European Startups in the US

To go or not to go, it is a question.

Most, if not all, good European startups ask themselves whether they should move to the Bay Area or NYC. Should they really move? If yes, how and when should they do it.

The short answer to this question is: it depends. The long answer is that it depends on the stage of the company, the product the company has and the market it sells to and, of course, the motivation of the founders.

Let us go through three themes: the financial roadmap, examples of how it refers to US presence, and what value the US gives startups.

Stage of company development

Though understanding of Pre-Seed, Seed and Round A evolves, I will stick to the following:

Pre-Seed

Startups begin the Pre-Seed stage with an idea and conclude this stage with a prototype and positive feedback from customers.

Seed

I wrote a bit on the Seed Stage in my previous post. In few words, the Seed Stage is the search for scalable sales. For the sake of argument, let’s divide the Seed Stage into two:

• Seed 1 — from prototype to first sales (the rule of thumb is $10k per month)
• Seed 2 — from first sales to scalable sales (the rule of thumb is $100k per month)

Round A

The goal of Round A is to grow sales and build a company.

Examples of successful US rounds

Recently, there have been successful financing rounds from the US for companies that were founded in Poland and have a considerable operations there. Let me go through some of them:

Accelerators

Estimote, founded in Kraków in 2012, joined the YC 2013 Winter batch and successfully raised seed round funding of $3.4 million from a range of top SV investors. This case is self-explanatory. YC gives exposure and credibility with investors, and helps a lot in the development of the company.

In the last batch of 500 there was Nativetap, and in the current batch there is Growbots. YC, 500 and other top accelerators are not necessary to achieve success, but they help a lot. It is a shortcut.

Seed 2 funding

UXPin raised Seed 2 funding of $1.6 million in the US and will close Round A soon. The company was in the $10–20k when Seed 2 funding took place.

SeedLabs, another company from Kraków, raised Seed 2 funding in the US.

Round A

There are far fewer cases when a round above $5 million took place in a company that was not present in the US prior to fundraising. Such a company is Brainly, founded in Kraków, which raised money from investors such as General Catalyst and Point 9 Capital in 2012, and $9 million in 2014, mostly from the US.

Initiation circles

The most important goal is to grow your sales and build your company. It is not about geography or fundraising. But good ecosystems and good investors help to achieve this goal.

Though it is debatable, I would say that the following steps are the typical pattern for successful companies from Europe.

• Correct mental approach to building a big company and setup to do so. It usually comes at the stage of Seed 2 rounds that follows.
• A network that makes it possible.

I observed closely how UXPin went through several steps of growth.

• When UXPin CEO Marcin Treder visited Silicon Valley for the first time, he made up his mind that UXPin must be there in order to succeed. It was the Silicon Valley virus.
• Setting up the company for growth. Of course, it started with the dreams of the founder. Then for 18 months it was us, Innovation Nest, who helped to make the vision come true.
• Mentors and advisors from the Bay Area.
• Networked investors. With Gil Penchina and Freestyle on board, UXPin entered a network that made success easier.

Product Market and Motivation

Where is your customer?

Pawel Chudzinski wrote a great blog post on expansion of companies. Pawel rightly notes that there are two options: either you expand market by market, or your company sells globally from day one. Brainly (a Q&A service for high school students) is an example of the first type, and UXPin (a design tool), an example of the second.

In my opinion there is another distinction on top of that: is the US market important to you, or it is just one possible market? If it is important, then really focus on it, as it is worth it. This is the case both for expansion from one market to the next, and for products that are global from day one.

Therefore, the first question that you have to answer is whether the US market is really important for your product.

What company do you want to build?

Do you want to build a company at the centre of the tech world, or do you want to build it near the place where you started? Although it is not easy to build company in the Bay Area or in NYC, the rewards for doing so are huge, as the resources available for the best startups are amazing in terms of capital, talent and experience.

When talking with companies, one of the checkpoints that we have at Innovation Nest is whether the founders are ready to move to wherever is good for the company. Sometimes we advise that, for a given product and strategy, it is better to be in the US, but the final decision is not a logical sum of arguments. It is a decision that has to be made by the founders, and whatever that decision is, it has to be respected by investors.

The choice

If the answer to the two questions above are clear, the decision should also be straightforward:

How to raise money in the US

If your decision is to raise money in the US, it means you have to incorporate in the US and relocate your headquarters there. Bearing in mind the successful examples of Estimote, Growbots, Nativetap, UXPin, SeedLabs and Brainly, the action plan is as follows:

• Accelerators — apply to places where you want to be. It is not easy to get accepted, and you cannot plan it. Treat it as a winning ticket in the lottery.
• Seed 2 — this is the path that, in my opinion, is the most sensible for companies that know they want to grow in the US and know their market is there. It is the goal of Innovation Nest to master this path — let me write about it in a separate post.
• Round A — if you have amazing traction and a really convincing strategy, the best investors might come but, in my opinion, you cannot plan it.

I wish all startups success. If you are from Europe and your destiny is in the US, go for it, but remember to give back to the ecosystem you came from.

Enjoy! Copyright PiConsti

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