding in crowdfunding.

4. Reach your contributors

• How long should the campaign last?

You also need to set the compensation – rewards – for your investors, as it will be easier to find contributors if they receive something in return.

2. Submit your project

The choice of platform depends on several factors, including the purpose of the funding and the amount of money the company is seeking to raise. Once you have chosen the right type of platform for your project, you can submit your project to the crowdfunding site’s coaches. They will give you feedback on the project’s viability and advice on how to improve it before it goes live on the platform. Once online, your project must have the highest possible visibility. It is therefore essential to spread the word. Share on networks and by email, of course, but also meet potential investors in person.

“The first few days are crucial,” says Jacky Casas of start-up video-game developer RTFM. Indeed, the majority of successful projects reach 20–30% of their target audience in the first week.

5. Close the campaign

Once the sum is reached, the crowdfunding platform pays you the money. Bear in mind, though, that it retains commission and transaction fees (between 5 and 10% depending on the platform). It is important to communicate regularly with your investors to keep them informed about your company’s development. If the project does not reach its target amount, the money is returned to the investors.

In addition to Raizers and WeMakeIt, there are other crowdfunding platforms such as Ulule, Indiegogo and KickStarter.

TOKENISATION: ANOTHER WAY TO FINANCE YOUR START-UP

by Victor Busson, Chief Marketing Officer, Taurus Group SA

There are three categories of tokens: payment tokens, utility tokens and security tokens. The first category corresponds to cryptocurrencies. The second category contains tokens that give access to a digital use or service, such as loyalty points to reward customers or voting rights to make certain decisions according to the governance rules set up in a community. Tokens from these two categories often have no legal value at all, or at most a very limited one. The opposite is true of security tokens: these have legal value because they represent, in digital form, assets such as shares in real assets (e.g. a share in a property) or companies (e.g. shares in an SME).

When people talk about the tokenisation process, they are generally referring to the category of security tokens. This is the process of digitising existing assets, where a token is matched to an asset or a share of an asset. Once issued, this token is registered on a distributed blockchain register, which acts as the official register.

Tokenisation opens the door to a real revolution in the private capital market, i.e. the market for shares in unlisted companies, the art world or real estate. This is because the infrastructure used today to finance and exchange these types of assets is still archaic – it is manual and in paper form. There are numerous advantages to the tokenisation process, for both SMEs and investors. In particular, the management and transfer of shares is simplified, as it is now done electronically, with a few clicks, and with an overview of the capital table. Previously, the sale/purchase of shares required a multi-party Share Purchase Agreement to be signed by hand.

Digitalisation has made it possible to go even further, with the creation of new electronic marketplaces for digital assets (supporting tokenised shares). These allow you not only to raise funds from customers, a community (B2C equity crowdfunding), or investors (B2B equity crowdfunding), but also to buy and sell these tokenised shares at any time on a secondary market. Taurus Digital Exchange (www.T-DX.com) is one of the first regulated marketplaces of its kind in the world. Raising funds or increasing capital becomes faster, simpler and cheaper, because there is no intermediary. Shareholders (employees, founders or investors) can benefit from better liquidity and transparency. Founders can create engagement programmes for their employees through the simplified distribution and management of shares or participation certificates.

Switzerland is a pioneer in this field. In February 2021, the Swiss Federal Council enacted the first batch of amendments to the new law on distributed ledger technology, which marked a major legal breakthrough at the international level. The Swiss Code of Obligations (Art. 973d-i) now officially recognises the transfer and storage of securities (shares, bonds, etc.) in the form of registered share rights electronically recorded in a distributed ledger.

It is therefore possible for Swiss SMEs to issue their shares in the form of tokenised securities registered on a public or private blockchain. Similarly, investors holding these security tokens enjoy the same level of legal protection as a traditional investor holding a paper security, for example a shareholder holding a paper share certificate. In other words, 1 tokenised share = 1 traditional share.

However, before tokenising shares, it is important to ask yourself some questions:

• What purpose are you trying to achieve? Do you want to simplify administration and save time? Raise funds? Create a secondary market to unlock liquidity for existing investors?

• Are you clear about the consequences of tokenisation? Transparency in particular.

• What audience do you want to raise funds from? Your user community (to increase engagement), new investors, etc.?

• What capital structure do you want to tokenise? Share capital, debt, etc.?

• Do you want to admit the company’s shares to trading on the secondary market?

• What type of liquidity scheme do you want to put in place? Weekly, monthly, quarterly or even annual auctions, or a continuous trading segment like on a traditional stock exchange?

Starting the tokenisation process is relatively straightforward in Switzerland, and there are many players and turnkey solutions. It takes anything between ten days and several weeks, depending on the case. In all cases, the first step consists of a modification of the company’s articles of association; the second, the preparation of the operation; and the final step is the issuance of securities on the blockchain.

HOW DOES A START-UP USE ITS CAPITAL IN ITS FIRST YEAR OF EXISTENCE ?

