Last month, I had the pleasure to be back in Austin, TX to deliver a talk at the Austin Tech Council, on European expansion for U.S technology firms.
There, similar to many other events I’ve participated in throughout the US, two recurring themes on international expansion – ‘opportunity’ and ‘timing’ – featured most prominently.
These are the two aspects that I am most frequently engaged in with US tech entrepreneurs, their investors and advisors who have European expansion in their sights.
Opportunity & Timing
In my experience, the ‘timing’ question typically arises for strategic evaluation at the point at which organizations achieve a certain point of scale in their growth cycle. I generally see that occurring just after Series B funding stage.
Of course, consideration for overseas expansion can and does occur either-side of that milestone. But it is that post-Series B stage, where I see the majority of early growth-stage U.S tech companies, giving internationalisation most consideration and evaluation.
As a tech enterprise looking at expansion into Europe, you will have a number of priorities beyond the obvious ones of
- increasing sales
- international footprint
- and the operational aspects of servicing new overseas customers.
All of these considerations and evaluations are relatively straightforward business-making decisions for any entrepreneur who has guided their business to Series B stage or similar paths with other ventures.
The most difficult question of all – and the one which no amount of domestic experience and success to date can truly provide guidance on:
Where, geographically, should I setup and locate my European base?
After all, the European Union is comprised of 28 separate countries with a population of 513 million, 24 official languages, 11 currencies and 28 different tax regimes.
However, we believe the selection of which European base to setup in, can for the majority of tech companies, be distilled down to a shortlist of 4 locations. These are
London continues to attract the largest number and the greatest share of tech investment in Europe. For instance, in 2018, London raised more VC capital ($2.3 billion) than any other EU city and it attracted almost double the sums raised by its counterpart European cities; Berlin ($1.2 billion); Paris ($1,08 billion), Stockholm ($286 million) and Barcelona ($232 million).
Whilst 2 of our 4 recommended cities may not be financial heavyweights in the league table of absolute inward investment, we include both of these cities because of their
- ease of doing business
- talent pool
- and (in the case of Dublin, Ireland), it is the only other EU country whose first language is English
- and it also has particular depth in back office support and inside sales functions.
Once your decision has been reached about where to establish, the question of hiring – who and when – arises.
An obvious choice can often be to parachute-in one of your existing US team members to commence operations. However, while this option will certainly kick-start the process, sooner rather than later, the necessity for local talent will arise.
I cannot stress highly enough, the importance of choosing the right candidates for these initial key hires. Too often, I have seen US enterprises starting up in Europe, have their progress stunted by 6 – 12 months, purely by mis-hiring at key-person stage and it is usually cultural fit lies at the heart of this problem.
Yes, the term ‘cultural fit’ can be somewhat of a generic catch-all, so let me be more specific by advising you to avoid the temptation to hire the management pillars of your new EU enterprise, from within the ranks of the big-tech sector because all too often, they will lack the entrepreneurial intuition, the operational dexterity, the hands-on approach and the adaptability required to cope with the less structured, more dynamic aspects of an early-growth stage enterprise.
Data Security & Sales Taxes
Two other key considerations in Europe, are the need to pay particular attention and to adhere to data protection legislation and sales taxes filings.
In terms of data protection, EU regulations are much more onerous than in the U.S and the financial penalties for breaching are sizable.
This is equally true for any late payments or delinquency on sales taxes – Value Added Tax – (VAT). Enforcement here is especially stringent in B2C markets.
With regards to the processing of payments through your European entity, you can certainly begin by accepting US Dollar payments. However, as your business grows, payment processing in local currencies will become critical and with this will come the need for currency management.
My final piece of advice here is be prepared to dedicate time and resources to build your international business as well as involve your management team from across your existing business.
Once you commit to international expansion, don’t stay detached from it by assuming that your new in-country team can do it all flying solo. Finding the right balance between micro-managing and total delegation will be key to the success of your new venture and investment.
David is the founder and CEO of Orsa Saiwai. Orsa Saiwai guides, advises and assists U.S technology companies on their international expansion in Europe.