Our insight

Index Ventures partners with founders, across both Europe and the US, who are building world changing businesses. Operating at this level of ambition requires dedication, grit, and a relentless focus on doing what is best for your company. In the majority of cases, taking on the behemoth that is the US market is a necessity to achieve global leadership.

We have supported more than 40 European tech companies that have expanded to the US, including 9 that have gone on to become public companies. Being involved at every step of the journey - planning, launch, and scaling - has taught us a great deal about the opportunities and pitfalls.

Index also has personal experience of crossing the Atlantic, being the only European-born VC firm that has successfully expanded to the US. We now have a team and portfolio equally balanced across both continents. Much of the advice in this book therefore reflects not just the learnings of the entrepreneurs we work with, but our own first hand experience of launching and scaling in the US.

Transforming into a global tech player by making it in the hyper-competitive US environment is a daunting challenge. This guide has been written to help you. We provide frameworks you can use to plan and execute the right combination of strategic, tactical and practical moves. We aim to help you understand what you need to do, when you need to do it, and how to do it, in order to win in the US.

Changing landscapes

Fifteen years ago, building a major tech business in Europe was extremely difficult. Faced with a paucity of tech-savvy customers, talent and capital, founders often chose to relocate their businesses to the US as early as they could. Zendesk and MySQL are prominent examples of European-born companies that moved over in their entirety at Series A, and continued to build their companies successfully from there.

Today, conditions are very different. Europe has many success stories, including two tech leaders, Adyen and Spotify, approaching $50bn valuations. At the same time, building an engineering team in the Bay Area is more challenging and expensive than ever. With these forces in play, founders have more choices about how long, and in what capacity, to remain in Europe.

Starting in Europe nowadays can have advantages; technical talent is more available (and affordable) than in the US, and employees tend to be more loyal. Europeans, with smaller domestic markets, also tend to think internationally from day one, which is much less common in the US. And certain sectors, including finance, luxury, travel, and gaming, have a rich heritage in Europe, offering domain expertise and partners that can actually give Europe a competitive edge versus the US.

As a result of this evolution in Europe, we are seeing four distinct trends.

i) Startups are further along in terms of scaling at the point they expand to the US than they were 5 or 10 years ago, in terms of funding, customers, and headcount. US expansion is primarily for commercial roll-out. Our survey of European and Israeli founders who have expanded to the US validates this, with 78% ranking ‘access to customers’ as their #1 reason.

Index survey of European founders who have expanded to the US. Sample size = 47

Score from 1-5 shows average weighting of each response

ii) Europe has built global B2C successes with limited US team presence by leveraging online distribution channels. For example, King, Supercell, and TransferWise achieved significant scale from their bases in Sweden, Finland, and the UK, respectively.

iii) Europe is building B2B successes which do not operate at all in the US. Broader adoption of digital and cloud services means that market opportunities outside of the US have widened, and we are seeing regional B2B companies on trajectories to $5bn+ valuations. iZettle, a point-of-sale payments company for small merchants, is an example of this emerging trend. Retaining its HQ in its birthplace in Sweden, iZettle raised €273m and established a strong presence across Europe and Latin America, The company was acquired by Paypal in 2018 for $2.2bn.

A cohort of promising European-focused B2B companies are now addressing markets that are sizable, yet don’t necessarily translate to the US context. For example, Swile (Series C) is disrupting and digitising the market for meal vouchers - an employee benefit that does not exist in the US. Others operate in regulated sectors which are fundamentally different in the US from Europe - for example, KRY (Series D), offers remote access to primary healthcare services.

iv) European founders are increasingly securing funding from top US investors without needing to move to the US. US investors are increasingly willing to come to Europe looking for entrepreneurs to back. It is no longer necessary to be on the doorstep of Sand Hill Road to forge these relationships, nor to commit to moving to Silicon Valley as part of any fundraising with them. Not to mention the extraordinary growth in funding available to entrepreneurs from increasingly sophisticated European-based VC’s.

Some European founders will still choose to relocate from day one, and to build their entire business in the US, following the examples of Stripe (the Collison brothers moved from Ireland), or Datadog (Olivier and Alexis moved to New York from France). While this can be a valid and exciting proposition, it is not our focus here.

We will instead focus on companies that base themselves, and build their product, initially in Europe, and that only later expand to the US.

Outlier Successes

Our research identified 33 European-born tech ‘unicorns’ created since 2008, and a further 23 from Israel, that have gone on to achieve success in the US. Success has been defined through a combination of total US revenues, US growth, US percentage of overall revenues, and US category leadership (top three). They span different sectors, business models, and expansion strategies. Of these 57 outliers, 43 (75%) are B2B, and 14 (25%) are B2C.

Colour logos indicate Index investments.

Our take

We are confident that Europe will produce more and more tech success stories in the years ahead. The ambition is there, and the essential elements are coming together: strong talent pools; experienced leaders, investors, and service providers; excellent infrastructure; and generally well-regarded legal systems and regulation.

Some of these startups will succeed without looking to the US, achieving a scale beyond anything we have witnessed to date, and creating tech leaders that will list on European stock markets. But the majority will still operate in global markets, with global ambitions. Europe can support the R&D and investment needs of these startups, and they will be able to sell to consumers across the world.

However, in one area, Europe continues to slip further behind. Its corporations are still too conservative when it comes to innovative technology. They invest less in technology, and when they do, it is too often focused on compliance, rather than on business transformation. European software companies selling into enterprises are therefore forced to succeed in the US, before they are given the chance to do so in Europe. Until this changes, we will continue to see entrepreneurs crossing the Atlantic to scale and to list software companies. And the global competitiveness of European corporates will continue to be eroded.

Source: Gartner

Methodology

The recommendations in this handbook are based on the most extensive research ever undertaken into US expansion by European tech startups:

• Analysis of 353 European (275) and Israeli (78) VC-backed startups that have expanded into the US over the last 10 years
• Extensive survey covering US expansion strategies, completed by the founders of 104 of these startups
• Deep-dive research into the 33 European unicorns that have succeeded in the US
• In-depth interviews with the founders of 23 European companies at different stages of US expansion, including 11 unicorns
• Insight and experience drawn from the Index team across Europe and the US
• Advice from leading service providers, including lawyers, recruiters, tax advisors, and investors

Compass

Built in Europe, sold in the US.

For companies with a large (>50%) US TAM, as well as the ambition to pursue it, the organisation and leadership as a whole needs to pivot to the US as its new ‘true North’. You will gravitate towards a setup where the bulk of R&D (engineering & product) remains in Europe, but the CEO moves to the US, and your GTM (go-to-market) teams are focused there. Over time, a new set of global functional leaders is hired in the US.

