VC investors rely heavily on referrals, but what should a non US startup do when looking to raise funding in Silicon Valley? I found a question on Quora that relates to European startups, but found that some of the advice may be very relevant to Israeli startups as well. How best can European startups land VC funding in the US / Sillicon Valley?
Jussi Laakkonen, CEO & founder of Applifie, summarized it well:
We recently raised our seed round at Applifier and it was led by a silicon valley seed fund MHS Capital, whose general partner is Mark Sugarman.
My key takeaways from talking to roughly 40 institutional investors in the valley about investing to an European startup are:
- Traction cures all ills. If you can really demonstrate up and to the right path and consistently deliver on your promises, the funding will find you.
- It’s not a dot, it’s a line. I stole this from Mark Suster (http://www.bothsidesofthetable.c…), i.e., one meeting is not enough. Especially as a foreigner, everybody will need time to get to know you.
- Warm intros are a must. It’s likely that the investors don’t know you, so try and find warm intros from people in your network.
- Get locals as your advisors. They will help you with access and build social proof, but only do it if they can also add actual business value and advice beyond just getting to meet investors.
- Get ready to move over. You will have to do the “Israeli model” (e.g. R&D in your home country, HQ in US with the CEO moving over). Talk with your spouse, and be real about it – can you really move over? If not, raise locally.
- Do the corporate flip. If you are in the very early stages with your company and there are no major reasons (e.g. tax, R&D incentives, what not) to keep your company as a non-US entity, then you should consider a corporate flip i.e., create a new Delaware corporation that will own all the shares of your local company. Consult a tax attorney first, because this may have significant personal and corporate tax liabilities.
- Reduce the perceived hassle that comes from foreign investment. If you are asking investors to invest into a foreign entity, get legal and tax experts to prepare the memos for them about the tax impact on their fund, governance of foreign corporation etc. You need to show that it is not really that much harder / difficult than an US entity (which it typically true for an European startup).
- Read Venture Hacks (http://venturehacks.com/). And then read it again. See if you can get on AngelList (http://angel.co/). They also do foreign companies.
- Practice pitching. It doesn’t come naturally to many European founders. God knows I’ve struggled with it. Pitch to your advisors, to US entrepreneurs, to your colleagues, wife, what not. You only have one chance at a first impression.
Get your deck to 10 slides and then throw it away. Not literally, but one big surprise to me was that in the 40 odd investor meetings I had, I managed to open the deck probably only 5-10 times. You will need to be able to tell your story verbally without any visual aids. Simplify, practice.
Is relocation to the US a must-have for funding? Several entrepreneurs tend to agree with that. For example, in response to “How do I raise funds in Silicon Valley for a European-based startup?” Eyal S. Goldwerger, Chief Executive Officer at TargetSpot said:
Relocate the founder/CEO to silicon valley first. And if you don’t have US business activity, then get a beta customer for initial footprint. You are then “certified” for local capital raising and will get over hump. If you just travel in, don’t attempt it, it will be an expensive waste of energy/time/cost that will get you polite meetings but no engagement. good luck!
Massimo Sgrelli, Entrepreneur, angel investor, computer programmer, agrees with Eyal’s suggestion:
The best way to attract Silicon Valley investors to your non-US startup is to split your operations keeping R&D in your own country, while moving business and marketing heads in the Valley (and potentially the founders too). That means you are practically creating your US startup, and it needs $ 100,000 of investments at least. I’m actually studying this mechanism for Italian start-ups, but I can say it should generally work for many other countries too. R&D outside SV is normally cheaper, so it helps you keeping your burn rate low. On the other side I’m sure that every entrepreneur “must look for his Wall Street” and if it’s Silicon Valley, he must move the company HQ there.
And what do the investors think? In answer to the question Do Silicon Valley Angels invest in startups overseas? Jeff Clavier, Seed stage investor in 90+ consumer internet startups, said:
We all have a different approach to non Silicon Valley opportunities. When we (seed stage funds or angels) invest, it is always through a syndicate involving multiple investors and behind a lead – the lead is negotiating the terms of the deal with founders and is “first in line” for supporting the team post-investment.
Over the past couple of years, I have been investing in New-York (7) and Boulder (4), where a number of strong leads and great firms are able to provide support for our companies (recruitment, mentoring, etc).
Investing abroad is even more tricky: to the issue of strong leads and supporting the companies, you are adding legal, tax, audit challenges. How do you review documents in non-english languages, where structures can be quite different from what we are used to in the US? At the very least, you want to have a US C-Corp somewhere in the corporate structure to invest into in order to simplify the latter. But establishing the equivalence between C Corp and the local legal entity (so that owning shares in one is equivalent to owning shares in the other) is a pain in the ass.
That being said, there are plenty of opportunities in developing markets like Russia and China, and people who are bold enough to take that level of risk will certainly have access to more a larger number of potential homeruns than we have in the US. These investments are out of the charter I agreed with my investors, so I am staying away from them.
Some startups are more interested in mentorship and network than they are in money. The question How do I get funding and mentorship for my startup from Silicon Valley angels and VC’s if I live outside of the USA?
- Apply to TechStars or Y Combinator. Both take international companies, and if you get in, they will provide you a fantastic network of SV angels and VCs (Doug Ludlow, CEO, useHipster.com)
- Start with a short (a few weeks) trip to SV and attend all the tech events there. Network and talk to people. Don’t push it too much to get access to top angels and VC’s right away, it will take time. Better to start with contacts with other entrepreneurs and founders, hopefully those that have already been funded, and approach angels and VC’s through them ( Jüri Kaljundi, Have raised angel & VC financing)
- http://www.founderinstitute.com/ is another great one to apply. They take international Founders. I’m from India and lucky to be part of the Winter Silicon Valley 2010 session. (Brajeshwar Oinam, Entrepreneur)
With all this said, don’t give up on European (or Israeli) VCs so quickly. They can be more approachable than US-based VCs. I liked Octopus Ventures’ Alliot Cole answer to the question “What is the best way to get in touch with European VCs and angels for seed funding?”
At www.octopusventures.com we review every plan we receive, but if you wish to do more:
*Call us. We always pick up the phone! Seriously, we purposefully do not have voicemail in the building, so we are supremely accessible.
*Come to our Open Office – each Wednesday, every Wednesday. No screening, no agenda, 30 minutes 1-2-1 with one of the team. Email firstname.lastname@example.org to book a space in advance.
*Use your network #1: do you know someone who we may know and respect (eg. someone who works at one of our porfolio companies)?
*Use your network #2: approach a corporate financier who advised a company we recently partnered. They may be able to give you the introduction you require. Check out the press releases for who advised who and when.
*Use your network #3: do you know someone who recently got funding? They will know better than most who to approach and how – having just gone through the process and may be able to give you a personal introduction.
*Meet us out of the office: we try to use PlanCast as efficiently as possible – you can follow us there: http://plancast.com/alliott :: http://plancast.com/octopusventures
*Reach out to one of the team on Twitter @alliott ; @hakesl ; @octopusventures