Every ambitious European tech company will at some stage consider if or when they should raise transatlantic funding. Plenty of funds, numerous firms seemingly raising money with impunity, so how hard can it be. Right?
In order to answer this challenge Fried Frank and Notion Capital decided to host the first in a series of “Coming to America” briefings. Our initial plan was a small lunch and learn with 15 guests, but after more than 60 people registered we soon realised that there was a big appetite.
- Daniel Glazer, Fried Frank. Helping UK and European companies on US commercial challenges.
- Chrys Chysanthou, a principal at Notion Capital following a long career in tech on both sides of the table – in start-ups and then Accel Partners.
- Russell Buckley – part of the founding team at Admob, acquired by Google. Made 22 seed investments. Two years with UK government and working with 20 companies and raised $120m, with 20% of funds from the US. Now at Spring Partners, with an $80m fund specialising in “first institutional money in”.
- Sebastian Kayll, founding member of Renaissance Leadership, working closely with VC back companies and VCs including Notion Capital and Sequoia.
- Bob Mollen. 24 years with Fried Frank’s London office. Figuring out how to help early stage companies enter the US.
Get your story straight
“Be prepared to answer a simple question from US VCs, ideally before it’s asked”, says Dan. “Why are you not looking to raise in your home market?” Unless a European company is doing something fundamentally ground-breaking then your answer typically must be that you have established a US presence and are looking for capital to support existing US traction and fund a US growth strategy.
And be prepared to tell that story to a different breed of investor.
Russell Buckley, Spring Partners: “The biggest single difference is that here in Europe 95% of VCs don’t come from operational background, so they just have the hustle. Whereas in the US – in particular the valley – investors are on the whole operational. Notion and Spring share the same commitment to employing people with operational experience.”
The panellists all agreed that it’s a myth that – all things being equal – it’s easier and quicker to get funding in the Valley. Raising money is tough everywhere and so it should be.
Understand the market and focus of the different investors around the country
The second consideration is how do you decide where in US to raise money. It’s not just about the Valley.
The investment market in the US is very diverse and the valley is not the right place for everyone. Firstly, it’s very expensive but more importantly it may not be where your customers and expertise are. For example, for Fintech, adtech / martech you should go to New York. For Medtech New York or Boston. For the developing world look to Miami. We could go on; the key point is to appreciate that there are many options. Chrys Chrysanthou, Notion Capital.
Typically, US venture firms are looking to invest growth funds not venture, according to Seb Kayll, of Renaissance Partners. “But it’s not always the case”, continues Seb, “If you are doing something entirely different – and probably quite hard to explain like Improbable – who have raised the biggest seed round in Europe from Andreesen Horowitz, you may stand a chance.”
“But on the whole, if US VCs are investing in European companies they are looking for growth, for example Sequoia has 30% of their portfolio in European ventures, but it’s all later stage. Notion has a mix of US syndicates, for example NewVoiceMedia has built an impressive combination of US investors including Bessemer Ventures and Salesforce Ventures, on the back of impressive historic and predicted growth.”
Building a syndicate
Most VCs, if investing in a remote start-up, will want to see a strong VC adjacent to the company they want to invest in.
Russell Buckley: “Think of it this way, pick a local VC who has the credibility and ability to engage a US VC with you, to allow the US VC to be more hands off. Don’t just go to get a US investor, get a local one first.”
“And don’t try and go direct. Get an introduction from a trusted source whose judgement they trust. That’s the value of a credible, strong and operational VC.”
Chrys Chrysanthos: “We are starting to see East Coast VCs who have built repeatable relationships. Some will jump earlier than you might expect but you must have your story straight on the US. Their number one question: “Who from your management team will move here?” Only then will they ask how you plan to execute. And your answer, simple – that leader is already on the ground in the US and we are fast building momentum.”
Stand out from crowd
So how do you become relevant and stand out from other companies that US VCs will have seen?
Seb Kayll, has an interesting perspective in this. “One thing that will make you stand out as a European company is already having US leaders – or even a CEO – on your team. Ten years ago it was very difficult to get US execs to move to Europe, but while not a flood the tide has turned for example senior executives at Skyscanner and Onefinestay have moved from the US. This is an interesting trend, and I think a great way to stand out.”
Bob Mollen, recommends taking time to build a relationship with your target VC based on trust and convenience. “Put a founder on the ground in the same vicinity as the VCs you want. Communicate the milestones you intend to achieve and over a period of time you build a relationship built on trust.”
Seb Kayll, focuses further on the quality of the leadership team. “Understand what they want, look at the leadership teams of their portfolio and prepare, leaving nothing to chance. Take Sequoia as an example, they are about as precise as any I have seen and their ability to muster resources and close candidates is incredible.”
Interestingly many US funds don’t expect companies to have world class teams, yet.
What they want is people who can attract top-tier US talent, which is hard. It’s a given that they want people with intellectual rigour, and the ability to take advice, stand their corner and pivot. And they take lots and lots of references. Seb Kayll.
What are the challenges of UK and US investors combined in the same round?
Chrys Chrysanthou. “The key difference we encounter is valuation expectation. Other than that much the same. A bigger question is how many investors. And ideally we would recommend no more than three VCs involved. Bear in mind each of us has a goal of the stake we want to achieve. A geographical spread is good, but think about how to manage them as an entrepreneur.”
Russell Buckley recommends turning VC on its head. “Choose your investors wisely. Think about the value they offer. Take references with companies across their portfolio, not just the names they give you – just like they will do to you.”
Lastly how to pitch?
In short, preparation and practise.
Russell Buckley believes there is still a big cultural difference between European and US execs.
You need to be as salesy as the most salesy US person. And tell a story. Why do your customers care about you, why should they care and invest? Russell Buckley.
Seb Kayll: “Ask yourself this: Can you take your pitch from 60 mins, to 6 mins to 60 seconds? With or without slides? From slide 1 to 8, to 3 back to 12. Be prepared, leave nothing to chance.”