By Miles Kirby, Managing Partner at AV8 Ventures
In the pre-streaming-age music industry, artists, managers, and labels would agonise over the best strategies for “cracking America”, seeing success in the biggest global market as a sure-fire route to enduring superstar status. Likewise, many UK and European startups will see achieving a foothold in the US market as a major step towards global success.
Breaking through can indeed be lucrative, unlocking access to the larger addressable market and deeper-pocketed investors that can be critical to securing continued growth.
It can, however, also be a huge challenge. Securing early support from an investor that has its own operations on both sides of the Atlantic can provide an invaluable leg-up for technology startups eyeing a potential move across the pond.
Understanding the new market
Funding isn’t the only thing to consider when choosing a VC. Despite taking $77 million from high-profile investors including Atomico and Union Square Ventures, and despite having nearly two and a half million passengers and revenues of $100 million, Hailo’s move to crack the US ride-hailing market in 2013 failed.
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Uber and Lyft, duopoly holders in the world’s first ride-hailing market, were impossible to compete against, and Hailo pulled out in October 2014.
One great advantage of having a VC with US operations already on board when you start looking to grow into the US is their deeper understanding of market dynamics there than investors that focus only on the UK and Europe.
They will have invaluable insight into the maturity of your market in the US – are your target customers ready to adopt your technology; how far ahead or behind is the market in terms of innovation; what does the regulatory landscape look like? – and will be able to advise on any changes you may need to make to your business model, product offering, market positioning, or messaging.
VCs with a US presence can also provide guidance on tackling other fundamental differences in the US market. If you’re in healthtech, for example, it will be critical to properly understand how the differences in navigating the US private insurance market might necessitate changes to a strategy developed with engagement with the NHS at its core.
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If you’re in mobility, you will need to consider how the different cultural conventions around pedestrian interaction with traffic, or the fact of cities having been built after the mass adoption of the car rather than adapting to it, will change how you need to operate.
Having an investor with its own operation in the US opens up a new network for future funding rounds. They can provide access to other investors, often with deeper pockets than their UK counterparts, earlier than might otherwise be possible without the “in”. This can help to accelerate the ongoing growth of the business.
They are also able to help you build wider networks beyond investors, through their US portfolio and their connections to local thought leaders and other experts that have been successful in the new market and can offer insights into how to replicate that success.
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Having access to both new capital sources but also knowledge resources means that tech companies coming to the US can speed up growth and ensure a successful transition.
Spotify is a great example of companies expanding with the help of VCs to the US. Originally started in Sweden – and likely to remain headquartered there for the foreseeable future, as founder Daniel Ek has repeated stated his commitment to the European tech scene – the company needed to establish a powerful network in the US, the home of the most of the largely global music labels, in order to build the relationships that have enabled it to grow the largest library in the global music streaming market.
Logistics of a move
An area that may get overlooked when expanding to the US is the basic logistics of moving the business. Investors with a local presence that truly understand the US market will be able to advise on the best time in your growth journey to make the move across the Atlantic, and what steps to take when.
They can also help businesses identify the best place to move to. With 42% of UK tech companies saying their expansion plans are being driven by a desire to recruit the best global tech talent, according to polling by Velocity Global, a VC’s local knowledge of talent pools outside of the hyper-competitive Bay Area could be a major boost.
Global growth mindset
Perhaps most importantly, VCs with a US presence can help founders cultivate a global growth mindset from the early stages of their journey. By doing this they avoid falling into the trap of being content to be a “big fish in a small pond” or take an exit earlier than you should.
A UK company that is large in the UK might not feel it has the capacity to achieve the same scale in the US market and therefore might feel the only way to expand is to exit earlier than they should. A US VC can help instil a growth mindset into these businesses and help them crack the US market. A growth mindset is key to the global success of a business, and with an experienced US VC this can be achieved more easily.
The benefits of working with a VC based in both the UK and US can be a huge for businesses that are considering moving over to the US. The local knowledge and networks that these VCs have by virtue of them being embedded in the ecosystem and geographical area can help businesses when they move over, much like a trusted tour guide. By having this expertise, tech startups that are moving can supercharge their growth in the new market and secure the future growth and success of the business.