Compass is the dominant archetype for enterprise software startups.

B2B examples: Collibra, Mimecast, Algolia, Nexthink, UiPath, Unity Technologies

B2C examples: None

Compass - Typical Journey

1. Raise Seed funding, and build product from Europe, establishing product/market fit.

2. Acquire customers from the US and service them remotely.

3. Raise Series A led by transatlantic or US investor.

4. Refocus efforts on US versus Europe - both for sales, and for product roadmap.

5. Strengthen product management, so the CEO can step away from day to day involvement.

6. CEO moves to (or spends more time in) the US.

7. Build a small sales team in US, led by a player/coach.

8. Raise Series B led by US investor.

9. Scale your GTM team in US - including CMO and CRO.

10. CEO relocates (if they haven’t already).

11. Raise Series C.

12. All non-technical leadership is now in the US, with the exception of a dedicated GM EMEA.

13. Raise Series D.

14. Hire CTO and/or CPO in the US, as it’s hard to find candidates in Europe with proven experience at this scale

15. Consider a secondary engineering centre in US.

16. Build customer-oriented product team in US, to complement technically-oriented product team in Europe.

17. Further fundraising, as required for continued expansion.

18. List in the US.

Anchor

Tethered, like an anchor, in Europe

For companies with a larger opportunity in Europe and the rest of the world, and a US market representing 15-30% of TAM, the centre of gravity will likely remain in Europe.

The Anchor archetype is common in situations where US expansion comes later in the journey. At this point, you will have a substantial European business to protect and grow, and a more mature leadership team in place. It will take some time for the US to become as significant a market, so you don’t want to pivot your attention and organisation there, at least initially.

The Anchor archetype is often appropriate for markets with cross-border value propositions, where Europe’s patchwork of wealthy national markets presents more opportunity than the borderless US. In the Anchor model, you leverage the leadership and expertise built in European markets, in order to launch a localised version to capture market share in the even larger US market.

B2B examples: Adyen, Funding Circle

B2C examples: Farfetch, TransferWise, Revolut, HelloFresh, Secret Escapes

Anchor - Typical Journey

1. Raise Seed funding, and build product from Europe, establishing product/market fit.

2. Focus on domestic customers. If you operate cross-border, localise in English.

3. Raise Series A led by European investor.

4. Focus on European expansion for now, rather than on US and expand into an additional European market.

5. Raise Series B led by European investor with strong US network.

6. Expand into further European markets.

7. Research the US market, with frequent visits, and preparing a launch plan.

8. Raise large Series C, led by transatlantic investor.

9. Send a landing team to launch the US, and support them on product as you’ll need early US localisation to succeed.

10. Retain your leadership team in Europe. It is likely to include one or two executives relocating from the US.

11. Raise Series D, led by transatlantic or US investor.

12. Hire US President as traction becomes clear.

13. Retain all other leadership in Europe, and founders remain in Europe.

14. Raise Series E.

15. Listing in Europe (maybe in US).

Pendulum

Distributed customers, distributed organisation

For companies whose US market size falls somewhere between 30-50% of TAM, it can be challenging to decide which continent should hold the centre of gravity. You need to balance these demands by embracing distributed leadership, ambiguous prioritisation, and organisational complexity and duplication. It is still possible to achieve exceptional growth in this scenario. But it requires more discipline in strategic decision-making, and in leadership communication.

Pendulums are usually companies that have delayed their launch into the US market. This may reflect an attractive opportunity to consolidate a leadership position across Europe (and potentially other geographies too). Alternatively, US market entry may require a level of funding that isn’t available early in the journey (particularly in B2C), or complex product localisation that cannot be tackled earlier. However, delayed US launch can also be the result of poor strategic decision-making, or poor execution.

By the time that attention turns to the US, the organisation is more mature, with an established leadership structure in Europe. Competitors in the US may have also moved ahead, limiting the landgrab opportunity.

As traction builds in the US (often following the Anchor archetype in the early days), and the growth potential is proven, the company needs to divide its attention: Retaining focus on its existing and dominant European markets, but needing to prioritise the US opportunity to stand any chance of winning there. Over time, the organisation and leadership spread out. Founders may split their time (ie their lives) between the US and Europe, and functional heads will be hired in either geography. A global mindset is essential, plus a tolerance for extensive travel, and calls at all hours of the day or night.

B2B example: Criteo

B2C example: Spotify

Pendulum - Typical journey

1. Raise Seed funding, and build product from Europe, establishing product/market fit.

2. Focus on European customers, but establish English as primary language, for product and internally.

3. Raise Series A from a European investor with strong US network.

4. Focus on European expansion, launching into 2 additional European markets.

5. But research US market, with frequent visits and preparing a launch plan.

6. Raise large Series B led by transatlantic investor.

7. Send a landing team to launch the US, supporting them on product as you’ll need early US localisation to succeed.

8. Strengthen product leadership to free up time for CEO. Likewise for European commercial leadership.

9. Founder spends extensive time in the US to oversee the ramp-up.

10. Raise Series C led by US investor.

11. Founder potentially relocates to the US as traction proven, else splits time.

12. Hire leadership, and build functions, based on where you find the best talent (US or Europe).

13. Raise Series D.

14. US probably single largest market by now.

15. If the right CTO/CPO candidates can no longer be found in Europe, relocate execs from US as it’s hard to find candidates in Europe with experience at this scale.

16. Leadership team now distributed across Europe and US.

17. Raise Series E.

18. Consider a US engineering centre.

19. List where it makes most sense for your business - US or Europe.

Telescope

Focus on US, through a lens located in Europe

The US might represent the majority of your overall TAM, but you have a GTM model that is self-serve; ie customer acquisition is through marketing and growth. And your product is also purely software, so you don’t need an extensive distribution or fulfilment structure. Without the need to build out a complex sales or operations organisation on-the-ground, the bulk of your leadership and headcount can remain in Europe. The US - and if applicable, Asia - only requires a smaller team, focused on customer support, plus potentially business development. The organisation is like a telescope, able to focus on the US market and customers, through a lens located back in Europe.

This is the main archetype for B2C startups when distribution is through app stores or digital marketing channels. In B2B, even if software companies start with a self-serve GTM model, few stick with it as they scale. Self-serve can work for selling to small businesses, or to individuals within larger enterprises. But with success and ambition, companies usually move up the value chain, selling larger deals, to larger customers - requiring an increasingly sophisticated sales model. At Index, we have witnessed this evolution first-hand at Zendesk, Dropbox, and Slack. So in practice, the Telescope archetype tends to morph into the Pendulum or Compass in the most successful B2B companies, albeit postponed by a few years.

