- Moving to the US requires a network of partners that understand your business, the evolving technology space, and the unique attributes of the American market.
Faced with challenging public market conditions, the ongoing conflict in Ukraine, and greater due diligence from investors, many businesses are weighing up whether or not it’s the right time to consider taking their offering to US soil.
Although every business faces unique challenges, there are some common considerations that can make it easier to decide whether or not it’s time to expand.
The current state of the States
Before deciding whether or not to expand into the US, it’s crucial to understand what’s happening in American markets.
First, the “bad” news.
To deal with inflation, the Federal Reserve has not only raised interest rates, but is also set to remove excess liquidity by reducing the size of its balance sheet - in keeping with a shift in policy from quantitative easing to quantitative tightening.
The innovation economy has also been affected by global supply chain problems, and competition for top tier tech talent as people re-evaluate their careers.
Once the recession hits, the impending layoff wave that will inevitably come as companies reassess their growth plans may well make it easier to find key individuals – although only time will tell.
However, these challenges might be the trigger for new opportunities.
With public markets in flux and tech stocks returning to 2020 levels, US investors are on a “flight to quality” – actively looking for resilient operating models. We have seen them leaning towards software-as-a-service (SaaS) companies. Last year alone, US SaaS VC investment reached $94 billion spread across 4,459 deals1 – although businesses with strong fundamentals remain attractive regardless of sector.
Greycroft’s Will Szczerbiak, who works closely with businesses in Australia and New Zealand, believes this renewed focus on fundamentals is positive, particularly for the innovation economy:
“We expect US venture activity to remain robust. While we expect a pullback from the record levels in 2021, investors will continue to back strong entrepreneurs with sound business models attacking big market opportunities. Taking a long-term point of view is necessary in venture and our theses in our four core areas of Enterprise Software, Fintech, Digital Health, and Consumer Internet are mostly unaffected by short term macro volatility. We are investing behind major secular shifts that can take several years and even decades to evolve. We will actively seek new investments for as long as we believe technology can effect these shifts.”
Opportunity or obstacle?
As is so often the case, obstacles can be opportunities in wolf’s clothing.
As Michael Tolo of Blackbird VC, who are also focused on opportunities in Australia and New Zealand, points out, “Generational companies see uncertain times as an opportunity to distinguish themselves from peers – to build deep relationships with the best customers and attract the most remarkable technical talent. We see a rich pipeline for both in the United States and believe that founders should consider an offshore presence where there is an advantaged path to sales or access to a constrained supply of technical talent.”
Despite short-term challenges, the combination of dry powder, hungry investors and exceptional tech talent makes a move to the US a potential gamechanger.
But only if it’s the right time for your business.
Too often, businesses view this type of move as something they “have to do” rather than waiting for the customer traction they need to enter this challenging market confidently.
Taking the time to show that there is a product and market fit for your Minimum Viable Product (MVP) on home shores before coming to the US can help you to reassure potential investors. Proof points always outweigh promises.
This approach is also true of funding. While there’s no best practice, companies in EMEA specifically tend to either plan their move early in their strategy and grow on two fronts, or wait until they have done several rounds of local or European funding to ensure they’re robust enough to take that next step1.
Targets, technology, and team inform timing
Timing is the tip of the iceberg when it comes to navigating a market as diverse as the US: you’ll also need the right technology, team, and targets and use them to create a three-part roadmap2.
For Tripp Brockway, VP Sales, Americas at SaaS payment unicorn Paddle, starting with the right expectations – and team – was essential:
"The US is a huge market, it’s also a fiercely competitive one. When you start out, take the time to do your research and align expectations. The market dynamics are different, so expecting the same results in the US as you do in EMEA might be a recipe for failure.”
We started by getting the right founding team here in New York. We combined ambassadors from Paddle HQ who had deep company and product knowledge with a solid group of in-market talent who helped us drive early growth and credibility.
With a strong founding team in place, we then focused on an initial group of “beachhead” customers (early adopters) who helped create the social proof needed to expand rapidly."
Paddle is also a prime example of the type of technology that businesses need to solve US-specific challenges – like dealing with a complex sales tax landscape – to accelerate progress.
“When I think about the challenges that come with US expansion, it’s everything from collecting payments and managing invoices to navigating the sales tax landscape.
Using Paddle automatically solves so many of these. Growing SaaS companies partner with us and have instant access to a global payment infrastructure - that’s local payment methods, compliant invoices and - the one we fear the most - sales tax compliance, completely taken care of”.
Daniëlle Keeven, VP Finance at Paddle
Of course, there’s a long list of additional factors to consider. Beyond sales taxes, deciding what type of business entity to establish, understanding what taxes will be applicable, and choosing between a subsidiary model or flip up are just some of the important issues to address.
Plus, because each state has different tax withholding obligations, you need to carefully consider where your employees are based – which is more complex given today’s remote working environment.
Given how specific these issues can be, we highly recommend working with qualified law and accounting firms that specialize in cross-border expansion to ensure you get the guidance you need.
Building powerful partnerships
In uncertain times it can be tempting to tap into new markets, and there’s arguably none more attractive than the US.
However, navigating the practical aspects of that kind of move – particularly in challenging conditions – takes a village.
Working with a partner who is not only familiar with the market, but also able to connect you to the broader ecosystem to hit the ground running, can be a defining factor in whether or not your business thrives.
Simon Bumfrey, Head of Relationship Banking for EMEA, suggests that “For businesses looking to expand to the US, it is mission critical to work with experienced global partners who understand their business, the rapidly evolving technology space, and the unique nuances of the American market”
Thinking of expanding? Feel free to contact Sara Rona or Ben Tickler.