Raising funding in your own country can be difficult enough. If you’re considering seeking capital abroad and opening your business to a new market, you’ll definitely want expert help.
That’s why our flagship Business Funding Show 2018 brought in John Zai, founder and CEO of Cocoon Networks; Daniel C. Glazer, partner at Wilson Sonsini Goodrich & Rosati; Will Gibbs, Investment Manager at Octopus Ventures; Timothy Poole, International Trade Advisor at the Department for International Trade; and Eamonn Carey, Managing Director of Techstars.
Here are the key takeaways from the panel, with a focus on raising in the US and China, two of the most promising markets for high-growth UK SMEs.
Raising US VC funding requires careful attention
Glazer and Gibbs emphasize that, while full of opportunity for the right businesses, the US is not a viable place to look for investment for every UK SMEs at any stage.
Consider the situation from the VC’s perspective: if you’re an early-stage investor in the US, you have plenty of US-based early-stage companies to choose from. You’ll need to persuade them that your business is poised to thrive in their market. If you want to raise venture capital funding in the US:
If you want to raise funding from one of the big US VC firms, you need to have a strong US story. According to Glazer, US VCs are seeing a lot of ‘venture tourism’, in which SMEs from all over the world come to Silicon Valley, New York, and Boston looking for a slice of US funding with no compelling reason for it.
To get these VCs’ attention, says Glazer, explain why you’re not raising in your home market - and why the US is a better choice. Reasons likely to get their attention:
Gibbs adds that your US story will ideally include US references and connections. If you have Tesco as a potential partner, for instance, that sounds spectacular in the UK but means nothing in the US, where Tesco is virtually unknown. US VCs also expect at least some of the team to be already established in the US.
UK entrepreneurs are used to the generalist, sector agnostic firms of their home country, but many US firms specialise in one sector, one stage, or a combination thereof.
Gibbs provides an example: there are two well-known US firms that specialise in cybersecurity Series B rounds. If you’re looking for a cybersecurity Series B round only and you’re one of the best in Europe, he says, these firms might want to talk to you.
Pay attention to such specialisations, or you could waste a lot of time and money reaching out to firms that have no interest in the companies of your sector or stage.
With some exceptions, it’s generally smarter to seek US expansion capital in the UK, not the US. Save the US fundraising for after you’ve used your UK money to build traction in the US and establish a product-market fit there.
Many companies seek US VC funding too early in their business’s life cycle. If you have reason to believe your company is too young, advise Gibbs and Glazer, don’t ask VCs for money.
But do approach them.
Give and receive advice. Tell the VC about an interesting business you read about and think they might be interested in. Seek their counsel for a problem you’re business is having. Ask if you can put them on your mailing list so they can stay updated on your journey. Be patient, and they just might come to you with an offer or join one of your UK rounds. But even if they don’t, they will likely be more receptive to your proposal than if you were asking for funding on your very first meeting.
This ‘relationship-first’ approach, adds Gibbs, is a smart way to interact with all VCs, not only US ones.
Chinese funding is full of opportunity
While the US is where many UK SMEs want to expand, Zai encourages them to take another look at China. There’s less competition and more opportunities to fill gaps in China’s developing technology market. And with a population three times higher than America’s, there are simply more customers.
Zai also dispelled some common myths about doing business in China. No, you don’t have to speak Mandarin (many Chinese people in the major cities speak English), and no, your intellectual property isn’t any more likely to be stolen than it would be in any other country (the laws have improved). In fact, Shanghai is not all that different from London.
Look for accelerator and government support
According to Poole, the Department for International Trade often takes UK companies on trade missions to the US, Canada, Serbia, Russia, and other high-potential markets to give them access to new clients and investors. Look into such programmes; you’re more likely to receive attention if you come to these new markets with the support of the British government. The DIT programmes usually require a modest commitment fee of a couple hundred pounds, and you’ll have to pay for your own transportation, but the opportunities may be well worth the cost.
Carey’s accelerator, TechStars, began in the US but is well connected all over the world. They have partner programmes linking specific countries to one another for the very purpose of easing such transitions and expansions. However, Carey warns that you can’t simply set up an office in the new place. You must commit to the market there, as your opportunities with local investors only scales with your presence on the ground.
It’s never too early to start thinking about expanding to overseas markets. Do your research, know how to approach funders in your country of interest, and utilise the connections of organisations that can connect you with new contacts abroad.
Stay tuned for more coverage of our full day of panels and talks to get expert advice on making the most of intellectual property, raising for a tech business, business law for SMEs, and more.
The Business Funding Show began as the first exhibition in the UK and EU focused exclusively on business finance. Today, in addition to the flagship exhibition, BFS runs a series of events throughout the year aiming to educate entrepreneurs on different aspects of business finance and connect them with top funders.
To attend other exciting BFS events, such as funding exhibition, workshops, and networking parties and secure your tickets, visit bizfundingclub.com/events