Karen McCormick is chief investment officer at Beringea, which funds high-growth businesses in the UK and the US. Here she talks us through five common statements she hears about the US investor market, explaining which are true and which are false.
US investors put £1.9bn into the UK technology industry in 2016, demonstrating the potential for the best British businesses to break into the US ecosystem. Many entrepreneurs perceive ‘breaking America’ as the biggest step towards solidifying their global status and achieving high exit values. However, it’s a common mistake for entrepreneurs to make the leap too early, creating costly business complexity and adding overheads that can’t yet deliver.
Considering US entry requires self-reflection and critical analysis. Have you managed to establish a dominant position in your home market? Does your business have a US client base already generating revenue? If the answers to these questions are no, chances are it’s probably not the right time for your company. But if the answer to these questions is yes, it could be time to consider making the jump, and bringing on US-based investors can help ease the transition and expedite success.
As venture investors with a 30-year history and an established US office, we find ourselves answering a lot of questions about what US investors are really like, and many entrepreneurs have heard of both horror stories and mythological Midases. But how much of what you’ve heard is really true? Here we deconstruct five common statements about the US investment market that may help to swing your decision as to whether or not your business is ready to take the plunge.
1. “Valuations are higher in the US”
Fact, but with a caveat. Looking only at ‘unicorns’ (startups valued at £1bn or more), US unicorns are valued at an average of 46 times their revenue, compared with 18 times for their UK counterparts. Conversely, the average revenue of European unicorns is almost three times as high as their US counterparts, with European unicorns generating $315m compared to $129m in the US.
This indicates that European investors require startups to demonstrate a much stronger track record to justify billion-dollar valuations. However, taking out these truly exceptional cases (there’s a reason unicorns are named after mythical beasts), we find US and UK valuations become both much more similar and much more sensible. Indeed, Beringea’s UK team often co-invests with a range of blue-chip US investors, and we don’t pay different entry prices or squabble amongst investors over pricing.
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One point to note is that, generally speaking, US investors invest larger amounts: 90% of US venture capital investments are under $25m, whereas 80% of UK venture capital investments are under $10m.
2. “You should be prepared to sell yourself much harder in the US”
Fact. Businesses in the US go into pitch meetings with a much more promotional mindset. UK companies looking for US investment need to reevaluate how they sell themselves to this new audience.
It’s crucial that you emphasise your relevance to a US investor and show an understanding of the market, and make clear any plans for expansion that you’ve developed. Don’t be afraid to make a point of your past difficulties to a US investor, either; be proud of how you overcame these and explain how they eventually helped you to grow to where you are now.
3. “UK pitch materials can feel ‘foreign’ to US investors”
Fact. From tone to terminology and structure, the best way to know that your pitch is appropriate to your audience is to get someone who is familiar with the US investment industry to review it with you.
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This goes beyond just changing pounds to dollars. You need to ensure the language you use is accessible, and to double check that any business jargon you use is universal. For example, ‘turnover’ in the UK is widely taken to mean ‘revenue’; in the US, the term ‘turnover’ is only ever used when describing changes in staff. Ensuring that your pitch is accessible will smooth any potential bumps along the track.
4. “You have to be persistent in following up with US investors”
Fiction. While what investors are looking for might differ between the US and the UK, the way they interact and communicate with entrepreneurs should be consistently professional. Following up with a US investor should be handled in the same way as any other investor; and in any case, it’s very likely that companies will receive feedback, positive or negative, before they have to follow up.
As with any pitch meeting, it’s important to read the room. If your presentation has gone well and you’ve received a response that indicates interest, but there hasn’t been any follow up for a few days, a polite note to the investor who took the meeting is appropriate; if the meeting was less successful, do go ahead and ask for constructive feedback. The important point here is that following up with a US investor should be approached in the same way as any other investor.
5. “US dealmakers are generally highly aggressive”
Pure fiction. Much like how business on Dragons’ Den and The Apprentice differs radically from business in the real world, the vast majority of US investors and business people are nothing like their counterparts seen on television. As with any business interaction, a pitch should be focused on how you can build a good working relationship with the investor; aggression has no place in a business meeting.
Do you have any questions about the US investment landscape? If so ask them in the comments section below.