How can European startups attract US investment? By building a US story
Richard Goold is a Partner at Wilson Sonsini, a law firm which represents technology companies, from early-stage startups to household names. They IPO’d both Google and Apple, and recently advised Twitter on its USD44 billion exit to Elon Musk.
Richard works in the London office, advising European businesses on one of three things:
How to launch in the US
How to raise investment in the US
How to exit/IPO in the US
Wilson Sonsini work with our partners at Seed Legals, offering advice to businesses that are looking to raise capital. We spoke to Richard to find out how European businesses can best position themselves to secure investment from Venture Capitalists (VCs) in the US.
Why raise capital in the US?
Whilst the VC market is growing in Europe, it’s still relatively nascent compared to the US.
“The VC market in the US is a lot bigger and more diverse than it is in Europe. VC has been successful in the US for a long time, it’s driven bigger outcomes, and therefore you have investors who’ve got the ability to take a longer and broader view,” says Richard.
That’s not to say there aren’t European investors who share this mindset, but the US offers a larger pool of VCs with a proven model for investing in businesses that have driven profit, giving them the opportunity to be more aggressive and take bigger bets.
In addition, the macro headwinds of inflation and currency volatility have made the European market anxious. Whilst early-stage funding remains relatively strong, later-stage growth funding has been squeezed and investors have become more cautious.
Meanwhile, US VCs have shown increasing interest in European businesses in recent years, particularly when it comes to later-stage financing. So naturally, UK and European businesses are turning to the US to plug the growth funding gap.
Building a US presence
As a general rule, US investors want to work with European businesses that have already built a presence in the US. According to a survey from Wilson Sonsini and UK data company Beauhurst, just 1.9% of UK companies which successfully raised Seed and Series A funding in 2018/19 from US-based venture capital funds were able to do so without launching operations in the US prior to financing.
There are some industry-specific exceptions to this rule, namely in the BioTech and FinTech spaces. But for most businesses, US expansion needs to come before US fundraising efforts, not the other way around.
“US investors are typically going to be focussed on how to help the companies in their portfolio grow. That’s not just about deploying capital, it’s about network, it’s about connectivity, it’s about knowledge of growing in that market,” says Richard. “The most successful companies that raise investment from the US are typically ones that already have a US story. And typically those outcomes in terms of exits or IPOs tend to be larger than just European outcomes.”
Richard’s advice to European businesses that are looking to expand to the States is:
Identify the right people to bring onboard and consider moving senior management across to the US.
Keep a detailed eye on the costs and think carefully about where you want to move, because the cost benefit analysis can be wildly different depending on where you go. Consider the cost of hiring people, the cost of rent and so on, and remember that there are options beyond New York and San Francisco.
What US investors are looking for
A recurring theme was that UK investors play for profitability whilst US investors play to win. Whilst short-term profitability is desirable to US investors, the prospect of winning market share and achieving maximum growth is more attractive, and investors are prepared to accept risk in order to achieve that.
In other words, in order to stand out in the competitive US market, you need to position your business as a potential category leader. To achieve that, you must have world class people and product vision, and be able to demonstrate that you can execute fast and scale in a large market.
“The bar is pretty high,” says Richard. “If you’ve got a West Coast VC, then you’re competing against all of the entrepreneurs in the Bay Area. You’ve got to have big ideas, you’ve got to be able to show that you can execute against a plan, and you’ve got to be able to show that you can build a market leader in whatever it is that you do.”
Become a global winner from day one
If you’re an entrepreneur with the vision to scale, it’s crucial that you set yourself up for expansion from day one.
Whether your plan is to establish your business domestically then make the move to the US, or to be a transatlantic enterprise from the outset, you must put in place tools that will enable a frictionless transition as you scale.
One important factor to consider is your financial infrastructure. As a global business, you need financial solutions which will allow you to receive and send money around the world without exposing yourself to currency risk or high FX rates.
Here’s where Airwallex comes in.
With an Airwallex Global Account, you can open 12 foreign currency accounts (including a USD account) online, from the comfort of your home or office. You can manage all your foreign currency accounts from a single platform, and view all your transaction data in one place.
Each account comes with local account details (IBANs) allowing you to easily trade in the markets which you expand to. That includes paying team members and suppliers, and accepting payments from your global customers.
If you’re a European business that successfully secures investment from the US, you can receive funds into your Airwallex USD account without converting them to your home currency. That way you can continue your US expansion efforts without losing a hefty percentage of the funds you’ve raised to FX fees, or exposing yourself to currency risk.
Airwallex is designed to scale with your business, and includes a host of additional features such as multi-currency physical and virtual cards, online payment solutions and market-beating FX.
If you’re ready to take your business to the next level, sign up for a free Airwallex account today.
Tilly manages the content strategy for Airwallex. She specialises in content that supports businesses in their growth trajectory.
Your guide to choosing the right payments provider