B2B examples: Typeform, Pipedrive, Gett

B2C examples: King, Supercell, Skype, Lightricks, Waze

Telescope - Typical journey

1. Raise Seed funding, and build product from Europe, establishing product/market fit.

2. Acquire customers globally, but localise in particular for US users.

3. Raise Series A from transatlantic or European investor.

4. Focus on growth metrics across the whole funnel, optimising in particular for US users.

5. Make frequent visits to the US to cultivate relationships with strategic distribution partners.

6. Establish small business development team (likely in the Bay Area) as you’ll probably have major channel or product partners in the US.

7. Raise Series B led by transatlantic investor.

8. Hire business development lead in US.

9. Build US support team in secondary hub, or remote.

10. Explore ways of moving up the value chain with higher ACVs and larger organisations, using inside sales (B2B only).

11. Raise Series C led by US investor.

12. Scale-up inside sales in US secondary hub (B2B only).

13. Leadership team mostly in Europe, but likely to include several executives relocating from US (eg VP Growth or VP Product).

14. Raise Series D.

15. Set up enterprise sales function, if you continue to move up the value chain (B2B only). If this happens, you’re likely to morph into the Compass archetype...

16. If the right CTO/CPO candidates can no longer be found in Europe, relocate execs from US as it’s hard to find candidates in Europe with experience at this scale.

17. Raise Series E.

18. Listing probably in the US.

For completeness, we can identify two other archetypes. However, these fall outside the scope of this handbook:

Transplant

As noted earlier, European founders targeting sectors with a large (>50%) US TAM may choose to relocate entirely to the US at an early stage, and build the company wholly from there. Effectively, they are creating a US company from day one. As they scale, these companies often leverage their network and brand to rebuild a European team, with significant, but secondary, engineering and GTM teams.

B2B examples: Zendesk, MySQL, Stripe, Datadog

Regional

For European companies with zero US TAM, there is of course no need to expand to the US at all. As noted earlier, we predict a lot more European-focused success stories, in B2B as well as B2C, in the years ahead. Particularly in regulated sectors such as financial services, insurance, property, healthcare, and education.

B2B examples: Personio, Alan, KRY, Swile, Payfit

B2C examples: Deliveroo, Just Eat Takeaway, Delivery Hero, Zalando, BlaBlaCar

How Important is the US Market?

To determine which of our proposed archetypes offers the best roadmap for your startup, you need to quantify the importance of the US market to your success. What percentage does the US represent of your Total Addressable Market (TAM)?

Startups should think of TAM in terms of primary markets - where you need to succeed, in order to achieve category leadership. This usually means:

• North America
• Europe
• Japan
• Australia
• South Korea
• Singapore

Secondary markets are those where your product is still relevant, but where the opportunity is likely to be smaller, and more fragmented. These usually include:

• Middle East
• Latin America
• South East Asia
• South Asia
• Africa

You should not expand into these regions if doing so could reduce your chances of success in core markets. Expansion is usually best delayed until you are close to, or following, listing.

China and Russia are out-of-bounds for most (but not all) startups, due to embedded domestic competitors, and barriers to doing business (regulation, political risk, or the need for local JV partners).

There can be exceptions to these general rules. For example, Farfetch (luxury B2C) has been very successful in China, and TransferWise (cross-border B2C payments) is highly relevant to immigrant communities from emerging markets. Even in B2B, core markets can vary, particularly for SMB-focused propositions. For example, iZettle scored major successes in Brazil and Mexico, as did Mimecast in South Africa. You therefore need to adjust which countries are core versus secondary, according to the dynamics of your sector.

Recasting data from IDC’s Global IT Spending 2020 report leads to the following TAM breakdown across core markets:

• North America 53%
• Europe 31%
• Japan 11%
• Australia 3%
• South Korea 2%

From this ‘base case’ of roughly 50% US TAM, we expect most European B2B companies will therefore continue to fall into our Compass archetype, particularly in enterprise SaaS.

We see more openness to new and innovative technologies from US corporates, relative to those in Europe. Where US corporations see technology as an investment, and as a source of competitive advantage, Europeans are still more likely to view it as a cost.

This is reflected in much higher US corporate IT budgets. According to Gartner, expenditure on B2B software in North America will be $240bn in 2020, compared to $106bn in Europe. Over the next four years, they forecast growth of 15.4% CAGR in North America, compared to just 8.6% in Europe. And this doesn’t even capture differences between on-prem and cloud software, where we suspect the gap would be even wider.

European corporates tend to be more risk-averse, avoiding startups and preferring instead to buy legacy solutions from established software providers. Early-adopters are therefore concentrated in the US. We also see shorter average US sales cycles and higher ACVs, even in the metrics of later-stage SaaS businesses.

For enterprise B2B startups, these factors can make the US an even more important market than the 50% US TAM headline suggests. This is less true for SMB-focused startups, which may therefore align more closely with the Pendulum archetype, rather than the Compass.

Choosing your moment

This will be one of the toughest choices in the life of your company. If you expand too soon, you risk spreading yourself too thin - failing in the US, and losing leadership in Europe. Expand too late, however, and you could have handed US market leadership to a competitor, who is later able to challenge you back in Europe too.

Remembering which archetype you are can help you to determine the right timeline for US expansion, including your first boots on the ground.

Typical timing for US expansion, for each archetype

Compass

The case for going to the US early is compelling. Following Series A, if not before. Don’t get distracted with a pan-European rollout. Although, if you are not in a major European hub, or if you sell into banks or brands, it may still be worth considering expanding ‘via London’ - for example, to prove your enterprise GTM model closer to home.

Telescope

It is still important to push hard and early for US users and customers. But this is a question of where you focus your product, growth and optimisation efforts. The US percentage in your overall user population should be at least equal to the US percentage in your TAM. And if you operate a freemium model, concentrate on US monetisation, which should be higher than elsewhere. It’s important that you spend a lot of time in the US, learning about user needs, and building partnerships, but you probably won’t need a permanent team on the ground until post Series B.

Anchor & Pendulum

Be more cautious. You don’t want to risk losing leadership in your domestic market, and you may need to decide, for example, between launching in the US, or rolling-out to other major European markets. Even after raising a Series B, giving you deeper pockets, you may still need to choose between pushing for pan-European dominance, or winning a foothold in the US.

However, you should be thoughtful in building a product and an organisation that is primed for US-launch. For example, ensuring that your GTM team (particularly senior hires) includes individuals with significant prior US experience. You will also need to closely monitor competitor activity in the US. Carefully qualify the US opportunity, and prepare a launch plan.

