Note: A version of this article originally appeared in Inc with the title How to Raise Venture Capital if You’re Outside the United States.
Over the past three years, I’ve been working with 30+ companies that have their bases across Latin America build their businesses. Many of these companies are really US companies that just happen to have a tech and sales team in Latin America and want to raise capital in the US. Others are Latin America B2B companies that would love to raise money in the US, but have found hard sledding.
When I first got started, I didn’t realize how hard it would be to find investors to follow in on our companies and our strategies were all wrong. In 2015, I got on a plane to California with Adrian Fisher, the founder of PropertySimple, to take his company to the US market. He’d build an amazing product, similar to Zillow, but in Chile, and 1000+ real estate agents using his product and millions of people using PropiedadFacil to find properties.
He’d created a US version of his product, called it PropertySimple and moved to the US to open US offices and focus 100% on the US market. We started in Los Angeles and over the next two months met with investors, entrepreneurs and friends in the Bay Area, Chicago, Wisconsin, New York and other areas in between. We figured that we’d be able to raise a small seed round in the US, as we’d seen our friends raising money with less developed products in the states. We figured that we’d already derisked the business by having proven we could build a great product in Latin America and needed a cash infusion to jumpstart the US market.
We were wrong. Most investors seemed to think that Adrian’s Latin American traction was a negative, not a positive. Others had never seen a company with a Latin American tech team and weren’t sure it would work. Others loved the initial traction, but wanted to see it working in the US with US clients before getting started.
After our trip, we realized it was going to be much harder than we expected to raise a round in the US and Adrian and team began to build out the product and generate sales. After 12 months in the US, we’d built a business that was not only cash flow positive, but was in a position to choose investors, not the other way around when we first arrived.
During that same time, three other Magma portfolio companies were in the process of raising US capital and had similar experiences. I pooled everything we learned from successfully raising funds from US investors to create our playbook for raising money from US funds even if you’re based outside of the US. Here’s what we learned.
- Build a great product and team. This sounds obvious, but having a great product and team is table stakes. We like to see balanced teams solving real problems, whose solutions people will pay for.
- Follow standard procedures. U.S. investors want to invest in businesses they understand. They have such great deal flow where they are that it doesn’t make sense to try to understand foreign investments, laws and teams. Incorporate in the U.S., ideally with a Delaware C corporation. Use a standard share structure and include founder vesting. It’s what most U.S.-based VCs are used to and is quick and easy to set up.
- Open a U.S. office. Get a membership in a U.S. coworking space in the startup hub where you plan on raising money. This shows you have a U.S. office. You can then use the space every three-to-four months. We have portfolio companies that have been in WeWork, The Port and similar coworking locations. Some of our startups have used extra space in other startup offices, which works well too.
- Get U.S. clients. Investors like to see U.S. dogs eating U.S. dogfood. There are so many great U.S. startups and deals that come across a VCs desk that they want someone they can call in the states. We suggest getting U.S. clients from abroad first to save money. If you can sell product over the phone or internet, do it. If you can’t because you’re in an industry like larger B2B SaaS sales, set up two weeks’ worth of sales meetings over the phone and then plan a U.S. sales trip. Make sure investors can call your U.S. clients in due diligence.
- Make inroads into the ecosystem. Interact with locals online or in person. The best way to get on their radar is to get direct introductions.
- Get introductions from people who have a good track record or a connection to the region. There are likely top startup founders with a U.S. track record from your country. Connect with them and show them you’re serious.
- Research U.S.-based VCs who have invested in non-U.S. teams. Some VCs only invest in a specific geographic area. Others are more open. Try to get meetings with these funds.
- Don’t focus on your foreign track record. Our company’s foreign track record was seen as neutral or even negative. Just go straight to gaining traction in the States.
During Investor Meetings
- Offer to come to them for board meetings. Take Mark Suster’s advice and offer to hold board meetings in the investor’s home city. Many investors will not invest outside of their geographic location because of travel time. Take this objection off the table up front.
- Don’t assume investors know anything about your home country. Some investors might even have misconceptions. Answer questions and address misconceptions directly, but respectfully.
- Emphasize your U.S. product. If you have a version of your product in your home country, don’t focus on it. Don’t let investors think that you’re going to use the money to work on your home country startup, not the U.S. version.
- “Be so good they can’t ignore you.” Steve Martin’s classic quote is our mantra with foreign entrepreneurs when they come to the U.S. to raise money. You have a barrier to raising money in the U.S. if you don’t fit the pattern of what a U.S. venture capitalist sees each day. Make this quote your mantra and you’ll succeed, with or without venture cash.