By Lucian Schönefelder Jul 06, 2017

As I continue my editorial tour of the world's most innovative technology hubs, I would like to draw your attention to a country that I believe is a true unsung hero of innovation: Switzerland.

Switzerland has a long history in scientific inventions and technological innovation. In fact, Switzerland is the birthplace of the WorldWideWeb. Tim Berners-Lee, an employee at CERN, the European Organization for Nuclear Research in Geneva, created HTTP, HTML and the very-first web browser in order to facilitate the management of complex information at CERN.

A small country with eight million inhabitants, three official languages and no natural resources, Switzerland has the second highest GDP per capita in the world, has led the World Economic Forum Global Competitiveness Index for eight consecutive years and the World International Property Organization Innovation Index for six.

Switzerland is home to household names like Nestle, Novartis, Roche, UBS or ABB. The country's education system is world-class exemplified by ETH Zurich, the federal polytechnic university, ranking as one of the world's best universities for engineering and natural sciences. Access to great talent in Europe was one of the reasons why Google placed its main European R&D center, the largest outside of the U.S. and the third largest globally, in Zurich. Additionally, one of the country's greatest attractions is its strong collaboration between research institutions, large corporates and government institutions, such as the Swiss National Science Foundation which grants funding to research projects.

Nevertheless, many Swiss business leaders think Switzerland is lagging behind in terms of digitization due to lack of an entrepreneurial start-up culture, rigid regulation and limited venture funding, all cited as reasons in a 2016 study by the Polytechnic University of Lausanne, Swisscom and the Swiss Stock Exchange. As my colleague Neil Brown recently wrote, “Switzerland is already a rich country with even richer technical capacity, but it lags in reaching its potential for fast growing tech companies.”

Why is this? Firstly, high salaries for graduates and a strong job market with low unemployment make the opportunity cost for starting a business quite high. Furthermore, cost of living and real estate prices make running a start-up out of Zurich or Geneva incredibly expensive. Lastly, Switzerland is a conservative country, where the social stigma of entrepreneurial failure used to be quite high. As a case in point, both Arago and GetYourGuide, two of KKR's growth equity investments in Europe, were founded by ETH Zurich Graduates, who decided to leave Switzerland and instead run their businesses out of Germany.

This gap between the incredible economic substance and talent pool, and Switzerland's lack of a thriving eco-system for younger technology companies, is exactly what inspired the creation of “Digital Switzerland” in 2015 with a mission of “Making Switzerland a Leading Digital Innovation Hub.” Digital Switzerland is an association made up of the federal government, a number of Switzerland's large corporates, leading Swiss universities, the World Economic Forum and a select number of foreign companies with an interest in the Swiss tech eco-system. Digital Switzerland is an incredibly powerful group of institutions coming together with the goal of helping the country's entrepreneurs start companies, improve access to early-stage funding, and improve regulatory conditions conducive to the development of new technologies and a thriving environment for start-ups.

We first heard about Digital Switzerland through its co-founder Marc Walder, CEO of Ringier (Switzerland's largest media company) and partner in KKR's investment in Scout24. When we learned about this initiative, we were eager to get involved given our positive experiences investing in Swiss technology companies in the past, like Scout24 and SoftwareOne. Soon, we became the only international investor to join Digital Switzerland.

Since becoming a member, we have been focused on exploring new capital pools for Swiss entrepreneurs as well as strengthening the country's cyber security efforts, and more. We have also been applying our learnings from our well-developed network in Israel to promote a cross-border knowledge exchange between Israel, the “Start-Up Nation,” and Switzerland, one of the richest and most developed countries in the world. We believe Switzerland can learn a lot from Israel, which made a concentrated effort in the 1990's to build up the infrastructure for a thriving technology hub in Tel Aviv.

We are excited to support Digital Switzerland in its ambition to build on the country's foundation of innovation and create a thriving technology hub, and support Swiss entrepreneurs in their ambitions to become global technology champions.

The views expressed reflect the current views of the writer as of the date hereof and neither the writer nor KKR undertakes to advise you of any changes in the views expressed herein. Opinions or statements regarding current events or trends are based on current conditions and are subject to change without notice. The views expressed herein may not be reflected in the strategies and products that KKR offers or invests, including strategies and products to which the writer provides assistance with or on behalf of KKR. It should not be assumed that the writer has made or will make recommendations in the future that are consistent with the views expressed herein, or use any or all of the analyses described herein. Further, KKR and its affiliates may have positions (long or short) or engage in securities transactions that are not consistent with the information and views expressed in this document.