So how and when to raise from the US? Or alternative winning strategies for ROW startups
Given all of this, I hope your first conclusion is that if you want to win globally, you need to think that way from the start, and think about where/how to build your startup to optimise this. That may be the US, it may not. First figure out the right strategy for your business, then optimise fund raising to that.
Optimise for your business, not the idea of raising in the US
Where is the best place in the world to build your business? There may be a number of factors that feed into this, capital, team, market, customers, etc. Where are your customers located? Europe, Asia, US, everywhere? Would there be better adoption in one market vs. another.
This is often a customer story, and optimising for customer access and uptake is a good way to build your company. If all your customers are in Asia, don’t kid yourself there is a US story for this. If your customers are everywhere, and you’re in Asia and not planing to leave Asia, then sell to Asian customers and grow from there. If US customers would be better (pay more, adopt more quickly, etc.) AND this is demonstrable, and you have 100% conviction to do what’s best for your business — go to the US.
Raising from US VCs
There are a few US based VC that will regularly invest in startups anywhere in the world. In fact most will consider it (and have one or two in their portfolio), but usually only when one of the exceptions are met — these often include: having worked with a founder before, founder has already achieved a successful exit, founder has been part of a prior unicorn, or a super group of founders who’ve met multiple of these exceptions.
If you’re a first time founder, this is likely to not include you. But there are still ways and means, and alternative winning strategies.
Due to the availability of local US startups, and the high ROI of servicing non-US based companies. Raising seed from the US when based elsewhere is not likely. So the best way to raise US seed VC is to become a US based company. Compete toe to toe with the rest of them.
However, there is a subtlety in this that is worth noting. Many of the benefits of being in SV are about commercial scale out, capital and growth. And while there is also a high concentration of 10x engineers, seed funds are increasingly happy investing in companies that have their commercial centre in the US, are addressing a US customer base, with a US GTM (go to market), but have their engineering base elsewhere. In fact one fund told me more than 50% of their new investments have their engineering outside of Silicon Valley. This is because the cost of talent is crazy, and keeping that talent from being poached is even harder. (Back in my startup days, we used to joke we had a cheap offshore development team in London. That’s still true today compared to the valley).
So if you want to raise seed from the US, as a CEO founder you need to be committed to go there (your CTO may be able to stay where she is). You need a credible US go to market, and be building for US customers — and for this to be the ‘right’ thing to do, not just some story you made up because you want US money. Why is it right to build your company in the US?
And don’t say “if you give us $2m we’ll move to the US” — move to the US because it’s right for your company, show commitment, the rest will follow.
Again, so much of this is determined by the customers you have, the market you are after and your progress to date. If you started in Europe or Asia, and are still scaling out customers there, then that’s likely to be where you’ll need to raise. By Series A, it’s not likely you will have ‘won’ your home market yet in such a way that you’re ready for the next one — and if the next one is the US, you’ll need a tonne of capital.
As one VC said to me, “companies typically should either go early or go late, not in the middle”. It’s possible that as you head towards Series B you’ll be ready to credibly enter the US, and if you’re emerging as a potential global category winner, even if you’re not yet in the US and have no plans to be there, it’s possible you can still raise from the US — but that’s a particularly high bar!
For later stage rounds, you’ll definitely need to be moving into the ‘potential emerging global category winner’ to attract big rounds from the big names in Series C/D/E. You’ll need to have demonstrated early customer dominance and exciting growth and traction. Again the US focus will be on the global victory, so if you don’t have the trajectory or ambition to demonstrate that, you may be able to dig in and hold your local monopoly. But in the increasingly winner takes all world of global VC, you’d better start building those barriers!