Thinking about expanding across the pond? ‘Cracking America’ may well be a dream for many startups, but for some it is a very present reality.
Taking the plunge and expanding in US markets takes a very different approach, mindset and strategy. We speak to experts about what it takes to raise venture capital and funding from US investors, and ensure you have the right approach before you make that move.
Daniel Glazer is an American technology lawyer, strategic business advisor, and the founding partner of Silicon Valley-headquartered Wilson Sonsini’s London office and US Expansion Group. Aaron Ross is the Co-CEO of Predictable Revenue™ Inc, helping to ensure success in building an outbound prospecting program that creates sales growth. They’re joined by our Co-Founder and CEO, Paul Fifield for the session.
During our ‘In This Together’ live broadcast, Daniel, Aaron and Paul share their thoughts on the best approach when thinking of scaling into US markets. Expanding across the pond to the United States is something that some businesses think about at some point in their growth journey, usually when they have hit £1 million turnover or more.
The US is one of the biggest markets in the world, with a lot of consumers who want to try new things — a vast opportunity for many businesses.
So what should you be thinking about in the early stages?
- You can start to get traction in the US before you go by researching the market. If you have some team over there already, then that’s great.
- Really know WHY you’re wanting to break into the US market. Even if you’re a tech company, it’s not 100% necessary that you need to be there.
- The most successful companies either go to the US early — they start in the UK, building their product here. But they realise the real market is America, and they finish setting up over there.
- The alternative is to go late — which is you build out the foundation of the business in the UK and Europe and get traction in the US.
- Once you know you have real product market fit, it’s then worth taking the plunge. Some companies don’t have that, and go halfway. They go to the US too quickly without proving there is a fit there, and they haven’t stabilized their UK business.
What about raising capital with US investors?
Pre COVID-19, there was a myth that it was easy to raise a seed round from America. In 2018 and 2019, there were 2800 funded businesses. 52 of these already had some kind of base in America.
Generally speaking with seed and series A funding, US expansion comes first, then seed funding, not the other way around.
With the arrival of COVID-19, raising seed capital has changed somewhat. Since the pandemic, more investors feel comfortable investing remotely. Seed rounds can happen online — it’s not completely common, but it’s starting to happen.
Remember, it’s always best to have some US traction rather than none when thinking about raising capital.
Does there need to be a radical change in the British entrepreneurial mindset?
It’s all about shifting the traditional British to sales and marketing, making it feel more positive and appealing.
Treat sales and marketing revenue like a product, with the same metrics. You need a predictable lead generation income, a sales process to close them, and the ability to invest the time.
In terms of mindset, think about:
- Defining what success in America looks like. Is it just a foothold in America, or do you want to be a market leader in the States?
- Think about risk. Is there a phase one? How well does it work? What kinds of buyers? You need to know something about the market before you hire those huge players in your sales.
- Sales and marketing activity should fall under the same person. One of the main reasons companies get business is because they are spending lots of money, and hiring the best people. Don’t make a blind leap and hire too early.
- Some companies throw money at the US market and push their way in, instead of being led by customers and being pulled into the US. But you can also go too slow and not really understand the revenue growth and your net dollar retention.
- The founder doesn’t always need to be on the ground in the US. If you feel that success or failure in the US is your success or failure in your business, you need to put your best sales teams there.
How do you level the playing field between your home country and US market?
In terms of organisational culture, the office of the CEO is very highly regarded in America as a role in comparison to the UK, so keep that in mind.
Share options is another factor that is very different between UK and US employees. It’s very common to have a 20% pool for share options over in the States. In the UK and Europe, there aren’t many individuals that get wealthy from share options.
These are just two different approaches to business — one isn’t better than the other.
Level the playing field by:
- Using American spelling in all of your documents.
- Using dollars when pitching revenue goals, and use American case studies to show traction in the market.
- Adopt an ‘America first’ mindset in your interactions.
What about the legalities of expansion in the US?
There’s no need to create a US company until you have US employees.
- If you’re a LTD company, you set up a Delaware C-Corp subsidiary fully owned by the UK parent.
- Next, you’ll hire employees, register to do business in New York as a foreign Delaware corporation, provide your employees with New York employment documents, and roll this out to other states.
- When you provide employee equity, do it out of the UK parent company- not the subsidiary.
- You then extend the EMI scheme to the US and get a 409 valuation, which evaluates your company for US tax purposes.
- Lastly, turn your B2B contracts into American contracts.
Thank you to Dan, Aaron and Paul for the excellent advice.
For more expert top tips, join us on Thursday 22 October 2020 for the inaugural event of The Masters Series — Our new events programme showcasing best in class speakers in industry that aims to inspire, educate and help you grow your business. Join us for ‘Seven Secrets to Scaling Success — From Zero — $1b in Sales at Tableau’ here.