Solving for X

The story behind our latest $80m fund, Frontline X, which provides hands-on support to US companies expanding to Europe

We’ve learned a thing or two from great founders in our European seed funds over the years. For example, it’s hard to beat an idea that’s borne of personal experience; a problem that drives the founders so crazy they simply have to drop what they’re doing and try to solve it.

Our new fund, Frontline X, is like that for us.

Before getting into venture three years ago, I spent twenty years as an operator in the US and Europe, including a long stint as a European exec at Google and VP EMEA at Twitter.

Seeing how a sausage is made can make you squeamish; same goes for an international expansion. The reality is that, even at the best companies, there’s a surprising lack of forethought before such expansions, which results in a wide divergence of outcomes.

The more we debated this within Frontline, the more we realised that we’re uniquely positioned to help US companies make a success of Europe because:

1. Frontline is already half-way there. We’ve always focused on international expansion. Over the last seven years in our seed funds, we’ve invested in more than seventy European companies and helped them crack their biggest market, North America. Frontline X simply goes in the opposite direction, making use of our existing offices and networks in London and Dublin (the two most commonly chosen European HQ locations for US companies).
2. The problem remains unsolved. Even great companies make costly mistakes overseas because there’s no trusted advisor on hand. Unlike the valley, where there’s a dense web of advisors on topics from product management to sales efficiency, nothing of the sort exists for international expansion. That kind of experience is strewn across the world. Top-tier VCs in the US focus their considerable talents on other areas, leaving CEOs largely unsupported when it comes to the nitty gritty of global expansion.
3. We have the skillset to get into the details. Sometimes you end up at the right place at the right time, such as Google in the mid 2000’s. My former colleagues from those days went on to lead international expansions at companies like Slack, Facebook, Dropbox, Stripe, Looker, Workday, LinkedIn, and many more. That personal network seems like a potent untapped resource for CEOs scaling companies overseas. In fact, it’s Frontline’s unfair advantage.

So we set out to build a fund in which capital was the least valuable part of the offering.

We spoke to a lot of CEOs — they were our target customer. We looked at five years worth of historical data on international expansions and spoke to more than fifty executives who led them. We benchmarked the best and learned what a good European expansion looks like. (We learned what bad and ugly look like too — feel free to ask us!) We now know more about this topic than anyone.

Fast forward to today: the launch of the resulting fund, Frontline X.

Frontline X’s model is simple:

We invest up to $5m alongside a company’s lead investor in the Series B, C, or D rounds. And we work hands-on with the CEO to implement a tailored strategy for fast and frictionless European expansion.

We learned from CEOs that there’s a world of difference between shouting advice from the shore and “getting wet”. We spend time in your HQ to understand culture and operations; we co-create your European go-to-market plan; and we connect you to candidates, customers and partners in Europe. While there’s no set recipe for success, there are a few common ingredients:

Timing. When is the right time for your company? This is a trap-door decision and should be treated as such. Too soon and you risk distraction at home, too late and you invite copycat competitors or forego enormous revenue opportunities.

Go-to-market planning. Forgetting what made you successful in the early days at home leads to problems overseas. You can’t copy/paste a US sales playbook if, say, that playbook is predicated on brand awareness that doesn’t exist outside the US. Identifying the order of European country entry requires more nuance than simply ordering them by GDP. And it turns out that the sequencing of your country rollout is an unseen banana skin for most.

Talent and Org Structure. About a third of companies end up firing their most senior European hire in the first year. Getting the first senior hire right is one of the highest impact things we can help with. But how to complement that with a landing team from HQ and how to structure the org to avoid matrix madness are also considerations.

European HQ. London, Dublin, and Amsterdam are the three most common choices. But they each have different pros and cons; and the right answer for your company depends on your business model and talent needs. Your choice of location should come after the initial GTM planning; most companies get this back to front.

Using this approach, Frontline X has three investments to date: TripActions (Series B), people.ai (Series C), and Clearbanc (Series B). TripActions was our first investment and has had more time than the others to scale in Europe. They’re up to 150 people already, with offices in Amsterdam and London, and since our investment they’ve raised two further rounds, most recently a $250m Series D at a valuation of $4B.

But that’s the past. Here’s to the future. If you’re contemplating an expansion to Europe in the next year, this is what you should know:

The opportunity is bigger than you think. 30% of a B2B software’s revenue should be coming from Europe by the time it goes public. If a typical SaaS company goes public at $275m ARR, that’s more than $80m from Europe. Real money!

Even market leaders make costly mistakes. We’ve seen great companies drop anchor in isolated archipelagos upon misguided tax advice, expect English-speaking sales reps to succeed in France, and repeatedly hire the wrong person for their top European job. Many companies procrastinate and get pre-empted by copy-cats; others expand too rapidly and get indigestion. In all of these cases, they were punished with tens of millions in foregone revenue.

The good news is that many of these problems are both known and solved. As operators and entrepreneurs, we’ve learned about European expansion the hard way. Experience trumps innovation in this case. And we’ve built a network of the most relevant operators across the globe — dozens of whom have invested in our fund.

“Playbooks” don’t work. They’re for content marketing, not company building. We’ve benchmarked the best and we’ve seen the patterns. So in that sense we have a playbook, of course. But there’s no substitute for having a senior person with operating experience to help you get the big things right. That’s what Frontline X is designed to do.

Our objectives are aligned. We’re investors, not consultants. We buy equity and we only succeed if you do.

Finally, while much of the work of Frontline X happens on the ground in Europe, it’s crucial that we have a foot on both sides of the Atlantic. To that end, we’re delighted to welcome Brennan O’Donnell, who joins us as a Partner based in the Bay Area. He brings twenty years’ operating experience in the US and Europe, at companies such as Google, SurveyMonkey, Yammer, Euclid, and Airtable.

Frontline X and Frontline Seed are two sides of the same coin, each helping companies succeed across the pond. Two continents, one strategy:

Frontline is now the venture firm for globally ambitious B2B companies on both sides of the Atlantic.

For more information on Frontline X, check out www.frontline.vc/frontline-x/ or contact myself or Brennan at stephen@frontline.vc and brennan@frontline.vc