The startup community in Europe is well accustomed to the limitations of its local investment community, which, although growing steadily, can never quite match that of Silicon Valley. In fact, for founders of startups in especially dicey emerging sectors like VR/AR, Europe’s risk-averse investment culture makes it exceedingly difficult to survive, let alone thrive, without seeking investment from the U.S.
Yet raising capital from U.S.-based venture funds is often tantamount to becoming “Americanized,” since any deal you strike will invariably entail the mandatory condition that you incorporate as a Delaware-based entity, a move that uproots your startup by rendering your EU-based entity a subsidiary. Indeed, as a Portugal-based founder who has been working out of the Bay Area for the past month, this demand seems all but inevitable.
U.S. investors have good reason to push
Silicon Valley insists on this model of converting foreign startups into U.S.-based ones for good reason. Marco DeMiroz, general partner at The VR Fund, a U.S.-based VC that targets VR/AR startups, shares some of the key reasons why a U.S. move its strongly recommended if not an outright precondition for investment:
1. IP protection: U.S. laws are world standard.
2. Legal and taxes: U.S. investors know a lot about U.S. corporate law and little about local legal frameworks in other countries. The same is true for tax regimes.
3. Syndication and venture alignment: The U.S. has the most robust venture market, so collaboration among VCs to build a syndicate for the current and follow-on rounds is very important. U.S. VCs pretty much follow the best practices per the NVCA, thus term sheets and key points for negotiations with a company are more streamlined and effective.
4. Ease and competition: The sheer volume of U.S. startups and the robustness of the market means that a startup based in another country has to be truly unique and outstanding to get VC attention.
5. Risk: All of the factors listed above add to the risk profile of a non-U.S. startup, making them less competitive.
Likewise, here’s how Ben Gamble, a serial entrepreneur who has worked in startups in both markets, and is currently the CTO at UK-based Quincus, observes the landscape from a European lens:
1. Protection: U.S. investors want the company to have a U.S. presence in case of legal action to protect their investment or to force changes.
2. Influence: They want to be more connected to their investment. In theory a good VC provides more than just money and pressure.
3. Simplicity: International investment is a legal quagmire that no one wants to deal with for smaller rounds. Unless the VC has a EU arm, it just does not happen.
4. Market size: With technology, the U.S. is a very large homogenous market. If your product is launched there,…
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