If you’re thinking about targeting the US market with your startup or to scale up business, do you have a US expansion plan?
Don’t miss Daniel Glazer, an American technology lawyer and strategic business adviser, and founding partner of Wilson Sonsini’s London office on this episode.
If you’re confused as to why you would need legal support so early in the process, Daniel explains the difference between hiring a lawyer in the UK and hiring a lawyer in the US, in particular why having lawyers attached to companies is a much more strategic decision in the early life of a US business.
But mostly what Daniel talks about in this latest episode of The Melting Pot is US expansion – M&A, moving your HQ to the US, raising money in the US, or wanting to do an IPO on one of the stock exchanges in North America.
Honestly, nobody knows more about how to launch into the US as a European technology business than Daniel. So if the US is where you’re heading, read this article.
On today’s interview:
Difference between US and UK approach to legal advice
Why businesses seek US expansion
What you need to trade in the US
8 primary considerations for companies considering setting up in the US
When’s the right time to go?
Daniel Glazer is an American technology lawyer, strategic business advisor, and the founding partner of Wilson Sonsini Goodrich & Rosati’s London office. Daniel advises high-growth UK and other European technology and life sciences companies on raising capital, expanding their businesses into U.S. markets, and connecting with U.S. investors, corporates, advisors, and other stakeholders.
He also leads Wilson Sonsini’s U.S. expansion practice, which focuses on advising UK and other non-U.S. technology and life sciences companies through their U.S. life cycle: U.S. launch, expansion, commercial contracts, fundraising, M&A, and IPO.
Wilson Sonsini is stage agnostic, says Daniel. They work with businesses from very early in the US lifecycle – from getting accepted into the Y Combinator, moving to the Bay Area and raising a seed round – right up to raising Series A funding from a US VPC.
“Anything along the spectrum from the very early stage – we’re gonna go attack the US early – all the way up to the later stage – we’re going to become a US public company – and everything in between.”
If you’re a startup or a scaling up company, looking for US expansion, fundraising, exit, M&A or IPO, then you need to speak with Daniel and the team at Wilson Sonsini.
“This is the Silicon Valley model of engagement with companies. It’s not just providing what would be seen as traditional legal advice, but to be a business and strategic advisor as well. And maybe even a bit of a community connector.”
In the UK, if you were trying to expand your business, your first port of call wouldn’t be to a law firm. But in the US, it’s a very traditional first step.
The UK and the US have very different ways of doing business, explains Daniel. For example, very few people risk litigation in the UK, whereas in the US, threatening litigation is a very common tactic to get business results.
“That threat of litigation becomes a business negotiation tool. It’s not necessarily always used as a search for justice, it’s used as leverage to drive business outcomes. And that’s not a dynamic that you typically see in most other other countries.”
Which leads back to companies looking at US expansion needing a different type of legal advice:
“Because if door number one is you win in litigation but you don’t get reimbursed for legal fees. And door number two is you end up settling on suboptimal terms. Most companies pick door number three, which is that you take problem avoidance advice in the first place, to understand where the risks lie in your business dealings.”
So, knowing how fundamentally different US businesses operate, why would any outside organisation want to set up in the states?
Simple, says Daniel, because you have access to the US commercial market, as well as access to the US private and public capital markets.
And these marketplaces typically yield 10X compared to what you’d get in the UK if you’re in tech.
“The bottom line is this: if the US commercial market and the US capital markets are relevant and important to the UK or other non US business, then you just figure out how to run your business differently, given the US business realities, operational realities, because US companies are all living with the same thing.”
In other words, says Daniel, you don’t see US companies leaving the US because of the litigation environment. It’s just the way business is conducted.
Take the example of a B2B SaaS business selling into the US, says Daniel. If you’re just selling remotely into US companies, you don’t need to have a US company to do that, you can simply sell out of your UK Limited Company.
However, there are few things to be aware of:
You need to be aware of sales tax. Each state has its own rules with respect to sales tax, both in terms of what is subject to sales tax, and also what the threshold is of when you have to start collecting and paying sales tax. If you’re selling remotely to the US, it’s good to at least have an initial chat with a US tax accountant, advises Daniel.
“From a legal standpoint, you can sell out of a UK company into the US. And you can do that under either English law, or the laws of the US state of the company that you’re selling to.”
If you’re selling into US federal government entities, on the other hand, you may need a US company. And also, if at some point you’re selling a lot into the United States and revenues are getting massive, it’s worth having a chat with a tax advisor to see if there’s any tax efficiencies with running some of that revenue through a US entity, suggests Daniel.
If you want to employ people in the US, says Daniel, this is the bright red line of when you want to create a subsidiary US company.
You don’t want to hire US employees through a UK company for three reasons:
Liability. You don’t want to have US liability going up to the deep pockets of the parent company in the UK.
For tax reasons. You don’t want the argument that there’s a taxable branch of the UK company operating in the US potentially putting the UK company within the US tax net.
And finally, from an employment law standpoint. You could potentially end up with ambiguity between US employment rules governing employees and UK employment rules governing UK employees.
Having set up between 150-200 a year for UK and European companies, Daniel and his team have identified eight primary considerations for companies coming out of the UK or Europe in terms of where operationally to set up in the US:
What sort of talent are you looking to hire? And is it concentrated in any one particular place in the United States?
What is the cost of operating a business in the particular area? The larger cities might cost a bit more than in some smaller cities in the US.
Where are your potential next stage VCs? And is there a benefit to being near them and building those relationships?
Where are your current or potential future customers and users? And is it helpful to be close to them? Are they clustered in any one particular place?
How are you going to be managing the team across borders?
What sort of government resources are available? Virtually all states and larger cities in the US have economic development organisations that are providing incentives to companies to set up and set up in those areas, and they love tech companies setting up there. So it’s worth finding out what sort of incentives that they can offer.
Are you going to have to travel extensively in the US? And if so, do you want to be near a travel hub?
From an M&A standpoint, or an exit standpoint, if you think that your likely exit is to be acquired by particular US companies, does it make sense to set up near them, build those relationships early, build your product offering in a way that’s particularly attractive to what those companies are doing? To make your ultimate exit that much easier?
Daniel tells companies that you either want to go early or go late:
You either realise early on that the US market is the right one for you to win, and if that’s the case, you want to go early and be on the ground in the US, raising funds from US investors from day one.
If you go late, you need to be clear that you have a market fit and that your product can be Americanized.
Don’t try to build a business simultaneously on both sides of the Atlantic without having product market fit, warns Daniel.
“I can tell you this from personal experience. The UK and the US markets are in many ways, very, very different. And just because something works in the US, doesn’t mean it’s going to work in the UK and vice versa.”
Dominic has spent 14 years working in sales, marketing and business management within the IT sector. He has held executive positions at Peer 1 Hosting, IT Lab and Rackspace. At Peer 1 he built the UK business to £30m run rate in 5 years. He won many awards for creating a great place to work. At Rackspace Dominic built the UK company from four to 150 staff, and increased annual revenues from £595,000 to £25 million in just four years. Under his management, Rackspace was recognised as one of the most outstanding workplaces in Europe, and won several service awards for its Fanatical Support TM. Dominic has a BSc in Agricultural and Food Marketing from Newcastle and a MBA from Sheffield Business School. Dominic is also a regular public speaker on creating great places to work and achieving continuous client satisfaction and an assessor on the Sunday Times Customer Experience Awards.