European Startups Set Up Shop in the US to Access American Venture Capital

Sometimes startups in Europe exhaust their access to local capital. They must consider moving to the US, or setting up a subsidiary in order to Access American Venture Capital. As an added benefit, European startups funded with US capital typically attain higher valuations than startups that only attracted European money.

The US has more VC money than Europe.

Per KPMG’s Venture Pulse Report (Q4-2016), during 2016 US VC’s pumped $69B into US startups, vs. only $16B raised by European VC backed companies. That’s a factor 5. Bear in mind that the European continent’s GDP is slightly higher than that of the US.  Clearly US companies have easier access to VC money than EU companies.

Individual industry categories reflect similar differences. Between 2014 and 2016 US VC’s invested $38B into the Biotech and Pharma sectors. That compares to an estimated $6-7B in Europe.

Patent Grants by Region

But there does not exist a large gap of innovation. To illustrate the gap we reviewed the numbed of patents granted. The World Intellectual Property Organization reports that in 2015 141,00 patents were granted to US entities by the US Patent and Trademark Office, while 105,000 patents were granted by European Patent Offices to European residents.

The number of European patents granted to European residents is only 25% below the number of US patents granted to US residents.

Lack of Growth Money

While there are many reasons for these differences, the fact remains that startups in Europe have a harder time finding capital to pay for their growth. Small European startups typically have relatively easy access to Friends & Family and seed money.

In some European economies, the government offers significant incentives to entrepreneurs and their families to start up new companies. Large, well established companies also have access to funds. It is companies in the middle that are starved of funding (Europe’s Next Generation of Venture Capital Funds, Mark Scott, New York Times, June 3rd 2015).

But at other stages of their growth, these European startups may be starved of growth capital. It is at these moments that they sometimes consider moving, or opening a subsidiary in the US: to access American Venture Capital.

How to Access American Venture Capital?

European startups that want to access US VC capital to help fund their growth, should make it easy for VC’s to do business with them.

Proximity:

VC’s want to know what’s happening to their money, and its easier to do so when the company has an office, and personnel in the US. Setting up a subsidiary or moving the HQ’s to the US will help gaining access to VC capital. In the past, some companies have bailed on their US commitments after receiving funding. As a result, VC’s prefer to support a startup after setting up shop in the US.

In the earlier stages, companies may consider joining US accelerators. We know of South California based accelerators that have programs specifically focused on foreign startups. these accelerators will help you gain access to the local US startup eco-system.

For instance, a foreign startup active in Clean Tech, may consider applying to one of LACI’s (LA Clean Tech Incubator) international programs. They have both short-term and long term programs.

When companies set up shop in the US they should consider the composition of the US team. AVC feels more assured when a founder, or one of the “driving forces” behind the company is located in the US. At the same time, a founder with no business experience outside Europe, should get help from an seasoned executive with experience doing business in the US.

Familiarity:

Its easier to get funding when the VC knows you. A company interested in attracting US Venture Capital should consider building relationships with US VC’s early on, maybe even a few years before the need arises.

They could ask their current EU VC company about their relationships with US VC’s have they ever cooperated with a US VC? Did they ever forward a European startup to the US?

US VC’s also don’t want to deal with foreign entities. They’d rather help a Delaware based C-Corp than a Belgium based BVBA. This way, the VC’s keep things familiar and they don’t have to worry about foreign laws. Yet another reason to move the company’s HQ or set up a subsidiary in the US.

GB5D can assist you in your move. We can help set up your company, find a proper location, attract talent, and navigate expat problems. GB5D will introduce you to and your local cluster and eco-system. And, we will assist you in your efforts to access American Venture Capital.

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