A Founder’s Perspective on the Key Challenges and Benefits of Raising Investment Abroad
Not all companies start out with a clear international strategy of raising capital abroad. “Going Global” may be an option that intrigues more than a few entrepreneurs in the prospect of securing money outside of their home country. This journey usually begins with a customer order, a business opportunity or by leveraging connections overseas.
The ease of capital movement in today’s global capital markets has made fundraising significantly more accessible than the past. According to Gust’s Startup Funding Trends 2016 report, the startup early-stage investor ecosystem is stronger than ever before. The industry is becoming increasingly international as more startups are applying for funding to seed, angel and venture capital investors.
Yet, after the seed level and those early follow-on investments, things may get “complicated.” That’s when the risk is greatest of falling into “the valley of death” as some may call the space between seed rounds and the much larger venture capital rounds. For growth stage companies seeking funds outside their domestic markets may sound like a costly proposition with high risks and low probabilities of success.
Raising Money Overseas vs. Domestic Markets
A few months ago I interviewed four Startupbootcamp alumni companies based in Europe — Limitless, Social Coin, Tespack and Virtual Broker to understand the pros and cons of international funding. They raised additional rounds of money both in their home country and overseas after they graduated from our programs.
Here’s the long and short of what I found [click to read the full study]
Key Challenges of Raising Money Abroad:
- Raising money in a foreign country could become expensive. Some deals just take longer to close. If you must stay there to nurture the process, could cost you even more than trying at home
- Foreign investors may not understand the full potential of emerging markets and perceive a much higher degree of risk there compared to reality e.g. US Investors mostly want to invest in startups incorporated in the US because they are familiar with laws and tax regulations and have fewer insights into the ongoing or upcoming EU-regulations
- If you are raising early-stage funding, angel investors will want to see evidence of domestic success
Benefits of Raising Investment Overseas:
- Having your investors located there or coming from that culture will help a lot in understanding the market
- Investors can help with proper introductions to potential clients
- Some markets such as the US have a more developed investment infrastructure and there is more capital available than in other countries.
Data from CB Insights shows that for every dollar available to a European startup, there are six dollars available to their US competitors. In the last quarter of 2016, Europe and Asia saw 468 and 323 deals respectively; compared to the 1,127 deals completed in the US over the same period.
A Solution to Internationalise Growth Stage Companies
As a global network of 20+ industry-focused programs, Startupbootcamp has an unparalleled view of the innovation landscape. To date, we have received thousands of applications from 120 countries and invested in over 700 companies.
Last year the total volume of accelerated companies rose by 10% since 2016 and we’re expecting this figure to double by the end of 2018. Growth was increasingly international, and both our programs and startups were looking across borders for opportunities.
As we accelerate more and more founders, this means there is a growing need for post-seed programs as these startups are now past their infancy stage and look to scale and expand into other markets.
We know that getting a startup off the ground is no easy task and expanding startups into the larger industries has also proven to be a difficult task, which is why we have created the Scale programs.
A year ago around this time, we celebrated the launch of Startupbootcamp Scale FinTech Mexico aimed at supporting and scaling the development of growth-stage FinTech startups in Latin America. Since then we not only completed a successful first cycle, but we expanded our network of Scale programs to San Francisco, Miami (Digital Health) and soon Shanghai.
As our second Scale Demo Day this time in San Francisco approaches, Scale FinTech Mexico just opened applications for their second batch!
The program team will be running 1-to-1 interviews until mid-December ’18 giving interested FinTech startups a chance to meet the program’s benefits and its investment team.
Some final thoughts…
No doubt, the ease of capital movement in today’s global markets has made it significantly easier for startups to secure fundings than the past.
There are still founders struggling to raise money abroad and there are those that exceed expectations. In a time when good ideas are rewarded, the importance of getting in front of the right funders has never been more crucial.
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