For the majority of European technology companies, expanding to the US is a ‘when’, not an ‘if’.
The US accounts for 50% of global R&D investment and has the cultural diversity, reputation for innovation, global reach, talent base, infrastructure and scientific/educational institutions to serve as a base for innovative companies around the world.
Despite the US being an inevitable reality for most European founders, it is a difficult move – one riddled with high expenses, fragmented communication, frequent travel and plenty of uncertainty. Frontline consistently heard this from entrepreneurs who had completed the journey, so we put together the Setting Up in the US Playbook. I sat down with and interviewed 50+ founders and investors to uncover and collate their learnings around expanding to the US.
To complicate this already messy move, there are a lot of myths floating around the ecosystem that we’ve seen European startups stumble on. Trading upon these assumptions can create risk, waste time and cost money for founders. Here are the top 9 myths – and the reality behind each statement.
Investors are funding nearly everything. It will be easy for us to raise money from US investors.
While tech press may make it seem like ‘everything’ is raising a round, there is 100x the competition for American investors’ money because of the sheer quantity of startups in the US. AngelList alone counts nearly 80,000 startups on their platform. Even if investors seem to be more enthusiastic, do not underestimate the traction expected by them prior to writing the check.
According to CB Insights data, European companies raised an average of $8.75M prior to receiving funding from a US-based investor.
This is also generally at the Series A stage (28% of US investors engaged with European companies first at this stage) or at the seed/angel level (24%).
2. It won’t take long before I meet with top-tier VCs.
Perhaps it is easy to end up in the inbox of an associate at a large firm – most of whom will promptly forget about your company at the end of the meeting. It is actually quite difficult to end up at the partner level of decision, particularly at prestigious firms. Even with a warm introduction from a respected investor, you can expect a few weeks before meeting a partner.
3. Networking will be a breeze – there are so many events going on every night!
Yes, there are plenty of tech/startup events being organised. However, very few of them will actually be of any value to you as a startup founder. Ignore the hype and attend a few events recommended to you. Focus on building long-term, high-value relationships – not peppering business cards around at noisy events.
4. Once we receive the funding, it will be easy to ‘turn on the machine’ and scale.
Plenty of well-backed startups have gone on to fail, despite having had home-court advantage and raising massive amounts of capital (see: Fab, Everpix, Color). Do not assume that funding is the only barrier between your company and success.
5. We’ve reached product-market fit in our home market, so we won’t need to adjust much for the US.
Do not make assumptions about your American customer based on what has worked in your home market. Your US product may have to be adjusted, as feature requirements may be different based on industry standards, regulatory conditions, etc.
In addition to this, make sure that your first American customer represents the market. We have seen companies cater their entire product to the first large customer, only to realise later that this customer was an outlier.
6. The earlier we get to the US, the better!
Take some time to figure out product-market fit. You will underestimate costs – both in employee salaries and activation. Prove out your market and the data will tell you when timing is appropriate. There is no “one time fits all” for European companies coming to the US.
7. Corporate partners are eager to meet.
‘Technotourism’ is very real – we see founders wasting a lot of time parading and Instagramming through the offices of [Big Tech Company Name Here]. While corporate employees may easily agree on your company’s value proposition, it will be significantly more difficult to meet with decision-makers who can actually pull the trigger and write the check.
8. I can run all of my legal, tax and HR from the EU using my existing service providers.
The US is an incredibly complex legal and tax territory, with varying laws and regulations across the 50 states. It is absolutely necessary to have on-the-ground lawyers and accountants who fully understand the landscape and can give you tailored advice. You will need to be careful about your US operations even before you ‘make the move’ – for example, some startups can still receive audit notices and be required to file tax returns/pay taxes on revenue generated from contracts secured while on business trips in the US.
9. This will be a seamless move, because I’ve already done most of the hard work with my company at home.
Nothing good comes easy. You are essentially ‘starting up’ all over again, so treat this expansion as such. Approach this like you are still a new company with limited cash (which will most likely be the reality) and spend time figuring out how your business will scale in the US.
In the short-term, navigating operational issues like visas, incorporation and taxes will waste a lot of time and money. Frontline Ventures created the Setting Up in the US Playbook so that European founders can accelerate through those logistical hurdles and concentrate on your competitive advantage – determining product-market fit.
Unfortunately, there is no ‘playbook’ to product-market fit. This de-risks you for US VCs and will be the most important task as you set up in the US. As a founder, it is your responsibility to figure that out.