I’m finally getting around to answering some of the requests for posts I had asked for a while back. Here’s the first question I want to address:
I’d really like to hear your idea on when / if (and how) a European start-up should open up a presence in Silicon Valley. I have seen recently that many start-ups when getting major funding (e.g. Waze) either moved or at least setup a presence in the Valley. What’s your take on how to do this and even more important could you give examples on how to do it right and maybe some stories of where you were involved on how this worked out.
This is a pretty easy one to answer as we do often deal with exactly this question. In short, if you can avoid going to the Valley, do so. Stay where you are and don’t do things “because everyone else is”. You won’t need to relocate yourself and your team. You won’t have to adapt to a whole new work and living environment. You won’t need to relearn everything about hiring and tax. You’ll also save a ton of money in general and most importantly, time. But obviously, this is not the right answer for every company.
Often you will either need to relocate your whole business to the Valley or simply set up an outpost there to address your customers/partners/investors. Most likely you are still early stage and are about to get funded by a US VC. They may set as a prerequisite for financing that you relocate the business to the Valley. If you are still fairly small, are intent on working with this investor and generally are into the idea of relocating, pick up and move. Although there are a ton of things you need to do to make this happen smoothly, it’s simply too much for this blog post. I’d recommend focusing on cleanly winding down your business in your respective country and relaunching it abroad. Don’t forget that this often leads to a ton of legal and tax implications. Hire a good lawyer who’s done this before to advise you as there are many stumbling blocks to overcome. It’s not as easy as simply shutting down one office in your local country and reopening in another. Further, I am simply not able to give general advice as it will vary by country. If you’re already running a business though you’ll know to get good advice on this.
You may also decide to relocate to the Valley because all of your customers or partners are there and your market does not exist in your local country. Again, it’s no different than if you were going there because of an investor’s demand that you relocate. Fortunately for you, this scenerio is the same as the previous one. You have an external motivator to do so and basically have no choice. If it’s clear you have to make this move, just get the right advisors and go. On the other hand, where it gets difficult is regarding an outpost. Setting up a subsidiary in the States because you want to grow in that region and be “where it’s at” when it comes to tech is a whole different situation. I will presume you already have an established customer base in your local geography and are setting up a second (or third/fourth) location in the US after having something for example in Germany and London.
How and why do you decide to do this. OK, I’m generalising again but here are the factors I’d consider as necessary to be answered with a “yes” before setting up a subsidiary in the US (by “US” I mean the Valley…..there are different arguments for places like NYC, Boston or Austin):
1. Your exit is there. If it’s clear that you will be bought by a US company and you believe your chances to be far better if you nuzzle up to them on their home turf, set up a subsidiary.
2. If you will be raising additional money down the road and want to raise it from a Valley investor, set up shop there. It’s far better to have a “local” component to your company for the investor to look at.
3. You need to be physically meeting with your customers more than once a month. Although this is very general, it’s super hard to fly over every month to see customers. You want someone local to be there for these customers (or partners).
4. Your customers need to come to you physically to be trained, consulted, babysat or whatever. Then you want a physical location to do this.
5. You need to be at events more than once a week which are happening in the Valley. I don’t mean to network but to truly do business. This is where your customers are and hence having a subsidiary makes sense.
That’s it. My list is short. Almost any other reason you may have for setting up shop in the Valley doesn’t make much sense. You think you’ll be able to hire better people? Good luck on that….there is so much competition and the fact that you’re “a company from Europe” makes it even harder to get top-notch employees. Everyone in the Valley is super sophisticated about making their job decisions. You think you’ll find customers easier than in your local region? Good luck again!
You’re “that company which is not from here!” Costs? Rents for both business and residential space are outrageous and traffic is annoying too. I could go on but you get my drift. There are very few reasons to go to the Valley. When you do have the right ones, there is no better place to be. When you have the wrong reasons to go, you are setting yourself up for failure and will lose money and time. At worst, you may completely torpedo your business. Think wisely.
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