Overview
Guests:
- Daniel Glazer, London Office Managing Partner @ Wilson Sonsini—Daniel Glazer is an American technology lawyer, strategic business advisor, and the Managing Partner of Wilson Sonsini's London office.
Since the 2010 launch of the UK Government's Tech City initiative, Daniel has advised high-growth UK/European technology and life sciences companies on raising capital in the US and UK/Europe, expanding their businesses into US markets, and connecting with investors, corporates, and advisors.
Topics covered:
- Timing and strategy for U.S. expansion—what triggers should you look for before expanding?
- Legal, operational, and financial considerations—how should you set up your company, and where?
- Building a U.S. team—what are the differences in building a team in the U.S. vs Europe? And do you need to move to the U.S.?
Three key lessons:
- Timing is crucial for U.S. expansion - get pulled in by customer demand rather than going too early or too late. However, once committed, be prepared to move quickly to stay ahead of aggressive American competitors.
- Establish a formal Delaware C-Corp subsidiary before hiring U.S. employees to navigate tax, liability, and employment law hurdles. Carefully evaluate locations based on costs, talent, customers, travel logistics, and incentives.
- Hiring and managing a U.S. team requires adapting to very different cultural norms around employment practices, equity compensation, and the fast-paced, high-risk/high-reward mentality. Bridging this gap is one of the biggest challenges.
Introduction
For founders and startups based outside the United States, expanding into the massive American market can seem like a tantalizing opportunity – but also an incredibly daunting challenge filled with numerous pitfalls.
We talked with seasoned tech lawyer Daniel Glazer from Wilson Sonsini to share insights and advice for UK and European companies considering a push into the U.S.
Timing and strategy for U.S. expansion
When should a company consider expanding to the U.S.? The top 3 trigger points are:
- Being "pulled" into the U.S. market by existing customer traction and user growth, rather than just going in blindly. This demonstrates you already have a product-market fit.
- Hitting a ceiling for growth in your home market and seeing exponentially larger opportunities in the U.S.
- Needing to establish a U.S. presence and relationships to facilitate fundraising from American VCs
The preferred approach - unless the company is moving its primary operations early in its lifecycle to build a US-focused business from the outset - is to first nail product-market fit in your home region and get inbound interest from American customers/users. Only then should you allocate resources to capitalize on that U.S. demand - don't go too early. For example, a B2B software company may first see large U.S. banks testing and requesting their product before hiring sales staff in the U.S.
Common mistakes include sending just 1-2 employees to San Francisco to "start selling" without enough resources or proof of market demand, or going in half-hearted. Another pitfall is treating the entire U.S. as a single market, rather than a cluster of regions with very distinct cultures and behaviors.
Before expanding, companies should be able to answer:
- What is our realistic upside potential in the U.S. to justify the investment? Is becoming the #1 player viable?
- What are we willing to commit (budget, leadership time, etc.) to make it successful?
- Do we have the patience and capitalization to withstand a slower ramp than our home market?
If there is lack of ROI after giving it a solid effort, or massively larger opportunities elsewhere, companies should consider abandoning U.S. expansion before wasting further resources.
Legal, operational, and financial considerations
You do need to create a separate corporate subsidiary when hiring employees in the U.S. to avoid tax, liability and employment law issues with your foreign entity. The most common option is setting up a Delaware C-Corporation as a wholly-owned subsidiary.
Delaware is the prevalent choice because it has business-friendly corporate governance laws, specialized courts focused on corporate governance, and reduced administrative frictions. Founders don't actually have to live or have an office in Delaware - you just register the Delaware company to do business in other states where you have operations.
The best place to establish a U.S. headquarters or regional office depends on numerous factors like:
- Proximity to customers, investors, key talent
- Costs of living and office rents
- Tax incentives and economic development programs
- Travel logistics and time zones
- Potential acquirers in the future
For example, Boston could make sense logistically for a cybersecurity startup selling to NY/Boston financial firms and looking to tap East Coast engineering talent. On the other side, a city like Austin may be preferable for lower costs and a central travel hub.
Building a U.S. team
Hiring and employment practices in America can feel like an entirely different planet for European founders used to strict labor laws back home. Termination at-will, less formal employment contracts, and employee-friendly litigation are a culture shock.
If offering equity, companies need a separate IRS 409A valuation for U.S. option grants, which is often a higher valuation than back in Europe. American workers also tend to think about equity as valuable "lottery tickets" with substantial upside potential.
Regarding moving to the U.S. as a founder, there is no one-size-fits-all answer. If the goal is to win the U.S. domestic market, then the CEO/founder may need to relocate stateside eventually. But if the U.S. is just one of many regions (i.e. you are also winning in other countries outside of the company’s home market), it may be okay to skip sending a founder and send a senior leader instead.
First key hires are often a GTM leader or Head of U.S. Sales plus an initial cohort of account executives and sales development reps. Then you'd build out marketing, customer success, and other functions in tandem.
To bridge cultural gaps, smart companies will employ a mix of American employees complemented by a few relocated managers from HQ for continuity. The latter group can help reinforce the company’s DNA while adjusting to the faster-paced U.S. operating cadence.
Conclusion
Expanding into the U.S. is an expensive, high-risk undertaking that requires extensive planning and a clarity of vision. But for startups armed with knowledge and the right strategy, launching into the massive American market can reap game-changing rewards. The key is careful preparation, perseverance, adaptability, and a tolerance for the inevitable ups and downs.
FAQ
What are the top triggers for a company to consider U.S. expansion?
The main triggers are being pulled into the U.S. by existing customer demand, hitting growth ceilings in your home market, and needing U.S. presence to facilitate fundraising from American VCs.
What is a common mistake companies make when expanding to the U.S. too early?
A mistake is going into the U.S. market before achieving real product-market fit, lacking the necessary budget to compete, and underestimating the competitive landscape.
What is the risk of not acting quickly enough in the U.S. market?
If you move too slowly once committed, aggressive American competitors will quickly outmaneuver and outpace you due to the faster operating cadences.
When should a company stop pursuing U.S. expansion?
If after giving it a solid effort, you lack a clear ROI and path to sustainable traction, it may be best to cut losses and refocus resources elsewhere.
When does a company need to establish a U.S. subsidiary?
You typically need to create a U.S. subsidiary, usually a Delaware C-Corp, before hiring your first official employee in America.
Why do startups commonly incorporate in Delaware?
Delaware has business-friendly laws, specialized corporate courts, and reduces administrative frictions compared to other states.
How is hiring processes different in the U.S. versus Europe?
U.S. hiring tends to have fewer employment protections, more termination flexibility, shorter-form contracts, and contentious litigation is more common.
What considerations are there for offering equity to U.S. employees?
Companies need a 409A valuation for U.S. option grants, which is often higher than home country valuations, and American workers are savvier about equity upside.
Additional resources and recommended reading
Read Daniel's US Expansion, Fundraising & Exit FAQ: https://medium.com/@daniel.glazer/u-s-expansion-and-fundraising-a-comprehensive-faq-3bf143cd5249
Read Captivate Talent's SaaS expansion guide on how to hire in the US: https://www.captivatetalent.com/blog/saas-startup-expansion-how-to-hire-in-the-us-market
