The Vaud innovation ecosystem has taken off and the canton of Vaud is one of the champions of science-based innovation (also known as "deeptech"). In a quarter of a century, the canton's academic fabric has doubled in size, it is fully interconnected with global research and is even among the top destinations for researchers. The dynamic of start-up creation has intensified. These projects are attracting capital well beyond Switzerland's borders and several of these companies have reached significant size, displaying a strong capacity for growth. 

This dynamic does not only concern start-ups: the canton's economic fabric has changed, with a significant increase in technology-intensive sectors, particularly pharmaceuticals. This orientation towards activities with high added value is a plus for the canton's economy and helps to make it less sensitive to the vagaries of the economic climate. In the context prevailing at the time this study was finalised - marked by the coronavirus pandemic and the recession caused by it - this support for the coming years should not be neglected. 

But the competition for innovation is global and cycles are accelerating. All regions of the world are looking for a good position and hierarchies can change rapidly. For companies, the ability to innovate becomes critical in the face of increasingly rapid product obsolescence. Some innovations can shake established players and even the legal and regulatory framework. 

Moreover, behind Switzerland's regular first place in the rankings of the most innovative countries, there is a more nuanced reality. This first place is explained above all by the presence in a small country of the headquarters of two of the world's largest pharmaceutical groups and the world leader in the food industry, which repatriate patents developed throughout the world to their headquarters in Switzerland. 

There is, therefore, no guarantee that the favourable situation of our innovation ecosystem will continue. All the more so as the current crisis could also alter the course of the innovation ecosystem in Vaud, for example if the flow of investment were to slow down somewhat, even if only temporarily. Faced with the difficulties that certain start-ups or scale-ups could experience in this context, the federal authorities and the canton have announced support measures, in particular, interest-free loans. 

For the canton of Vaud, it is essential to master the innovation process and participating in it makes it possible to be a player, to foster the renewal of the economic fabric, to create jobs in emerging activities and not just to suffer the negative effects of the inevitable arrival of innovations created elsewhere. This is all the more important for a region that is devoid of raw materials, strongly export-oriented and where part of the growth in recent decades is linked to factors that no longer offer the same prospects (the financial centre or the establishment of headquarters of international companies).

In this race, the study "Vaud Innove - An Ecosystem with Many Faces" has highlighted points of attention and potential areas for improvement. But also that the canton can rely on the action of the authorities at all levels, federal and cantonal, as well as on its strengths and certain supporting factors.


 

STRENGTHS AND SUPPORTING FACTOR

The primary quality of the innovation ecosystem in Vaud lies in its academic fabric, whose density (academic staff per inhabitant), productivity (publications per researcher) and research quality have nothing to envy from the rest of the world. This world-class standard is largely based on the quality of our universities and their ability to attract talent, which has been strengthened over the past 20 years.

Second strength: the culture of entrepreneurship is on the rise in French-speaking Switzerland, particularly in comparison with the rest of Switzerland. Moreover, the level of quality and ambition of projects seeking financing (in terms of size or target markets) has risen sharply over the past five years. This reflects in particular the efforts to train and raise awareness of entrepreneurship in and around the universities. It is also the result of foreign or local role models. 

Finally, the traditional qualities of Switzerland as a business location - quality of life, legal stability, central location and the presence of a qualified workforce - are also supporting factors. 

AREAS OF IMPROVEMENT

However pleasing it may be, the dynamics of project financing are visibly lagging behind other places, particularly Zurich, where growth is even faster, the project base is broader and the circle of investors, due to the size of the economic basin, is more extensive. The same observation can be made about the density of high-growth technology companies (scale-up), which is increasing markedly on our side of the Sarine, but which remains lower than in some other ecosystems or in the Zurich region.

Secondly, in a robust economy, entrepreneurship still competes with the security offered by established structures. The majority of start-up initiators come from other countries. Women are hardly present (barely 20%) among tech entrepreneurs, even though this share is growing and is comparable to that of other ecosystems (especially in the United States). There is, therefore, room for progress in increasing the number of women project leaders.

