For companies domiciled in Europe, the rich ecosystem of investors in the US is very enticing! After all, $130 billion of VC funding went into US startups in 2020 is over three times the $41 billion VCs invested in Europe. Angel investors in Europe invested $11 billion in 2020 vs. angels in the US who invested $25 billion. It’s no wonder European startups want to pitch US investors and Seeking US Funding.
It’s not easy, though.
From a completely different set of corporate governance laws, higher tax rates and currency fluctuations that add cost and risk for investors who can otherwise stay in one currency.
Starting with corporate governance, European companies are not subject to Delaware law as most investors prefer. Each country varies but some have automatic labor unions for all new companies, multiple oversight boards with different roles and responsibilities and perhaps far more stringent regulations on companies doing business in anything from data services to agriculture. The variations between countries mean that investors likely focus on one European country, if any. Look for investors with a track record of investing in your country already.
Perhaps the most critical element of law investors seek to understand is tax law. European companies are subject to a layered set of tax laws, completely different and generally higher than in the US. Besides corporate taxes, investors may face further taxes, rules and restrictions on capital transfers and may be subject to automatic withholding from foreign tax authorities.
Currency Risk and Exchange Rates
Lastly, US investors are not used to thinking about currency risk and exchange rates. Besides opaque exchange rates and fees, the variability between currencies creates anxiety in people not used to managing cross-border financial transactions. This variability may offer value to sophisticated investors seeking to hedge their US dollar holdings with Euro-denominated assets, but the risk of an angel and venture capital dwarfs the risk of currency fluctuations, so such investors are not usually willing to accept high risks, typically preferring CDs or bonds over equity of any sort.
When pitching investors, it’s good to focus on those who know and trust you and those with deep knowledge of your industry who truly understand the pain you solve. Some of those folks might be across the pond, but if they love the idea enough and want to change the world, they can find a way to overcome the hurdles. It’s just very rare. Look for investors who are already active in the target region.
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