More often than not I get asked by entrepreneurs how we take our companies to the US and help them scale there. And if I think their business should target the US as well. It’s a gray zone but there’s certainly clues that will reveal both answers. In this piece I’d like to share my observations for what constitutes a successful bridging to the US market, for when a market entry makes the most sense for a startup, and why they should focus on the US market afterall.
For any tech startup the ideal starting questions should evolve around:
The US is the world’s biggest homogenous market with a population of more than 330m people and an unmatched appetite for new technology. In fact, American corporates invest 76% more in software than their European counterparts, and US investments are more focused on innovation or emerging technologies rather than compliance related solutions.
Scaling in Europe means country borders with language barriers, regulatory differences, and oftentimes cultural disharmony. The US market on the other hand is easier to scale in once you’ve found your product-market fit and secured the necessary proof of business model/go-to-market approach.
Competition for talent may however be higher in the US, especially on the coasts. And gaining brand recognition probably takes longer time than in your come country. So, depending on your product and where your customers are located we may advice our startups to open a commercial base in non-coastal cities where hires are more affordable and easier to attract. And we always opt for really segmenting the market to deliver value and build sufficient brand.
In all, we can see that it brings tremendous value to have customers on both side of the Atlantic. In fact, we argue that there’s a valuation arbitrage in bridging European based tech startups to the US market, sometimes lifting the valuation with as much as 10x. And there’s plenty more exit opportunities as well. So, the key thing for founders to know is really whether the US journey is something that they should prioritize in their expansion plans.
Regardless of your industry and technology play there’s almost always a need for your product among American enterprises (or consumers if you’re B2C). I’ve rarely seen European tech startups with products that do not fit the US market dynamics, perhaps besides some compliance/regulatory solutions. Generally, I think it’s more critical to focus on the timing for market entry.
If you’re very early-stage (angel, pre-seed) and perhaps pre-revenue then I wouldn’t even think about the US yet. For those founders who have moved to the Seed stage and have secured a strong proof of business model in their home region — and who perhaps already have a few US based customers — I would consider including the US as a part of your market expansion strategy and attract investors for your Series A round that can help you win in the US.
I also think it’s worth mentioning that the organizational structure and capabilities must be at a certain level that allows you to make the US transition. There’s plenty of risk in organizational scaling with regards to leadership skills, culture, and talent, and if you’re looking to get the best chances at succeeding with your US market entry you’ll need to have internationalized your offerings somewhat in Europe first.
For instance, I’ve seen many startups that focused on their home country for too long and then suddenly wanted to go to the States. That entails a lot of risk. Rather, I opt for taking on 2–3 markets close to home that you’ll gain sufficient traction in. That’ll help you build the necessary organizational strength which allows you to target the US. I normally see organizations reaching 20–30 FTEs and $1M ARR before embarking on their US journey.
If you’re interested in scaling your business in the US you’ll need to prepare well. Step one is validation, i.e. looking for product-market fit. That means conducting market analyses and talking to potential customers, suppliers and partners. It also involves segmenting the market in verticals/customer groups/geographical clusters while looking for that product-market fit. During the validation period you’ll be traveling to the States regularly to conduct meetings with agents and contractual hires that can help you
Step two is then about testing, i.e. entering the market with your Seed or Series A financing. That means there’s an interest in your product and you’re building revenue in the States. You’ll now register an American corporation (I’ll recommend a Delaware corp) and conduct your first real hirings. For this, it’s important that one of your co-founders or C-levels will be present in the US office to build culture, oversee operations, and attract the right talent. You continue testing for product-market fit and make sure to keep an open mind about new business models, customer segments, pricing, etc.
Finally, step three is about scaling and expanding your employee and customer count to a level where the business becomes more sustainable. This is typically done with a Series A financing that affords you to reach a wider geographical audience. Product-market fit is found and the business model works, so you now focus more on attracting American investors for your upcoming financing rounds that can help you enhance your scaling efforts.
In general, we typically advice our founders to keep the R&D team in Europe and move much of the commercial activities to the US, gradually. To succeed in winning the US market one needs to “eat the elephant one bite at a time”.
About the Author: Joachim Schelde is an Investment Associate at Scale Capital, a danish venture fund investing in Nordic B2B tech startups at the Seed/Series A stage and helping them enter and win in the US market.
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