Chasing the American Dream, Part 2

This is the second article in a two-part series. See Part 1, Chasing the American Dream, to learn more about the challenges of expansion to US markets and read what others have to say who have done it.

Making connections with investors

Many entrepreneurs with global ambitions will have the US market in their sights as part of their business journey. The US is not only the largest consumer market in the world but also home to the world's largest pool of venture capital (VC) investors.

Strategically speaking, expansion into the US market is often accompanied with the goal of raising US VC dollars. Daniel Glazer, who leads the US Expansion Group and London office at the Silicon Valley-headquartered tech law firm Wilson Sonsini, says that expansion into the US market could be seen as a necessity to US VC investors: “US VC investors often will question why a non-US startup isn’t looking to raise in its home market; demonstrating significant US traction backed by US operations is a great answer.”

Understanding how to approach US investors is incredibly important when planning a US launch. In other words, building relationships with VC investors requires building relationships with others who can introduce you and help you develop a network. “If you’re serious about wanting to raise venture capital in the United States,” says David Rose, CEO of US Expansion Partners, “then mastering the art of seeking warm introductions to the right partners at the right venture capital firms will materially increase your odds of success.” David adds, “Be thoughtful and strategic about your professional relationships and always be mindful about which firms can help with investor introductions.”

"The best path to early success in the US market is for the company's founder to personally lead the initial sales engagements themselves. Only the founder has the unique market insights and detailed product understanding needed to uncover initial product-market fit for the US, which is often quite different from their home market." 

David Rose, CEO

US Expansion Partners

Businesses that crack open the US can put their global growth ambitions into turbo mode. So, the question for many entrepreneurs is not if they should launch in the US but rather when. What then are the key considerations for UK and European entrepreneurs looking to go stateside?

Go early or go late

Timing is crucial. Many successful businesses follow either a “go early” or a “go late” strategy in the US.

Some successful businesses, even if they launch first in the UK, see the US as their “make or break” market. As a result, they build their product offering for the US early on. Some even move their founding team to the US with the aim of scaling the business and quickly raising money in the US.

Others may choose to go later, doing multiple funding rounds out of Europe and the UK while building their product offering and go-to-market strategy for these markets first. However, with that said, they frequently get pulled into the US by user growth and customer traction.

The decision to enter the US market early or late can be sector dependent. For example, a SaaS company might want to get their service in the US market early, while a consumer company may wait until they have significant revenues and product/market fit in their home market at the onset.

Of course, a US presence is not essential for every business. It is possible to sell into the US remotely, for example. And, for businesses that do decide to go to the US, there are many ways to do it from organic growth to joint venture to acquisition.

Preparing for the pitch

Many innovation businesses that set up in the US have their eyes on attracting US investors.

When pitching to US investors, UK and European businesses should be aware of noticeable cultural differences. While UK and European investors may favor qualities such as authenticity and strong financial discipline, US investors are looking for entrepreneurs with a polished, confident pitch. US investors are interested in a clear story about ‘how’ the business is going to achieve unicorn status, and what KPIs they’ll meet to get to a path of profitability.

So, when pitching to US investors, UK and European companies need to deliver an investment story that meets the grand visions of their potential US backers. US investors often find that UK and European businesses are too focused on reaching break even when they, as investors, are looking for much riskier bets with massive upside and founders who are keen to put their “pedal on the gas.”

“UK and European management teams need to be conscious of whether potential investors are investing ‘to win’ or investing ‘to not lose,’” says Glazer. “Ensuring that the company’s and its investors’ expectations are aligned is crucial.” 

Pay close attention to costs

“The US is an ROI [return on investment] play,” according to Glazer.  “UK and European businesses expanding to the US will find the cost of doing business to be higher, but if they have US product-market fit the commercial upside typically far exceeds those incremental costs.”

By far the biggest expense in the US is talent, and the US talent pool is generally knowledgeable when it comes to employment negotiations. Rose cautions, “If your company wants to compete for top talent in the US, you had better be prepared to answer the detailed questions a potential employee may ask during the interview process.” Further, he goes on to say, "Being 'talent ready' to hire in the US market requires extensive pre-planning, research and decision making. Hiring talent in the US is very competitive and US employees can be quite savvy on employment details."