If you are founded in a smaller and non English speaking hub in Europe, it can make sense to build more international coverage before going to the US. This would allow you to get proof of the business, and raise further financing, ahead of the US expansion.

UK-specific advice

If you are founded in the UK, the argument for going directly, and earlier, to the US is more compelling than it is for elsewhere. Launching elsewhere in Europe will require translation and localisation beyond what is required for the US.

Delaying Factors

Regardless of your archetype, there are three sets of factors which could limit your ability to consider expansion at a given point in time. By forcing a delay to US expansion, these factors may also nudge your optimal archetype, from Compass to Pendulum, or from Pendulum to Anchor.

i) Localisation & regulation

Certain sectors require minimal localisation for the US market, beyond translation of product and sales & marketing collateral. Mobile gaming, for example, or in B2B, productivity tools (e.g. Typeform). If you are already picking up US users or customers, or at least inbound US leads, you have a market signal that you are close to product/market fit for a US audience.

In our survey of European founders, the US was already the largest single market for 32% of startups before their US expansion, and was in the top three markets for over 60% of them.

Index survey of European founders who have expanded to the US. Sample size = 54

However, launching into the US often requires more radical localisation, which stands in the way of acquiring any US customers at all. This is self-evident if you have a physical or service component to your business model (eg local e-commerce). Likewise if you operate in a regulated sector, and need to obtain licences to operate in the US. Regulation in the US may be determined at a federal, state, or local level - or even a combination of these, and approvals can take 12-18 months.

Even in unregulated sectors, US customer requirements may be very different from what you’re used to in Europe. The US may require additional product features and functionality - or alterations to existing features. Further, your GTM approach may need to be heavily localised to work in the US. This could be as obvious as a brand name which fails to resonate in the US. Or it could be more subtle, reflecting differences in decision-making by your target US clients.

ii) Competitive environment

You may have a totally new and innovative product, with no direct competitor in either Europe or the US. This opens up a landgrab opportunity in the US. Alternatively, you may offer a superior product, but need to dislodge incumbents. You could also be faced with (one, or multiple) new entrants, who have already successfully launched. If these competitors are in Europe, you have to decide whether a US expansion risks losing an early lead in your ‘home’ market. If your competitor is from the US, and already growing strongly there, you will have to decide whether to go up against them, and if so, how to differentiate yourself.

iii) Human & financial capital

The year after raising a Series A, you may have a team of 50 people, half of whom are focused on product development. On the GTM side, you’ll have a small team. If the two factors discussed above suggest that your path to a successful US launch will be complex, it is unlikely that you’ll have the capacity yet to execute a successful US expansion. It’s better in this case to build bench-strength in your team, optimise your GTM approach, prove your unit economics, and raise your Series B or C with a clear objective of US expansion.

Ten steps to qualify the US

If there is still uncertainty around whether, or when, is the right moment for US expansion, this is evidence of a knowledge gap. The solution in this case is to educate yourself through a more rigorous qualification process. This needs to be conducted without distracting you from more immediate priorities. The end-goal is a ‘go / no-go’ decision on whether to expand into the US. In the case of a no-go, you may determine that this is just a matter of timing. You can return focus to pan-European expansion. But the research will have given you a US launch roadmap, ready to pick up once you have a stronger product offer, deeper team expertise, and the necessary financial firepower.

Here is our ten-step guide to successful US market qualification:

1. Create a research brief

Develop a 3-4 month US research timetable which will end with a go/no-go decision. Key research elements:

• Value chain comparison
• Customer research
• Competitor research & positioning
• Product localisation
• Location recommendation
• Regulation
• Operations (legal, financial, HR, IP, subsidiary, etc)
• Pre- and post-launch timetable
• Year one budget, and staffing plan

2. Find a researcher

Identify a freelancer or team member to conduct GTM research. They should bring a blend of analytical and GTM experience, and have US insight. They should be US native (or even better, a European expat).

Immerse your researcher in your European HQ for a month. They need to get to know the product, GTM approach and team. They can also spend this time conducting initial desk-research.

3. Assess product readiness

Designate a team member to be responsible for the US product.You will need to be very clear about whether the product is US-ready and what localisation will be required. Can you win competitive pitches? Can you deliver an equivalent NPS score to US vs European customers? Can you retain customers, and be ready to land-and-expand?

4. Create a squad and work in sprints

Create a ‘US squad’ with weekly or biweekly targets and updates. The CEO or another exec can champion the project but should not oversee day to day research. The squad should include the lead researcher, plus a representative from each of product, engineering, sales, and marketing.

5. Conduct US research in-market

Have your researcher spend time in the US to gather more insight. They should plan to immerse themselves there for a few months (more effective), else plan a sequence of week-long trips. The founder or other squad members may join for some of the time. Spending this time interfacing with potential customers and partners will allow you to tailor your GTM for the US audience.

Leverage your US network for intros. Particularly for connections to target customers. Ask your co-founders, wider team, advisors, investors, suppliers, and existing customers.

6. Draw up a budget

You need to allocate sufficient cash to finance your US expansion. This needs to satisfy not only your base case, but also sequenced ‘quadruple-down’ (ie more aggressive than double-down) milestones in case of early success. In other words, be prepared to landgrab in the US, if a window of opportunity opens up.

In enterprise SaaS, where customers often pay upfront for a full year, capital outlay could be lower. But you may choose to follow a beta-strategy with early US customers, whilst building confidence that your product is ready to roll-out. With monthly-billed SaaS, it will take much longer to get to positive cashflow. So your cash outlay will tend to be highest in scenarios where you achieve the most success.

7. Go / No-Go decision

Once you are ready to make this call, convene the CEO, leadership team, and the board. While the CEO’s commitment is the most important, all three must be aligned and supportive.

Define metrics for success.Develop a timeline, with sequenced milestones for decisions to quadruple-down versus withdraw from the US. Milestones should include customer number and revenue goals, at 3, 6, and 12 months, with a commitment to stick to these. Share them with the board, to ensure alignment, and to keep you honest.

8. Prepare your landing team

Each person you select for your landing team needs to combine having an essential core skill-set, plus being a DNA-carrier for your culture. We typically see 2-4 individuals, senior & junior, with a commercial orientation, that may move over a six month timeframe. If you are pursuing a Compass archetype, it is essential that the landing team is led by a founder. For the Pendulum, it is desirable. For the Anchor, it is less important. If lots of localisation is required, it might be good to have a developer join the squad. Clarify with each member of your team whether this will be a “tour of duty” versus a potential permanent move.

Get the US visa application process in motion asap. Plan for 6 months from the process of application to verdict. The less experienced or specialised your landing team members, the harder it may be to get visas, so get your lawyers involved early on, and have contingency plans in case of delays or rejections (see the section on visas in Chapter 8 for more detail).

