The Globalization of Venture Capital Investing(avc.com)
avc.com
The Globalization of Venture Capital Investing
https://avc.com/2021/06/the-globalization-of-venture-capital-investing/
26 comments
It's the Golden Rule: who's got the gold (money), makes the rules.
And if your rules are to deliberately avoid opportunity, don't be shocked if somebody else makes the money not following your rules. Free market applies to the entire economy, not "the whole economy except the VC part because we're special".
Today's role-breakers are tomorrow's rile makers whose lunch will be eaten by tomorrow's rule-breakers.
And the cycle continues.
And the cycle continues.
Atlassian was bootstrapped for about a decade. It was profitable, had more than 200 employees, and was turning about $60 million in revenue before taking outside funding. It was far more late stage than the vast fraction of companies.
> However, I believe most of these VCs still expect companies to be set-up as Delaware Corps. Anybody have any insight on that?
If you are taking money from US investors, being a Delaware C-Corp is what they are used to deal with and what they are comfortable with.
If you are selling internationally, a US setup might make lots of sense.
If you are taking money from US investors, being a Delaware C-Corp is what they are used to deal with and what they are comfortable with.
If you are selling internationally, a US setup might make lots of sense.
> However, I believe most of these VCs still expect companies to be set-up as Delaware Corps. Anybody have any insight on that?
This is rapidly becoming less true. YC stopped requiring/recommending a Delaware corp back in W20.
There are countries that are more "investor" friendly where the laws about corporate ownership, governance and investment are clear, and enforceable. Singapore being one such. (Last thing an investor wants is to send money and not get any ownership that the courts will respect).
As long as you're setup in one of those countries, lack of Delaware is not a true blocker anymore. Mostly it's whether the fund is comfortably focused in the region.
This is rapidly becoming less true. YC stopped requiring/recommending a Delaware corp back in W20.
There are countries that are more "investor" friendly where the laws about corporate ownership, governance and investment are clear, and enforceable. Singapore being one such. (Last thing an investor wants is to send money and not get any ownership that the courts will respect).
As long as you're setup in one of those countries, lack of Delaware is not a true blocker anymore. Mostly it's whether the fund is comfortably focused in the region.
> There are countries that are more "investor" friendly
Which countries?
Which countries?
We invest in global companies and usuals see Delaware C Corps. On occasion we'll fund a foreign entity but we do look for jurisdictions with a developed western legal system.
I would say the most common after Delaware is Hong Kong and Canada.
There's some jurisdictions where we still expect the company to form in Delaware, like our African or Latam investments.
I would say the most common after Delaware is Hong Kong and Canada.
There's some jurisdictions where we still expect the company to form in Delaware, like our African or Latam investments.
Seems that zoom has really changed the geographic reach of VC investing.
It doesn’t seem to have changed where the investors are located. Which means there is still probably an advantage from locating a startup at a investment hub simply because there is more chance of meeting someone who knows someone.
> It seems to me that about half of our “new deal activity” right now is happening outside of the US. And very little of it is in western Europe where most of our non-US investing has been for the last decade.
I always thought the problem with European startups was lack of a VC critical mass and risk taking ethos. So I thought the globalization of VC would help, but this sounds like it’s bleaker than ever.
Is it the absurd bureaucracies? Taxes? Red tape? Europeans are a super-smart bunch but their devs make far less and they lack any superstar tech giants. Makes no sense.
I always thought the problem with European startups was lack of a VC critical mass and risk taking ethos. So I thought the globalization of VC would help, but this sounds like it’s bleaker than ever.
Is it the absurd bureaucracies? Taxes? Red tape? Europeans are a super-smart bunch but their devs make far less and they lack any superstar tech giants. Makes no sense.
> but their devs make far less and they lack any superstar tech giants
These two are related. You can’t have high salaries without a competitive market full of money sloshing around.
A company making $300k/employee can never pay as much as a company making $1mm/employee. Even if it wants to.
I wonder how much brain drain the EU tech scene experiences by people working for US tech companies. Either remotely, via local offices, or plain old moving to USA.
These two are related. You can’t have high salaries without a competitive market full of money sloshing around.
A company making $300k/employee can never pay as much as a company making $1mm/employee. Even if it wants to.
I wonder how much brain drain the EU tech scene experiences by people working for US tech companies. Either remotely, via local offices, or plain old moving to USA.
> I always thought the problem with European startups was lack of a VC critical mass and risk taking ethos. So I thought the globalization of VC would help, but this sounds like it’s bleaker than ever.
Europe only makes 10% of the world population, and the EU population is a bit over the half of that. I don't have the numbers, but I'm confident the EU gets more per capita.
> Is it the absurd bureaucracies? Taxes? Red tape?
All of that plus Europe is quite developed. VC wants a high return and under-developed emerging countries can give more for your buck.
Europe only makes 10% of the world population, and the EU population is a bit over the half of that. I don't have the numbers, but I'm confident the EU gets more per capita.
> Is it the absurd bureaucracies? Taxes? Red tape?
All of that plus Europe is quite developed. VC wants a high return and under-developed emerging countries can give more for your buck.