When establishing a start-up, questions relating to financing, finance, budgeting and cash flow arise very quickly. The Valaisbased start-up DePoly is developing a process that uses eco-friendly chemical depolymerisation to recycle PET products. Its CEO, Samantha Anderson, tells us how she invested her capital in the year that followed its creation.

HOW DID YOU SPEND YOUR INITIAL CAPITAL IN THE YEAR AFTER YOUR START-UP WAS FOUNDED ?

For us, it was a little different from other start-ups because we were unable to do much for most of our first year of existence, due to the Covid-19 situation. But we used our capital mainly for consumable items for research and pilot plant equipment.

Handbook for Entrepreneurs 2022 WHAT WERE YOUR BIGGEST INVESTMENTS ?

Quite clearly the machinery purchased for the pilot plant. In our first round of financing, we obtained the largest investment in our history !

WHICH OF YOUR EXPENSES TURNED OUT TO BE MUCH HIGHER THAN EXPECTED ?

For us, it was legal fees – mainly general administrative costs, costs incurred by the patenting process, and costs related to registering the trademark.

CAN YOU TELL US ABOUT THE DIFFICULTIES YOU ENCOUNTERED DURING YOUR FIRST STEPS AS A COMPANY, AND ALSO TELL US WHAT SUPPORT YOU FOUND HELPFUL ?

A lot of the difficulties we faced in the beginning had to do with buying parts and finding the resources we needed. We were supported by an engineering company (Artelia), and they helped us a lot with this. We also had the support of our coaches, mentors, and lastly our venture capitalists, who are always there !

As a young company, DePoly is proud to have been able to launch and continue the development of its cutting-edge technology, which promotes a circular economy by placing recycling at the heart of its operation. Our process seems to interest a lot of investors because, at the end of 2020, the start-up completed a financing round of 1.3 million francs !

TAXATION

In Switzerland, fiscal jurisdiction is held by the federal government, cantons and municipalities. Businesses (legal entities) are required to pay tax both on their profits and their capital. The tax authorities will notify you at the appropriate time of the amounts of these two taxes you are required to pay.

Value-added tax is also payable. New companies must notify the Federal Tax Administration (FTA) of their existence, so that they can pay VAT.

ONE-PERSON BUSINESS (NO TAX PAYABLE)

One-person businesses are not liable to pay tax. Each individual entrepreneur is liable to pay tax on both their private and business income, and on their private and business wealth. These two sources of funds cannot be separated.

LIMITED COMPANY AND LIMITED LIABILITY COMPANY (DOUBLE TAXATION)

In contrast to companies with no legal personality, a clear distinction is made between private assets and the business assets of limited companies (AG/SA) and limited liability companies (GmbH/Sàrl). These companies are taxed as businesses, while shareholders and partners are also taxed as private individuals. However, at an economic level, this clear separation leads to double taxation.

On the one hand, the limited company’s profits are taxed, and on the other hand, the shareholder has to pay income tax on any dividends they receive. The same applies to the company’s capital stock. A limited company has to pay tax on its share capital, and its shareholders have to pay a wealth tax, based on the value of their shares.

TAX PAID ON NET PROFITS

Limited companies and limited liability companies pay tax on their profits. They become liable for this tax with effect from the date of registration in the Commercial Register. In principle, this is a straightforward tax, levied as a percentage of the company’s profits. A fixed rate is applied (e.g. 8.5% by the federal government).

However, various systems are in operation. They vary from canton to canton and from municipality to municipality. The canton of Valais, for its part, uses a sliding scale, which varies in line with the amount of the company’s profits.

OTHER TAXES VALUE-ADDED TAX (VAT)

Other than those mentioned before, the main taxes are :

• Withholding tax (VST/IA)

Intended to encourage bank account holders to declare their assets and shareholders to declare their dividends.

• Business tax

Levied by municipalities, based on the following criteria:

• Turnover • Number of employees • Surface area of premises used (or rents paid).

VAT is an indirect tax charged by the federal government on businesses providing services in Switzerland, at the time goods are imported, and on purchasers of services provided by businesses whose head office is located abroad.

The normal rate applied is 7.7% of turnover; however, it is 3.7% in the accommodation sector, and 2.5% on foodstuffs and non-alcoholic drinks, books, newspapers and magazines, medicinal products, and sporting and cultural activities (as at 01.01.2021).

The level of this tax varies from municipality to municipality.

• Stamp duty

This is charged at the time securities are issued and traded, and when insurance premiums are paid.

In principle, all businesses with a turnover of more than CHF 100,000 are liable to pay VAT. If you are unsure whether your business will reach this threshold, you can wait up to three months before declaring your business to the Federal Tax Administration (FTA), otherwise you must register within one month after your business has started trading.

If you do not meet the relevant conditions, you can still opt for voluntary taxation, subject to certain provisos. This application must be submitted to the FTA in writing.

TAXATION OF CAPITAL

All cantons (though not the federal government) levy a capital tax. This is normally fixed at a rate of between 3 and 9‰. The canton of Valais, for its part, applies a sliding scale with modest variations.

In most cantons, capital tax encompasses capital stock or share capital, and declared reserves.