9. Create your launch plan

Based on your product, competitive positioning, and GTM, you will need to decide on whether to have a big or small launch. If you need minimal localisation, you could go for a soft launch, learning and optimising in iterations. If you need a lot of localisation, it could be worth spending dedicated time beta testing, leading up to a big launch. Assess the importance of referenceable launch partners, and prioritise efforts to acquire them accordingly.

While waiting for visas, conduct frequent US visits to prepare for launch. You can use these trips to support beta customers, and for product testing, identifying office space, and developing marketing collateral.

10. Plan for success

Once you have made a clear commitment to go, make sure you are appropriately resourcing the plan, both financially and with the right people. You are not going to succeed by dipping a toe in the market. If there is massive growth, would you, as CEO, be willing and able to move? And if not you, what is the alternative US leadership plan? This is the reverse of disaster planning!

US network building

Fundamentally, you are best-placed to succeed by starting your company in the place where you have the strongest network and support. Particularly in order to secure critical early hires and investors. It would be a recipe for disaster to move to the US to start your business there, without having first established a strong US network.

As a founding team, if you do already have a strong US network, and your TAM is clearly weighted to the US, then building the company in the US can make a lot of sense from day one, or at least pre-seed. It is better in this situation for the entire founding team to move over, following our Transplant archetype.

If your TAM is weighted to the US, but you do not have a US network, applying to Y Combinator is a good route to go, or one of the other top accelerator programs in the Bay Area, such as South Park Commons or Heavybit.

YC was launched in 2005, and over 2,000 startups have graduated through the programme to-date. Several major European success stories are YC alumni, including Stripe (Irish founders, but built in US), Front (Paris, Series B led by Sequoia, 180 headcount), Algolia (Paris, Series B led by Accel, 250 headcount), Duffel (London, Series B led by Index, 40 headcount), and GoCardless (London, Series D led by Accel, 350 headcount). More recent examples include Slite, FatLlama, MessageBird, and Station. In addition to helping European founders with refining their product offering, YC offers access to its alumni, and a deep network of advisors, investors, and talent.

Decision matrix

The following factors should drive the decision where to base your US hub, ranked in order of importance:

Often the decision of where to locate will be obvious - in fact, only 30% of the European founders we surveyed said that it was a difficult choice for them.

Following your customers is a good tenet, but qualify this with not only where your current customers are - but where your future audience is likely to be.

Some companies realise that their addressable market is spread across the entire US, even if their early adopters are in a specific region or sector. This is often the case with consumer propositions, or in horizontal SaaS. In this case, you may switch to availability of talent as your primary driver of where to locate.

When it comes to experienced executive-level talent, critical mass only exists in the three hubs mentioned earlier. For SaaS roles - including VP Sales, CRO, CMO or CFO, approximately 60% are to be found in the San Francisco Bay Area, with 15% in each of New York and Greater Boston. The remaining 10% are spread elsewhere. For B2C executives, the split is different - approximately 60% in the San Francisco Bay Area, 25% in New York, and 15% elsewhere.

San Francisco

As the beating heart of the tech sector, Silicon Valley would appear to be the obvious destination for any tech company looking to succeed in the US. Early-adopting customers (consumers, startups and corporates), pivotal distribution and product partners, the most seasoned talent pool when it comes to successful scaling, and a roll-call of the most successful VC funds.

Of course, it’s not that straightforward. There are two major reasons why the San Francisco Bay Area is losing ground nowadays as a US hub for European startups.

The first is timezone. With a 9 hour time difference between Continental Europe and the West Coast, the overlap during working hours is minimal. This barrier to effective team communication and collaboration cannot be underestimated. The additional 3 hour window from the East Coast is very significant. Add to this the increased flight times and jet-lag for the West Coast, which will take their toll when you’re making the trip every month or two.

The second is talent attraction and retention - the Bay Area is hyper-competitive when it comes to talent. As a European company, you already start at a disadvantage in terms of brand awareness and credibility. What applies to talent attraction is even more brutal when it comes to talent retention - employee turnover is higher there than anywhere else in the US (average 30%, compared to 20% elsewhere in the US, and 10-15% in Europe), as are expectations in terms of compensation, benefits, and sustained hypergrowth. You need to be realistic about whether you will be able to hire and retain A-players, as an outsider in the world’s most competitive talent ecosystem.

In practice, we therefore only recommend San Francisco as your US hub if you are selling primarily to (or through) tech companies, or to developers. For example, infrastructure, data/analytics, or open source software require a focus on DevRel (developer relations), have highly technical sales processes, and require partnerships or integrations with other software platforms. Alternatively, if you are a consumer app dependent upon distribution through the Apple, Android, or Facebook ecosystems, the need to be in Silicon Valley is also compelling.

If you don’t fall into either of these categories, we advise against choosing San Francisco as your hub. And even if you do, be prepared to establish a secondary hub as you scale, for building more operational rather than strategic teams.

New York

The New York tech ecosystem is expanding rapidly, driven by the natural strengths of the city: Its appeal as a place to live and work particularly for younger talent; excellent universities; and global leadership in financial services, media and fashion. Its earlier strengths in consumer tech (Tumblr, Etsy, Warby Parker, Glossier, ClassPass) are now being balanced out in B2B and SaaS (MongoDB, Datadog, Invision, Squarespace, Braze).

Index survey of European founders who have expanded to the US. Sample size = 50

If you are in a sector reflective of New York’s strengths, it is the obvious choice for your US hub. And for many enterprise SaaS companies, financial services represents their single most important customer sector. On the consumer side too, New York (together with Los Angeles) is the largest, wealthiest, and most influential US city.

It is now possible to build entire GTM teams in New York, with CMOs and marketing talent particularly strong, given the city’s heritage. You need to be open to step-up candidates on the sales side, given the relative immaturity of this talent pool, and high demand.

Interestingly, our research uncovered that startups born in London are particularly likely to choose New York as their US hub (52%), compared to startups from elsewhere in Europe (34%). This partially reflects sectors, with more fintech and adtech in London, but it also appears to be a cultural choice.

Boston

Boston is a viable third option for your US hub if you are B2B, with the long-standing success of the Highway 128 tech corridor, plus world-class research universities and a heritage in life sciences. Notable Boston B2B and SaaS success stories include Akimai, Mimecast, Hubspot, Brightcove, Datarobot, Fuze, BlueConic, Toast, and Salsify.

In lifestyle terms too, particularly for families, it compares favourably against New York, with shorter commute times, and access to nature.

