Expanding to US: The need-to-know guide
We got together with expert Daniel Glazer to discuss the most important considerations in expanding a startup business to the US market.
About our speakers.
Daniel Glazer is an experienced American technology lawyer, strategic business advisor and the founding partner of Silicon Valley-headquartered Wilson Sonsini’s London office. The firm built its reputation as the first tech-focused law firm in Silicon Valley, representing the likes of Google, Apple, Twitter, Netflix, and Linkedin (among other major household names) from their earliest days as startups through their IPOs and beyond.
Katie Kim is an Investor with Forward Partners, where she invests in pre-seed and seed stage companies within the sectors of applied AI, marketplaces and e-commerce. Prior to Forward, she was an Investor with Vanedge Capital, a Series A fund based in Vancouver Canada, where she invested in machine learning, SaaS and digital media startups.
When should I start fundraising in the US?
As a general rule, for US-led seed and Series A rounds, US commercialisation typically comes before US fundraising. At these relatively early stages, an investor will want to see traction and often existing management on the ground so they can leverage their expertise in building companies and utilise their networks to help the business grow.
If you do not have an existing US story - in particular traction or metrics on market share, then you need to be able to convince the investors that you are better than the homegrown US companies they could potentially invest in instead. US Seed and Series A investors don't build British businesses, they build American businesses.
Early-stage US investors will often 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.
What are US based investors looking for in a pitch?
In comparison to the UK, US investors do not need - or even want - to see profitability at an early stage; they tend to be more interested in seeing the company become profitable at scale. Especially in Silicon Valley, US investors will want to see a clear pathway for every company they invest in to return the fund.
Think about what they need to hear for your company to fit this profile. You need to go in confidently and sell a big, long term vision - and to do that, you need to know exactly what you want to do with your business and how it matches with the expectations of your investor audience.
[ When pitching to the investors in the US you will need to understand their exit expectations and how and why they invest in companies]
American investors investing in high-growth, high-potential startups generally are not looking to exit early through a secondary sale - they are in it to win it until one of the three true outcomes - IPO, M&A or bankruptcy.
For more, here’s Wilson Sonsini’s US Expansion and Fundraising FAQ
When should you consider establishing US based operations?
There are good arguments for both early and later stage market entry. Essentially, it depends on your business, your market and appetite for risk.
“For companies that go early it means that from the get go they will know that the market for their product or what they are building will be in the US. It doesn’t mean that they will move the whole company there but will have for instance the management team placed in the US.
In the past couple of years there has been a rise in the trend of companies starting to think about expanding to the US in the later stages. These are businesses that are firstly established in the UK, have raised a couple of domestic financing rounds and have product market fit in their home market. Then, after success selling remotely to the US and building a bank of US contacts, they will hire locally or move key people there.
What if I am not quite sure yet but want to explore the option with low risk?
Selling your product remotely is a great way to explore a market with low risk and cost. It’s one of the most common ways that companies begin a move to the US and allows them to make connections with the customers and build market share. After a while, you will know whether having a team over in the States permanently will provide you with better opportunities and allow you to increase your customer base more efficiently.
[ Selling remotely in the US does not require your company to be based there or for you to hire anyone over there]
Before setting up permanently, many companies initially hire a US-based contractor or sales agent. For these types of hires you are not required to set up a US company or the associated infrastructure.
Where should I set up in the States and what is there to consider?
Incorporating a US subsidiary is usually sufficient for a UK business to establish US-based operations; a US parent company typically is needed only if demanded by US investors. The most commonly seen US subsidiaries for UK startups and scale-ups are incorporated in the US state of Delaware and then are registered to do business in those states where the US subsidiary has employees and/or offices. You will need to provide employment documents based on the laws of the specific state you are operating in. See more in this great article here: When should a UK startup establish a US company?
[ Don’t provide employee equity out of the US subsidiary - register for a US 409(A) Valuation to provide equity to US employees out of the UK parent]
When you choose your location, think of the below:
- Where is the talent you need to hire?
- What is the cost of running your business in that geography?
- Where are your customers? Do you have to be near them?
- Where are your next stage investors coming from or where are your current investors placed?
- How are you managing your team in the US? Think of the time zone differences!
- Government resources - local government incentives to help to entice businesses to set up.
- Do you need to travel? America is huge - think where and how often you need to travel between states.
- Think of your exit strategy - be near to your potential acquirer to build that relationship.
How long will it take to get my business ready to operate?
If you are hiring local US employees, the five main areas you need to have in place before starting to operate are: law firm, tax accountancy, outsourced payroll and benefits provider, business insurance, and banking. This tends to take about three weeks to put in place depending on the individual parts and which providers you decide to go with.
The longest lead time will be immigration which can take a minimum of six months to have all the right paperwork in place and the application process completed. This applies when you need to send someone (or go yourself) from the HQ in the UK over to the States to work (not when the individual is simply attending meetings).
Wilson Sonsini Goodrich & Rosati US Expansion in 10 steps checklist
USEFUL LINKS: Wilson Sonsini US Expansion and Fundraising FAQ
Replay the webinar HERE to find what else was said and discussed!