We are frequently asked by UK and other non-US companies what they need to do to attract US venture capital (VC) investment. This post is the first of a four-part series addressing how a start-up can best prepare to pursue funding from US investors, starting with a discussion of the general requirements of US VCs considering non-US investments.
The discussion below relates only to early stage investment
Sourced through Scoop.it from: www.notioncapital.com
Venture capitalists – especially in Silicon Valley – place a high value on proximity to their early stage investments. The reason for this is that VCs bring to the table not just cash, but also their experience, advice and networks. Consequently, we find US VCs are reluctant to make early stage investments in non-US companies without a founder in reasonable proximity to the VC’s location. We have seen exceptions where the VC was willing to invest in a company on the condition that it uses the funds to establish US operations. However, in our experience this is usually where the company already has contracts with, and revenues from, significant US customers and business partners so that its further US business potential is clear. It is also possible for a US VC to team with a non-US VC. In this scenario, the non-US VC leads a Superseed/Series A round (with participation from the US VC) for a company located near to the non-US VC. The US VC is then in prime position to lead the next investment round when the company sets up in the US. While we believe this kind of cross-border teaming will increase, at present it is not particularly common. Thus, for the most part, non-US companies seeking US investment are faced with pressure to establish US operations earlier than they might otherwise prefer. This can be done cost-effectively, but it is still expensive relative to the operating budget of a typical early stage company. There also needs to be a founder willing to relocate to the US, and the company will need to work out an approach to cross-border management. For UK or continental European companies, this poses particular challenges if the most likely potential VC investors are on the West Coast – that is eight or nine time zones distant, with potential flight times of 11 hours or more.