Investors hungry for so-called growth stocks seldom find what they are looking for on the Swiss exchange or other European venues, Ebrahim Attarzadeh writes in an essay for finews.first. He looks at the reasons why.

This article is published on finews.first, a forum for authors specialized in economic and financial topics.

The potential growth champions are also here. But either they migrate to the U.S. to go public, or they stay and miss the leap to real size – at least on a global scale.

The list of emigrants is painfully long, especially in future-oriented industries such as biotechnology. Swiss companies such as Crispr Therapeutics, AC Immune and ADC Therapeutics have dared to be listed on the New York Stock Exchange in recent years. So it seems that they were unable to find the investor base in our own country to achieve the growth they were aiming for.

«The willingness of institutional investors to invest large sums in established growth companies is lacking»

There is certainly no shortage of venture capital in Switzerland and in Europe as a whole. We do indeed have a number of courageous early-stage investors so that founders can certainly find the conditions to get promising companies off the ground. What is lacking is the willingness of institutional investors to invest large sums in already established growth companies that want to take the next step.

This is mainly due to the high valuations that growth companies achieve early today, even if they are not yet profitable. European investors are usually not minded to pay these high prices for fast-growing but still loss-making companies. While U.S. investors are demanding strong growth prospects, European investors are looking for positive EBITDA. It is clear what growth companies are heading for.

To retain promising companies in Europe, we need a more risk-taking equity culture among institutional investors. An equity culture that puts a fair price on growth. However, it would be naive to hope for a change of heart among the major capital accumulators. After all, institutional investors are largely constricted by a regulatory framework that does not exactly favor growth-oriented investing.

«This strategy has four pillars»

We, therefore, need a holistic strategy to strengthen growth companies and mobilize capital for them. This strategy has four pillars.

First, our governments – in Switzerland as well as in the EU – should implement a far-sighted industrial policy that defines key areas for future growth and promotes these areas structurally, for example through innovation-friendly regulation. The focus should be on technology-driven industries: biotechnology, artificial intelligence, space travel, green tech and others. The industrial policy to date can be benevolently described as «historically grown». It is hardly strategically conceived. And so it does not take adequate account of our strategic economic interests in global competition.

In addition to this structural framework, secondly, what is needed is a European growth fund that actively invests in the most promising technology-driven growth companies. While the legal framework and investment guidelines must be politically developed and thus democratically legitimized, the fund manager should be able to act completely independently of the respective government in its decisions. The participation of high net worth individuals in such a fund should also be made possible.

«Switzerland would also benefit massively from this»

The third pillar is the creation of a European technology stock exchange, bringing together the best technology companies on the European continent and thus able to attract capital from growth investors from around the world. Switzerland would also benefit massively from this.

And finally, the regulatory barriers that currently prevent institutional investors from investing more in growth companies must be removed. In particular, the capital requirements and accounting rules for insurance companies and pension funds must in principle become more equity-friendly and make it easier for investors to «withstand» temporary losses.

«Many of these growth companies are created on our doorstep»

Sometimes the debates in our industry make it seem as if it is God-given that the U.S. is the «place to be» for growth companies. This is by no means the case. Many of them are created on our doorstep. We should give them reasons to stay here. To do so, we need to set strategic decisions now.

Ebrahim Attarzadeh is the CEO of Stifel Europe Bank (formerly MainFirst Bank) in Zurich. He started his career at Deutsche Bank in Frankfurt am Main, where he worked for six years mainly in equity trading and structured derivatives. He joined MainFirst in Frankfurt am Main in 2006 and moved to Zurich in 2011 to build the bank's Swiss business. He holds a Master of Science in Economics from the University of Heidelberg.

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