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Most entrepreneurs with global ambitions will have the US market in their sights as part of their business journey, for good reason; the US is not only the largest consumer market in the world, but also home to the world’s largest pool of venture capital investors.
Businesses that crack the US can therefore put their global growth ambitions into turbo mode. So, the question for many entrepreneurs is not if they should launch in the US but when. So what are the key considerations for UK and European entrepreneurs looking to go stateside?
Either go early or go late
Timing is crucial. We find many of the most 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 and so build their product offering for the US very early on. Some even move their founding team to the US with the aim of scaling the business and very quickly raising money in the US.
Others may choose to go later, doing multiple funding rounds out of Europe and the UK and building their product offering for these markets first. Eventually, however, they frequently get pulled into the US by user growth and customer traction.
Often, the middle ground is less successful: companies either find they end up losing ground to US competitors or they face unnecessary costs and distractions too soon.
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. Whatever the route, however, one of the most important points to bear in mind is cost. Having a US presence typically adds a lot of additional expense to the operating costs.
Pay close attention to costs
By far the biggest expense in the US is talent. The cost of a top-tier head of sales, for example, is normally over $400,000 a year,before additional costs like bonus and private medical insurance. Staff costs will also vary by city with New York and San Francisco commanding a significant premium.
But perhaps the most important cost consideration when hiring is the nature of employment contracts. Businesses may still be liable to pay payroll taxes or severance pay on ‘contractors’ if these people are deemed full-time employees according to state or federal laws. So, businesses are best to seek specialist professional advice from their law firm and recruitment firm when hiring and drawing up contracts and negotiating US remuneration packages.
Setting up, on the other hand, is rarely the problem as it is normally relatively cheap and hassle free. The main exception is for regulated businesses – say a fintech or an insurtech – where the costs can be high, given the hurdles of federal and state-by-state regulatory compliance. Many such businesses therefore tend to wait until later in their lifecycle before launching in the US.
Choosing the location
~Businesses tend to set up a US company to operate out of the US. In most cases, this will be a wholly-owned subsidiary. There are strong reasons 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. By creating a wholly-owned subsidiary, the parent company can also avoid being drawn into US tax and employment law disputes.
The most popular state in which to incorporate is Delaware. And for good reason. Delaware is the US state that most closely resembles a national corporation, making it the most 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.
Choosing where to locate a US office is less clear cut, however. There are several key considerations which should drive a location decision. These include proximity to talent; the cost of doing business; how much travel will be needed (in which case being near a major travel hub can make a lot of sense); and what sort of government resources are available.
Additional consideration includes proximity to customers and potential customers. Some also choose to be close to potential investors or corporates they have strategic relationships with. If you have set up a sales/customer success team that will be reliant on the UK HQ and support staff then being on the East coast can be more efficient when it comes to time zones. Some cities like Denver, Dallas or Miami may go that extra mile in attracting businesses, providing support such as financial capital, office space or even free marketing services.
Preparing for the pitch
Many innovation-driven businesses that set up in the US have their eyes on attracting US investors. This makes complete sense as, particularly with early-stage companies, many US investors prefer to see significant traction in the US market before they invest.
When pitching to US investors, UK and European businesses should be aware of noticeable cultural differences, however. While UK and European investors may favour qualities such as authenticity and strong financial discipline, US investors are looking for entrepreneurs with a polished and confident pitch and a clear story about how they are going to achieve multiple unicorn status.
There are reasons for this. Out of every ten investments, Silicon Valley investors typically expect seven to fail, two to break even and only one to succeed. So, these investors are typically looking for businesses that can achieve stratospheric exit multiples. Compare this to British private equity investors which tend to expect seven out of ten investments to make some sort of financial return, two to break even and only one to fail.
So, when pitching to US investors, UK and European companies need to deliver an investment story that meets the expectations of their potential US investors. US investors often find that UK and European businesses are too focussed 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’.
The dream ticket
For UK and European businesses, there are plenty of benefits of entering the US from tapping the world’s largest consumer market to attracting sizeable US investment dollars. But the costs of launching in the US can be expensive. So, founders should do their research, get their timing right and seek expert local advice.
Innovation businesses that are successful in the US can dramatically accelerate their global growth and open the door to many more investment opportunities. 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.
Learn more from industry experts on how to land and expand in the US via the recent SVB Going to the US Webinar & SVB’s Global Gateway.
Ben Tickler is director of venture & growth at Silicon Valley Bank, UK Branch.
Tech Nation is helping UK scaleups de-risk and accelerate their growth into the US market with a new Advance course available. Find out more here.
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