The cost of a top-tier head of sales, for example, is normally over $400,000 a year, and that is before additional costs like bonus and private medical insurance. Understanding who to hire, how to hire and why to hire – are all crucial. Staff costs can also vary in top tech hubs, like New York and San Francisco, commanding a significant premium.

One important consideration when hiring is the nature of employment contracts. Businesses may still be liable to pay payroll taxes or severance pay on contractors if they are deemed full-time employees according to state or federal laws. Businesses should consider seeking specialist professional advice from their law firm and recruitment firm when hiring, drawing up contracts, and negotiating US remuneration packages. Another option is to rely on professional employer organization (PEO) providers, like Justworks or Trinet, to help handle all the HR details of outsourcing, payroll, processing, benefits, etc. Additionally, platforms like Deel can provide a solution for hiring and managing remote teams and help simplify global payroll and compliance to help navigate complex employment laws.

US tax and employment law considerations

If operating out of or selling into the US, businesses tend to set up a US-based company. In many cases, this will be a wholly owned subsidiary. There are strong considerations for this. Most notably, UK or European businesses that hire US employees directly create a direct line of liability with the parent company, an inadvisable step given the more litigious nature of the US. In addition, selling to US-based customers without a US-based entity can make revenues coming from Europe subject to US tax law. By creating a wholly owned subsidiary, the parent company can also quarantine itself from US tax and employment law.

In the US, a popular state to incorporate in is Delaware. Delaware is the US state that resembles a national corporation, making it an efficient and cost-effective state from which to set up a nationwide business. It also has tried and tested corporate governance laws, meaning investors tend to be very comfortable investing in Delaware incorporated businesses. However, there are always nuances and sometimes other jurisdictions may be a better fit for your business model. Always consult a professional to understand your positioning.

"The US is an ROI (return on investment) play. UK and European businesses expanding to the US will find the cost of doing business to be higher, but if they have US product-market fit the commercial upside typically far exceeds those incremental costs."

Daniel Glazer, Managing Partner

Wilson Sonsini

Choosing the location

However, where to locate your US office is sometimes less clear cut than choosing the business entity for your startup or business. There are several key considerations that should drive a location decision:

• Proximity to talent
• Proximity to customers and prospects
• Proximity to existing investor relationships
• Cost of doing business
• Travel expense
• State / city government resources available

Some cities and states may go the extra mile in attracting businesses, providing support such as financial capital, office space or even free marketing services as they promote initiatives to develop with their tech ecosystems. The main takeaway is to examine as many considerations as you can when choosing a US office location.

Conclusion

For UK and European businesses, there are benefits of entering the US – from tapping one of the world's largest, dynamic economies with a huge customer base that provides potential for rapid revenue growth to attaching sizable US investment dollars. With that said, the costs of launching in the US can be expensive, so it is critical to get their timing right and seek expert local advice from legal and recruitment firms. Founders should do their research, understand the regulatory environment and align with the right strategic partners to help expand and scale.

Innovation businesses that are successful in the US can dramatically accelerate their global growth and open the door to additional investment opportunities and a faster path to exit. Indeed, businesses that can display European attributes of strong financial discipline with US-style aspirations could well be the dream ticket for many US investors.

Acknowledgement

Thank you to Daniel Glazer, Managing Partner at Wilson Sonsini and David Rose, CEO of US Expansion Partners, for sharing their expertise for this article.

SVB Global Gateway is a dedicated international business development team that provides the right mix of products, services and strategic advice to VC firms, VC-backed startups and growth stage companies expanding into the US. The team focuses on international markets, including innovation centers around the world, such as Latin America, Europe, the Middle East and North Africa, Asia, India, Australia and New Zealand — locations where SVB may not have a physical office. The Global Gateway team has worked with international clients for more than a decade across all stages and has years of experience helping clients navigate the challenges and complexities that arise in their expansions to the US. The team’s mission is to empower visionary companies like yours by providing comprehensive banking solutions tailored to your unique needs, while ensuring a seamless banking experience.

As part of the SVB UK/SVB US split, a significant portfolio of European companies with a US nexus have transitioned into SVB’s US team.  This move aligns with SVB’s long-time commitment to provide dedicated support for companies and their cross-border banking needs.