The US remains something of a promised land for European startups.
From 2015-2019, a third of European companies who expanded to the US did so even before they even raised a Series A, according to Index research.
European startups usually cite potential customers as the impetus for a move stateside, but funding also plays a major role. There is simply more money available in the US – to compare, in 2020, venture capital funding reached almost $24bn in Europe and $73.6bn in the US. To access that capital, some sort of US presence is often a requirement.
But when is the right time to consider expanding across the Atlantic? And what kind of presence does your startup need? How soon is too soon? How late is too late?
Sifted unpicks the dos and don’ts of US expansion below.
Timing is everything
Expanding to the US is a strategic decision for a startup. Expanding too soon could be spreading yourself too thin and mean you lose ground in Europe. But expand too late and you risk losing the US market to a competitor.
Index Ventures, a VC, breaks it down into four scenarios, determined by your total addressable market — meaning the overall revenue opportunity — in the US, and whether you actually need an on-the-ground presence in the US to acquire customers.
- Scenario 1: You have a large US TAM (greater than 50%) and you pivot the organisation and leadership to the US — typically at Series A — with your go-to-market team focused there.
- Scenario 2: If you have a US TAM between 30-50%, this is more challenging to navigate as companies split their attention between Europe and the US. You typically expand to the US later in the journey after consolidating a leadership position across Europe.
- Scenario 3: The US might represent the majority of your overall TAM, but your customer acquisition is through marketing and growth. As a result, you are able to focus on the US market and customers, but keep your team largely based in Europe. Your US team will likely be built post Series B.
- Scenario 4: With a US TAM between 15-30%, the centre of gravity will likely remain in Europe. The Anchor archetype is often appropriate for companies with cross-border value propositions, where Europe’s markets provide an opportunity. You tackle the US much later in the journey.
“Startups cite ‘customers’ as their primary reason for expanding to the US,” says Martin Mignot, partner at Index Ventures.
Mignot warns that startups should be sure that they actually need to expand before they do so, as it can be an expensive and time-consuming process — showing there is no one-size-fits-all answer as to when to make the move to expand.
“Too many startups try to break into the US markets too soon and it’s like trying to land the whale,” says Aidan Larkin, founder and CEO at seized asset management platform Asset Reality.
He says, first it’s usually better to get traction, iterate and position yourself in your own markets or smaller segments that are comparable. Getting your startup to a place where you have users wanting you in their market rather than a cold start makes things a lot easier — and avoids a PR disaster if things go wrong.
Location, location
Choosing where to base your US operation is a huge decision. Make the wrong move, and it could tank you business — but the right one could see it grow exponentially.
According to Index Ventures' research, New York is increasingly the most popular choice, with 44% of European startups making it their US hub over the last five years. San Francisco has become less popular but still accounts for 28%, while Boston hosts 11%.
Index Ventures recommends considering six key factors when making the final decision:
- Customers and partners: Where are your existing and potential customers?
- Sector: Where in the US does your sector thrive? Finance and media are focused in New York, for example, while tech is in San Francisco.
- Timezone: Which locations could give you a working day time overlap with Europe? The east coast gives you three more hours of overlap than the west coast, for example.
- Talent: What is the availability of talent that you need to go-to-market? Roles to consider include executives with scaling experience, sales and partnerships.
- Cost: What are average salaries and rent costs in cities of interest?
- Personal and investor network: Do you already know a trusted and credible US leader? If so, where are they based? This could help sway your decision.
“New York has grown in prominence for European startups over the last several years, with its energy attracting great European entrepreneurs to build generational businesses,” says Mignot.
Research by Index Ventures found that London-born startups are most likely to choose New York as their US base (52%), while 34% of startups in other parts of Europe would make the same choice.
“The city sits squarely in the middle of a ten-hour time zone that captures 70% of the world’s top 30 most vibrant startup ecosystems, stretching from Tel Aviv to San Francisco,” adds Mignot.
Remember, further expansion down the line could see you evolving into other US cities that may appeal to your startup — but pinning down which is the best first move is the most important consideration at this stage.
While San Francisco is the epicentre of the US tech ecosystem, Index Ventures says its popularity is actually losing traction with European startups eyeing up US expansion. This is predominantly due to the timezone — there’s a nine-hour time difference between continental Europe and the US's west coast – but also talent and retention.
The VC says that European companies are at a disadvantage when they come to San Francisco because of lack of brand awareness and credibility — and hiring the best talent is already tough in the competitive ecosystem.
At an average of 30%, employee turnover is higher in San Francisco than anywhere else in the US (20%) and in Europe (10-15%).
Rules and regulations
Expanding to the US involved navigating complex legal and regulatory considerations — and these are particularly challenging in the fintech industry.
Mignot notes that startups need to set up a US company in order to hire their first US-based employee — and most companies establish a C-Corp in Delaware.
Additionally, he says, you will need a number of advisors, including a lawyer, immigration specialist, tax accountant, bank and an insurance provider.
“Visa applications for relocation — for founders and employees — is the most common bottleneck holding up US expansion,” adds Mignot.
To overcome these issues, Index Ventures recommends using a global mobility company that acts as a ‘one-stop-shop’ with corporates to move employees between countries. They provide support on issues including immigration, tax advice and moving services.
Who do I need to hire?
So, you’ve decided where to base your US operation and the ball is rolling to fulfil the legalities that come with the expansion. Who should you hire first?
When London-based Asset Reality expanded to Washington, D.C., Larkin says the business focused on hiring sales and business development employees to build a customer base and expand on relationships, and operations teams to plan their strategy in the US while being mindful of local regulations.
“It’s also important to acknowledge optics and local presence,” says Larkin. “In our particular category, when trust plays a big part because of the sensitive nature of the work we do managing assets, clients take comfort from you having local accessibility.”
Mignot believes a landing team really helps — especially if you are replicating your European go-to-market approach.
“Landing teams act as culture carriers and are usually two to four people and a mix of senior and mid-level team members,” he says. “The most common first-hire in the US is usually a senior GM or sales leader, followed by an executive. Hiring a senior leader boosts your credibility and will help you build out the rest of the team.”
As companies grow in both Europe and the US, Mignot says maintaining culture and communication across geographies becomes challenging.
“You need a thoughtful approach to internal communication practices, communication infrastructure, travel and mobility policies, as well as blending US and European business culture,” he adds.
For Asset Reality, Larkin says one of the biggest challenges was understanding the local market and adapting to US regulations — and its new hires were integral to overcoming them.
“Being a fully remote company, we were able to utilise our US-based staff — it makes things so much easier when you have context and boots on the ground for dealing with hiring, local taxation and regulations,” adds Larkin.
On October 26, 2023, Sifted launched a series of articles exploring the trend of European startups moving to the US. You can the first article in the series here.
