I’m reading an Axios story about the latest Y Combinator class. Roughly 40% of the startups in the class, according to Axios, are not American. Axios reports that several investors told the site that they would not invest in overseas startups because they’re unfamiliar with these companies’ home markets and believe it would be difficult to work with a company that’s so far away. Additionally, Axios reports that YC investors said that their funds might not even be allowed to invest internationally, and that any investment would be at an artificially lower amount and valuation.
None of this sounds very promising for overseas startups that are seeking Silicon Valley capital. Is this report indicative of a pattern, or is this just a few VCs speaking?
To be fair, SV investors do not want to invest outside SV. They want to be able to drive to a Board meeting. The rest is likely accurate, but many companies relocate there (we did) because of that bias.
My experience is that most of them will not consider companies outside the SV, not even East Coast companies
It is normal that US investors (not only in early stage companies) do not invest outside US. We have a database with mode than 2.500 US based funds, and probably about 90% of them have very narrow regional or US only focus. It applies also to the private equity funds, which can invest substantial amount of money, and still keep their focus on the market they know and the people they know.
In the start-ups ecosystem, a lot of investors have even town-only focus (you can see that they invest only in companies in a radius of 50 miles of Atlanta, for example). Other may invest in several states (East Coast, Mid-Atlantic, West Coast, etc.), but in general, given the small size of the investment and the need for support and monitoring of the start-ups in their early days, travel is a waste of time and money.
Moving to US is a very difficult option. You should have hired US citizens and spend a lot of money (exactly the resource you do not have) in order to be granted an entrepreneurial visa. I already had clients that have returned to their home countries after such attempts.
On the positive side, there are funds that invest outside of US. One such fund recently opened an office in Barcelona (Spain), with focus on healthcare start-ups. Most of the other funds have offices in London or in South East Asia.
And do not forget that the European start-up scene is developing very fast. More and more funds are established, and some are pan-European. Have patience and listen to the people that you meet on the road in order to make your proposal compeling.
I believe it is important to be where your market is. There are many advantages of working in foreign markets too. For example, when Uber became successful, 2 guys in Dubai realised Uber was not entering the middle east anytime soon. They created an app called Careem (Uber for the Middle East). They just raised US$350 million at a Billion dollar valuation in December 2016.
Figure out the location best for your target market, not the investors. Each domestic market has a high number of sophisticated investors and funds. Focus on the right team, the right product and the correct market strategy; the money will come!
This post is said with some friendly London versus Silicon Valley rivalry...
if you are "foreign" (ie outside USA, which is obviously the centre of the universe) then why on earth do you "need" SV funding?
These days there is nothing SV does that we can't do just as well and in fact better in London. We have one of the worlds finance capitals right next door to some of the best startups in the world. Jump in a black cab (no not a SV uber) and 10 mins later you are in Soho with the worlds leading media agencies and advertising companies. Some of the best restaurants in the world to let your financiers take you to dinner to convince you to give them a slice of your idea. The worlds biggest accountancy firms and the oldest and most respected legal sector on the planet positioned close to a beautiful river and exactly half way between the financiers who will give you some money and the media agencies who will take it all from you. and when you are ready to expand, several nearby airports and just a short hop to anywhere in Europe.
seriously [UK] guys and girls, lets keep it local. And when we get big, do not sell out to SV ownership.
London has always been the centre of the universe and if you are entrepreneurial or into finance it is the only place to be!
just take one look at the incredible property and do not tell me for a second that there is no money in London ... it is dripping with money.
London streets really are paved with gold ;-)
US Investors mostly want to invest in startups incorporated in the US. because they are familiar with laws and tax regulations, they want to be able to offer mentorship and connections (smart money), and often they are precluded from investing abroad (in the case of VC's who invest other people's money and institutional funds). A foreign startup can always move its HQ here and keep its tech operations abroad if it really wants to get US funding. In many cases it's easier to get seed funding abroad and move here when ready to raise the next round.
This is true. Silicon Valley is a very protective environment. Did you ever think why salaries in the Bay Area almost double that of other parts of US and 5-10 times of some other parts of the world? To an extent this is because they require higher qualification, but that's also because they want to employ locals. I spent most of my live working in S/W outsourcing industry in Russia. We had customers from Europe, East Cost, but none from West Coast. Our management said it was very difficult to get a contract with a company from this part of the world. A few years ago I did an MBA in San Francisco thinking that I could get connections with local business cycles. No way. People are very nice to me, but when they learn I am not an American, the next question is - "when are you going back?" I registered on a website foundersdating.com, which is now merged with this one to find connections. People were very keen to talk to me. Sometimes I got requests from other parts of the world. But whenever they learned I was not going to stay in San Francisco after I complete my education, they'd stop talking to me. If you want to get a VC capital from Silicon Valley you need a local partner and register your company as a Delaware corporation. Or look for funding some place else. I know there government-sponsored funds in Chili and Portugal. You may want to try it there.