Spotlight: Interview with Alfred Scheidegger
SECA Newsletter By Valerie Thomson, September 4, 2003
This month's spotlight asks three question of Alfred Scheidegger, founding partner and CEO of Nextech Venture, a CHF 70 million early stage venture capital investor in life sciences, based in Zürich. Founded in 1999, Nextech has led investments in three portfolio firms in Switzerland and Germany, co-lead one in Germany and co-invested in two others. The firm is one of SECA's newest members.
1) The Genetics Company, one of Nextech's earliest investment is an acquisitive company, having already completed a number of transactions. What challenges face early stage biotech companies in Switzerland?
If you have the right management in place, strategic acquisitions are a great way to do build up the right constellation of products and people. During the negotiation process, it becomes clear if the teams will be able to work together in the long run.
Sourcing acquisition deals in Germany offers great targets but on the other hand is difficult by the "insurance" program the German government had in place until recently. When venture backed firms in Germany fail, the VC can receive up to 50 percent of his investment through government entrepreneurial promotion schemes. In a way, it can be in the investor's best interest to let a company be liquidated, than it is to merge it or involve it in a trade sale where low valuation pre-dominates, risk is still involved and fresh money may be required. We see acquisition as one of the major way to grow fast. Organic growth is often inappropriate - it takes too much time. To build sustainable and value-driven companies within a competitive timeframe we must pursue internal growth as well as growth by M&A.
2) How do you integrate the acquired assets, how to find and capitalize so-called synergies, while at the same time running a tight R&D operation.
Financing via M&A activity is viable and can be attractive through broadening the investors base. The assets and the people have to fit together. At least one manager in the two teams has to be capable of driving the process and deal making, usually he or she origins from the predator firm.
Driving life science acquisitions is a way to increase the product portfolio in a biotech or life sci-ence company or/and to forward-integrate its business. Such "forward integration" can be achieved for instance by acquiring a more advanced product which already entered a clinical phase study. Another one can be by some good chemistry which usually lacks in young biotech companies and which is often a bottleneck in drug lead development. Such "value-acquisitions" improve the chances for further financing - by merging or acquiring another firm, the investor base can immediately be broadened as investors from both companies join in the new firm.
Nextech still has to prove such an M&A strategy but we believe if the right team is in place, the potential for building strong companies is great. Only leadership companies will bring the inves-tors the targeted extraordinary profits. We have to acknowledge that only a handful of companies make it to the global market.
3) A lot of people would like to see an increase in the success ratio for young technology compa-nies here. You've been on the venture capital scene in Switzerland long enough to know the strengths, weakness, and opportunities. What do you think it will take to improve or increase entrepreneurship here?
The management remains the challenge and one of the bottlenecks. We have good people in Switzerland, and there is an even larger pool of talent in Germany. Excellent CEOs anywhere are a rarity. I don't believe it can be educated into the economy. Those few who have the spirit and the killer instinct will emerge and take over. The quantity of such leaders is what will dictate the number of success stories.
There is one important issue lingering around with founding entrepreneurs: either they set their goals too low - they don't strive high enough, or their vision is large as we know it more from the U.S. but the sense for reality is absent. Both shortcomings are fatal for creating a big company. An early stage firm has to make hard decisions early on in order to grow into a multi-million Euro business. Half-hearted decisions often turn out later to be road-blocks for the big thing. The prob-lem is a little less acute in the biotechnology business since the drug market usually is by nature a worldwide and therefore billion-revenue market. Such a company is either up or out.