You face a difficult choice between locating yourself downtown in the city - where you’ll find many of the younger startups - or in the Western suburbs, home to the more mature tech companies. This situation mirrors, but trails, the evolution of the Bay Area, with the rise of San Francisco as a startup city, in contrast to the campuses of the tech giants along highway 101 to the South.

Secondary hubs

As your US footprint grows, it often makes sense to establish a secondary hub in a lower-cost location for your support functions. Typically these might include SDRs, inside sales, customer support, and operations (billing, compliance checking, etc). This has become part of the playbook for domestic US startups in recent years too, and a large number of secondary cities have emerged as potential destinations.

European startups will be particularly focused on nationwide office-hours coverage for sales and support functions, so tend to cluster in cities on Central and Mountain Time. Another significant factor specific to European startups is the availability of direct (or at least straightforward) flights to their European base, as well as within the US itself.

Our analysis of secondary US hubs chosen by European startups highlighted Denver, Austin, Atlanta, and Tampa.

Selection of Secondary Hubs in the US

Opening a secondary hub can carry more risk the earlier it is done, since it extends multi-office challenges around communication, culture, and management. However, this needs to be offset against the challenge and cost of hiring and, in particular, retaining large, often junior and lower-paid teams. This can be brutal in New York or San Francisco, although somewhat easier in Boston, where cost and talent-competition aren’t quite as intense.

The precise trade-off in timing will vary, driven in particular by your team’s functional make-up. If your model is support- and ops- intensive from the start, a secondary hub is likely to make sense sooner. Over time, the secondary hub may well become your largest single US location. Whilst these cities can be strong on junior and mid-level talent in certain functions, they will be weaker when it comes to marketing or business development, and it is very unlikely that they can provide you with executive-level leadership. So you will have a continued need for a primary hub in one of the three core cities.

Fully Remote Teams

Fully remote organisational models have been growing steadily more popular with founders, even before the Covid-19 pandemic. At Index, we are fully supportive of remote-first teams, having seen them successfully scale first-hand at Elastic and MySQL, and more recently at Slite, Remote, Peanut, and others. The topic is worthy of its own dedicated guidebook, but for the purposes of US expansion, there are a couple of specific points to highlight:

Certain functions lend themselves more easily to remote than others. Enterprise sales are by nature remote. In fact, you want to pursue a distributed coverage model with reps across the US. Customer support and success also often follows this approach. Inside sales and SDR functions can be trickier, since these are often more junior hires who need intensive mentoring, and where ‘buzz on the sales floor’ can be highly motivating.

Community-building and partnering is about networking and ‘being there’. If you want to partner with Google or engage with cutting-edge developers, your DevRel team needs to be in the Bay Area. If you need to immerse yourself in the media ecosystem, you need to be in NY. This may dictate the location of certain roles, even if you operate a fully-remote model with no offices.

Founder moves

For companies falling into the Compass archetype - which is almost always the model for enterprise software startups, although rare for B2C - we agree that the founder must relocate to the US to maximise success. The earlier in the expansion you move, the better, and the move should be for at least 2 years, if not permanent.

Founder move by archetype

For the Pendulum archetype, where your TAM is more distributed internationally rather than >50% US, then it is desirable, but not essential, for the founder to move. The move can also be postponed until there is clear evidence of the US becoming the company’s most important growth-driver.

In the Anchor and Telescope archetypes, it is not usually necessary for the founder to move to the US. The recipe for success for the Anchor is to create an autonomous locally-built US GTM team. With the Telescope, the US team is more focused on specific functions (business development and support), which are locally-hired.

As noted previously, in B2B there is a tendency for Telescope archetypes to morph into Compasses or Pendulums; in pursuit of larger clients and deals, the GTM strategy becomes sales-led rather than self-serve. If this happens, a Founder move might again become necessary.

Regardless of which archetype you are, and whether you will need to ultimately relocate to the US, it is essential that the founder spends a lot of time in the US. You will need to get the lay of the land, and develop first-hand experience of what customers, prospects, partners, and investors are looking for. You also need to acquire an understanding of the US talent environment, to inform your future hiring plans.

Why it matters

There are two distinct sets of reasons why being a founder on the ground in the US makes such a difference:

1. Signalling

When you first expand, every individual you come into contact with in the US will be sizing you up. They will be assessing the likelihood that you’ll still be around in a year or two; talent, customers, partners, and investors. You will have few, if any, US employees or US customers, and an underwhelming office space. Your permanent presence as the CEO is the strongest signal that you can provide to the market of your commitment. It broadcasts a pivot of company attention and resources to the US, internally as well as externally.

2. Management

As you ramp-up in the US, you need to ensure that your vision is being realised. The size of the opportunity means that US expansion is a ‘second launch’ for the company itself. You therefore need to be personally involved in all initial hires and sales, to understand what is different, and to secure the resources and attention from HQ that will be needed for success.

Having co-founders can really help with the challenges of a US relocation. Co-founders are the best culture-carriers for the company, to uphold your values and vision when you are operating across continents. A technical co-founder can continue to drive your engineering efforts in Europe when you move. A more business-oriented co-founder can play one of two roles; first, they could lead your drive into the US in your place, at least for an initial period. Alternatively, they can continue to drive European growth when you need to move.

Index Research. Sample size = 93

Challenges of moving

Even if you know that moving is the best choice for your business, relocation is an enormous personal, and lifestyle, decision - particularly if you have a partner or children. But if your ambition is to build a global success where the US market is key, relocation is very likely to be part of that journey. It is best to be honest with yourself and your family about this, so that you can mentally and emotionally prepare for it.

There are also business dependencies that can stand in the way of you relocating to the US. In particular, you need to have relinquished day-to-day ownership for the product roadmap and execution. As the founder, this will have been a crucial role that you have played in the success of your company. With scale, it is something that you always need to step away from - maintaining the product vision, but progressively delegating more responsibility for execution, and for quality control (i.e. does this specific release, or feature, meet your standards, and match your vision?).

An early pivot to the US, as recommended under the Compass archetype, will often bring this transition into focus earlier than you might have anticipated. It requires you to strengthen product management, maybe bringing in a more senior leader, who you can trust to ‘leave at home with your baby’ whilst you turn your focus to the US opportunity. Given the need for the right chemistry, and the lack of product leadership talent in Europe, it can be a drawn-out process to find and onboard someone who earns your confidence.

A similar dependency on the CEO may exist for driving sales in Europe. This scenario is less common, as founders less often have the skill-set of good sales managers, and there is a deeper European talent pool of commercial leaders. However, to clear the path for a US move, you need to have a trusted revenue leader to drive European growth in your absence.