The European market is not a single market like the US - that's a big disadvantage when you're growing a company. It's a quasi-single market (and only for about 20 years at that). You still have to take lots of different national regulations into account, as well as the language barriers and very different cultures from country to country. The US is still the largest, single, free market - and that's what attracts entrepreneurs (and VCs).
I have a lot of friends and acquaintances in Europe. From the ones who tried to start a business I have been told the issue is taxes and regulation. It is nearly impossible for someone with limited initial income to maintain the appropriate legal entities. The overhead you pay just for existing in Europe makes small European businesses noncompetitive. There are other valid issues highlighted here, but first and foremost this is what I have seen.
I've been involved in the French/Parisien startup world for half a decade.
If you pay taxes as a startup you missed a few turn and you should talk to a accountant. ( At least the first 5 years )
Regulations can also be a opportunities. Your client might start dedicating money to fulfill that regulation. If you are able to help your client with that in a timely manner, it's easy money. ( B2B setting )
To the point: Our main frustration as a high growth entity was how hard it was to jump from market to market.
We got into Spain because nobody was there, cool. let's replicate in Germany. Oups. Total failure and the brand is damaged.
Every single country is a battle that you have to understand intimately. We got a way out thought a random re-seller in Holland that started distributing us in China.
Our roadblocks were made of small market with already implanted competitor. Not regulation or taxes.
( To be fair: we were selling hard/softaware on very niche and finite market. )
Regulations can also be a opportunities. Your client might start dedicating money to fulfill that regulation. If you are able to help your client with that in a timely manner, it's easy money. ( B2B setting )
To the point: Our main frustration as a high growth entity was how hard it was to jump from market to market.
We got into Spain because nobody was there, cool. let's replicate in Germany. Oups. Total failure and the brand is damaged.
Every single country is a battle that you have to understand intimately. We got a way out thought a random re-seller in Holland that started distributing us in China.
Our roadblocks were made of small market with already implanted competitor. Not regulation or taxes.
( To be fair: we were selling hard/softaware on very niche and finite market. )
As a counterpoint - that's not what I've experienced in the UK. I know it's arguably one of the "friendliest" legislations, but still, red tape wasn't a big deal.
From what I heard from others, the main issue is access to credit and funding. European investors are risk-averse and ask for too much in return, probably because their experience is in traditional low-margins sectors; sadly that's a vicious circle, where low margin begets low margin and things never improve. Also, people just don't like to pull the insane working hours that are normal in the US.
From what I heard from others, the main issue is access to credit and funding. European investors are risk-averse and ask for too much in return, probably because their experience is in traditional low-margins sectors; sadly that's a vicious circle, where low margin begets low margin and things never improve. Also, people just don't like to pull the insane working hours that are normal in the US.
The UK is the sole exception afair. It's not just access to funding because many businesses in the US are created with no external funding. If you attempt to do that in mainland Europe you're going to bankrupt yourself just setting up the company. In most US states you just pay ~$100 and can 1099 your first employees.
Europe is not a coherent place, much of the important regulations are national. At the very least, one should divide between Northern/Western Europe (more entrepreneurial) and Southern Europe (more regulations, less money and less entrepreneurship).
Globalization of VC is great for America, American investment firms, and startups in other countries. America gets a slice of the best, worldwide, and it helps companies that are often fighting uphill in their local markets.
As a founder who has raised in Canada and is now raising in America: the cultural difference is night and day. America has significant advantages in willingness to take risk and the amount of capital to deploy. I have data showing, population adjusted, dollars per time, that American VC outclasses Canadian VC by at least two orders of magnitude. Likely much more.
An anecdote from a friend I was discussing this with:
"A former partner of mine was turned down by [every Canadian firm he went to.]
Went to the US for a weekend and came home with US$10M.
4 years later, that company is valued at US$35B"
It is an amazing experience talking to people who understand technology, understand risk taking, and put their money where their mouth is.
I'm bullish on American's performance in a globalized VC market.
As a founder who has raised in Canada and is now raising in America: the cultural difference is night and day. America has significant advantages in willingness to take risk and the amount of capital to deploy. I have data showing, population adjusted, dollars per time, that American VC outclasses Canadian VC by at least two orders of magnitude. Likely much more.
An anecdote from a friend I was discussing this with:
"A former partner of mine was turned down by [every Canadian firm he went to.]
Went to the US for a weekend and came home with US$10M.
4 years later, that company is valued at US$35B"
It is an amazing experience talking to people who understand technology, understand risk taking, and put their money where their mouth is.
I'm bullish on American's performance in a globalized VC market.
It's much better to invest in a U.S domestic C corp startup because then you're eligible for QSBS which is one of the biggest tax breaks in the whole tax code. Sure the founders can live anywhere they want, but it's got to be a U.S domestic C corp to get that tax break.
However, the founders have to comply with backup withholding and all that jazz if they live overseas and are not U.S residents.
However, the founders have to comply with backup withholding and all that jazz if they live overseas and are not U.S residents.
very consistent with my sense. it has become much easier to raise money from US VC while being based internationally in the last 12 months
VCs new they had to make investments in Asia and South America as they saw more successes come out of those regions.
Technology is global, so VCs can't afford not to be.
However, I believe most of these VCs still expect companies to be set-up as Delaware Corps. Anybody have any insight on that?