Finally, since Logitech, there have been few new large-scale successes overall, despite the dynamism and presence in the canton of several potential IPO candidates. The start-up phenomenon, which is responsible for seven of the world's ten largest market capitalisations, is still struggling to produce its global champions in the region.

POINTS OF ATTENTION

The two key ingredients of a knowledge-based economy are skills and access to knowledge. In this context, the main point of attention for the region and Switzerland is to defend the free movement of brains and their connection to European and global research networks (including European funding). A knowledge-based economy cannot operate in a vacuum. 

Another point of attention is the low proportion of main investors based in Switzerland and their virtual absence in the canton of Vaud. This point is critical for projects in innovation, as it is these investors who bring others in their wake. This is partly due to the limited size of the region and the project pool, and also means that entrepreneurs frequently have to seek financial resources outside Switzerland. The fact that they succeed in doing so is a sign of the attractiveness of their projects. However, it also represents a risk for the sustainability of the associated jobs in the region, although the data tend to qualify this risk and show that foreign investment has a rather positive overall impact.

Furthermore, even if they are good overall, the framework conditions remain a point of attention. This dimension, which is more national than cantonal, is the one on which Switzerland scores the worst in the innovation rankings. Without being major obstacles, two areas of attention stand out. To begin with, taxation, although globally competitive, is still a damper on the fortunes of entrepreneurs and employee-shareholders of start-ups, and also on employee stock option plans, which are widely used by start-ups. This can weigh in the balance when it comes to choosing a location. Secondly, in international comparison, there is still room for improvement in certain areas of corporate law in Switzerland - for example, the speed of bankruptcy resolution and creditor protection, which are out of step with other successful innovation ecosystems.

Finally, a fundamental finding for a good understanding of the region's innovation dynamics and the means of sustaining them is that the Vaud ecosystem is relatively small compared to others. This is a structural constraint, linked to the size of the region. However, a certain size allows the innovation dynamic to benefit from network effects. Indeed, innovation is most often the result of encounters between expertise and fields of diverse origins, the number of which increases with the size of the system. It also plays a decisive role in terms of visibility and attractiveness for people and capital.

POTENTIAL LEADS

The purpose of this study is not to provide a recipe and turnkey recommendations. However, a few avenues emerge that seem relevant to explore in order to defend and strengthen the canton's innovation capacities. To begin with, the size - as well as the relative maturity of the Vaud innovation ecosystem - is a point to be explicitly taken into account. For example, platforms, structures to foster the exchange of ideas or relationships between actors could compensate for this and increase the number of meetings. Similarly, attracting talent from other more mature ecosystems (researchers, entrepreneurs, investors, etc.) to the region that would not have come spontaneously would enrich the ecosystem and accelerate its path to maturity. 

Secondly, the difficulty of bringing an idea from a laboratory to the market or, for an SME, the launch of an innovation project remains underestimated. These are difficult steps and anything that can facilitate them should not be neglected. For example, the direct financing of projects within companies or any other measure to reduce risks in the very early stages. 
Once projects have started, in addition to supporting them, they should be retained, especially in stages where their small size makes them easily movable. On the other hand, there is also nothing to prevent the creation of conditions for bringing in projects with potential from abroad. In any case, fiscal conditions impacting on the people with decision-making power, local financing facilities and closer links with local academic resources are levers that could help to better anchor projects. 

 

Detecting, supporting and helping high-growth projects to strengthen is just as important, if not more so, because of the impact on employment of these companies. However, these companies typically face other challenges than start-ups: managing their growth or recruitment. On the latter point, for example, special work permits (possibly in limited quantities) and facilities for the professional and social integration of relatives could be factors for improvement.

Several levers exist to strengthen the innovation ecosystem in the canton of Vaud. Finding the right answers will help the canton, French-speaking Switzerland and Switzerland to position itself in the challenges that will help shape the economy of tomorrow.