Given the range of issues involved in moving with a family, it may make sense to work with a global mobility company such as Topia, Cartus, or BGRS. These one-stop shops usually work with corporates, who are continuously redeploying employees between countries. The range of issues they cover includes:

• Immigration
• Compensation adjustment
• Tax advice
• Moving services
• On-the-ground support

Given that you will have existing legal and tax advisors, it is often best (and always cheaper) to restrict your use of mobility services to providing on-the-ground support for yourself and your family:

• Finding a home
• Temporary housing
• Schooling
• Childcare
• Social security number
• Bank account
• Drivers’ license

Landing teams, or local US hires

A landing team is always desirable if you are largely replicating your European GTM approach. This is regardless of whether a founder is also in the US from day one. Landing teams act as ‘culture carriers and decoders’, transmitting values, processes, and product understanding. With trusted relationships across the European organisation, they will also be more persuasive in securing the changes necessary for US success - be these in product, marketing, or operations. Landing teams are usually 2-4 strong, and should include both senior and junior/mid-level members. The ideal functional composition of landing teams can vary a lot. If you already have a number of strategically important US clients and a land-and-expand model, customer success will be important. If you rely on digital marketing for customer acquisition, then generating brand awareness and credibility could be more important. Otherwise you might do best with a SE and AE, to get selling.

On the other hand, if you are looking to build new competencies in the US, hiring locally is essential from the start. This is most commonly the case for business development or strategic partnering (as in the Telescope archetype). You will want someone who combines experience with existing relationships at your relevant targets - be these the Apple and Android app-store teams, systems integrators for reseller/channel development, major record labels, etc. These will be rare profiles, but made up of individuals who are by nature more used to hustling, and to working autonomously.

From our research, the most common first-hire in the US was a senior GM or Sales Leader (36%), followed by an executive (i.e. global functional leader).

Index Research. Sample size = 160

Making a senior hire early on will help you build-out the rest of the team. Not only will such individuals bring their own network to hire from, but their early commitment and belief will boost your credibility to other candidates.

If you are the Compass archetype, and a founder is part of your US landing team, it usually makes sense to hire a US sales leader first. You want a player/coach, who has managed at least a small team previously, but who is willing to get out and secure early sales personally for the first 6 months or so. They also need to be experimenters - optimising the GTM model, and adjusting the targeting strategy. It is often sensible to focus early sales efforts on ‘deers’ - as opposed to rabbits or elephants.

In other words, mid-market prospects, who will help you to build US market credibility, without too long a sales cycle or highly-complex implementation requirements. This type of hiring profile is less about seniority, and more about attitude and motivation. It is unlikely that you’ll find them in mature and large organisations - you need someone who is comfortable with ambiguity, which is more typical of startups. The job title will likely be VP Sales, or VP Sales (US), and they will report into the CEO (or other founder who is on-the-ground in the US). Compensation is likely to be $350-400k, split 50/50 between base and variable.

Unless you have an experienced and senior sales leader in your landing team, we caution against hiring more junior individuals on day one. They will be unable to hire a local team around them, and are therefore likely to end up isolated, unsupported, and unmotivated.

For the Anchor or Pendulum archetype, it is less likely that there will be a founder on-the-ground in the US. You will initially rely upon a larger landing team covering multiple functions, before hiring a US General Manager profile - who often carries the job title of President (US / North America). This individual should be highly experienced and senior, with a strong network and reputation, who can be a magnet for talent, partners, and customers. You will need to have a strong narrative of past and future growth to appeal to this calibre of hire, and it can take 6 months to run a search to identify the right person. They typically report directly to the CEO, and joinbe a member of the global executive committee.

Making your first few local hires in the US is likely to be extremely challenging. On one hand is the employer brand challenge - you are probably an unknown quantity in the US. On the other hand, there is the challenge of learning how to assess US candidates. Many founders we interviewed highlighted that Europeans have to learn how to interview Americans. You should factor in the probability of mis-hiring in the early days.

You may struggle with senior candidates’ perception of European companies. European funding rounds are on average lower than in the US, so they may not be impressed with your level of fundraising. And unless your VCs have got a strong US footprint, candidates won’t know who they are.

In our experience, successful early hires in the US almost always have some international flavour to them. Such individuals are more likely to be attracted to working with a European company in the first place. They will also be more comfortable with cultural differences, allowing them to translate between US and European approaches.

Professional advisors

Business culture in the US leverages professional service providers much more than in Europe. You should identify experienced advisors familiar with supporting European VC-backed companies. You will need multiple providers in order to set up in the US. One of these advisers - usually your lawyer - will become your point person in case of any questions.

• Lawyer
• Immigration specialist
• Tax accountant
• Outsourced HR and benefits
• Bank
• Insurance provider

Your CFO will usually take responsibility for operational issues around expansion. Alternatively, it could be your COO, or Operations lead. Your Head of People may handle the HR and benefits setup.

Once you have chosen advisors, everything can get completed in roughly 4-5 weeks, with the important exception of immigration, which will be more like 4-6 months.

Visas

August 2020: Following Covid-19, the US has suspended visa services worldwide since March. There is also a temporary freeze on H1-B and L-1 visas. It is unclear when these restrictions will be lifted.

Visa applications for relocating staff - either founders or employees - are the most common bottleneck holding up US expansion. The time to approval is unpredictable, but generally 4-6 months, so it is crucial to plan ahead. Immigration is a highly-politicised topic, with constantly-shifting rules and restrictions so you need to explore your options carefully.

In the exploratory phase, when travelling to the US, most companies use the ESTA visa waiver programme. But be careful not to violate any conditions. You must be travelling for valid business reasons, which includes office set up.

Once you or a team member are ready to actually relocate, it is time to work with an immigration specialist to assess the best visa route. Where you are incorporated does not matter for immigration. It is your own nationality that determines which visas you are eligible to apply for, and how long your visa may be valid.

Your immigration specialist should help you assess the likelihood of getting an acceptance for each proposed member of your landing team. There may be more burden of proof for less-experienced hires. You will need to make the case for each employee - for example, drawing on their title, salary, position in your org chart, and uniqueness of their specialised skills.

There are five US work visa routes you may use. But most startups go for E-1, E-2 or L-1 visas.

Note: Visa types that have been suspended as of July 2020 are greyed out in this table

Visa applications require extensive documentation. Common to all the routes listed above, you will be asked for:

• Articles of Incorporation
• Documents confirming ownership
• Companies House AR01 Report (if in the UK, else national equivalent)
• A detailed breakdown, or spreadsheet, of all funds invested into the US venture
• Evidence of your investment in the US business including signed leases, evidence of IP and evidence of spending and payments to set up the business
• Evidence that the business is real and active, including state and federal licenses, evidence of ongoing work and marketing materials
• Business plan with a five year profit and loss forecast for the business, including assumptions and a breakdown of start-up costs necessary for the business to become operational

Applying for a Green Card

None of the visa routes above automatically lead to Green Cards or US permanent residency. If you intend to apply for Green Cards, you will need to explore the options well in advance. Founders on E visas can hit problems at the point of sale of their companies when they have not planned ahead.

Immigration Specialists

Given the complexities of the US immigration system, it is advisable to work with a specialist lawyer, rather than the immigration department of your corporate law firm. In the UK, the following are highly-regarded US immigration lawyers:

Diana Okoeva, Clintons (also works with non-UK visa applicants)

Paul Samartin, Samartin & Friends

Elizabeth Jamae, Pearl Law Group

The advisory costs for visa applications are approximately £7-10k for the first applicant, plus £5k per additional applicant.

Lawyer up

A major difference between US and European business culture is the importance of legal counsel. The threat of litigation is higher, and there are more employment regulations (at both the federal and state levels) which could result in discrimination lawsuits.

You should establish a primary relationship with a full-service law firm. Your corporate lawyer there will be able to pull in specialists from other practice areas - employment, equity, commercial, IP, data, etc. Your lawyers can help Americanise your commercial contracts, apply for trademarks and patents, and evaluate data residency, privacy, and regulatory requirements. If you have worked with a smaller local law firm at seed, it may make sense to uplevel your law firm to one with international reach after Series A, or at the point of US expansion.

You should consider a firm which is familiar with the needs of VC-backed tech startups. Ideally, one that operates in both the US and your European home market. These may include:

• Wilson Sonsini Goodrich & Rosati (WSGR)
• Cooley
• Goodwin
• Latham & Watkins
• Morrison & Foerster
• Orrick

Initial setup for US operations might cost $10k. A basic SaaS setup could be as little as $3-5k:

• Subsidiary set up $1-2k
• Employment contracts $0.5-1k
• Stock option plan $2-4k
• Americanize commercial contracts $1-7k
• Trademark filing $1-3k
• Patent filing $8-20k
• Data Privacy – variable; a simple SaaS set up could be $1k, but something bespoke in a regulated sector (e.g. digital health) could go up to $50k

The Delaware flip

You will need to set up a US company in order to hire your first US employee. Most companies establish a C-Corp in Delaware.

Your C-Corp could be a wholly-owned subsidiary of your European topco. Alternatively, you may choose to adopt your US C-Corp as your topco. This is commonly referred to as ‘flipping’. You will need to assess the pros and cons of flipping, and the timing for doing so, with your specialist advisors. Having a US topco used to be a requirement of US investors (e.g. Y Combinator), and can be a signal of your ambition, but there are arguments for not rushing to flip immediately. In fact, our analysis of 31 of the outlier European successes and case studies referenced in this book revealed that only 29% (9 companies) flipped to the US.

There is a stronger logic for flipping to a US topco if you are a Compass archetype, since this playbook implies a majority of your customers, employees and leadership will end up being based in the US. It also makes it more likely that you will have US investors and an eventual US exit (listing or M&A). For the Anchor and Telescope archetype, the advantages of flipping are less obvious.

Explore the tax implications (for example your qualification for SEIS and EIS investment in the UK), and the impact of issuing tax-advantaged options to US employees. In certain countries, notably Germany, flipping is treated as a liquidity event with tax consequences; so if you are going to do it, you should do it before you raise any capital.

Bear in mind that if you are based in Europe, but with a US legal structure, corporate processes (eg fundraising) may be held up due to timezone challenges, and your familiarity with laws and requirements.

Tax structure

After creating your US subsidiary, you will need a tax registration EIN (Employer Identification Number). This will typically take 10 business days, and is required in order to open a US bank account and run US payroll.

You will need a transfer pricing policy from day one, although in the early stages, this is simply a document justifying your approach. Once you reach global revenues of $30-40m, you will need a more extensive policy-designed memorandum.

Sales taxes are administered on a state-by-state basis. SaaS services are considered by 50% of states to be a tangible good, so are liable for sales tax. You need to work with tax accountants to understand the thresholds, and your liability, to make sure you bill clients correctly, and don’t become liable for back-taxes later on. Typically, if you have no presence (employees) in a state and under $100k in turnover, you will not need to pay. However after the Wayfair ruling of 2018, there is precedent for a state to tax a company, even if it does not have a physical presence there.

The cost of advice and set up around transfer pricing and sales taxes will vary, but Frazier & Deeter provide a package for around $7k.

Founder taxes & compensation

Moving to the US can have major tax ramifications for you as a founder, which you need to address with a specialist advisor in advance.

The obvious one is that you will have to file dual tax returns, and look into tax treaties between your home country and the US to see where tax is owed. Most European countries have a dual-tax treaty with the US, making this somewhat simpler.

Founders may also be liable for higher taxes in the US on any equity sale, due to differences in capital gains treatment.

More challenging, although it is less likely to be an issue for founders before Series C, is exploring the tax implications of option grants. We have seen instances where growth shares (often used in the UK, Sweden and elsewhere) are considered to be RSUs in the US, and therefore liable for income tax as they vest.

It is important to uncover any significant tax issues early, so that there can be a sensible conversation with the board, if a founder or other employee is going to be adversely impacted by going to the US.

Moving is personally challenging, particularly if you have a family. It should be as positive an experience as possible. It may be necessary to increase salary if the founder is relocating, especially to NY or SF, given their high cost-of-living. If the move is later in the journey (Series B+), you could also explore a secondary sale of founder equity, to provide capital for a property purchase, or to alleviate personal risk more generally.

Banking

If you are based in the UK, we recommend banking with Silicon Valley Bank (SVB). This will make life easier when you expand to the US, since you can then retain a single banking partner, with unified online access and reporting. If you are based elsewhere in Europe, where SVB does not currently have a license to operate, you will probably be better-served by working with separate local banks.

Compensation & stock options

Prospective US employees will expect to receive stock options, and will be more sophisticated in the questions they ask about your plan. It is recommended that you set up a US stock option sub-plan, so that you can grant tax-favourable ISO’s (Incentive Stock Options). To operate a US sub-plan, you will need to get a 409a valuation every six months, which sets the Fair Market Valuation for your option strike price. Depending on your stage of growth and your capital structure, this can typically be 50-80% below your last-round valuation, making stock options much more attractive to employees. 409a valuations are fairly straightforward to process, cost $2-5k, and are offered by many providers, including SVB and Fast409a.

While moving employees to the US, be aware that your strike price for options may need to be re-calibrated with a US 409A valuation. For example, if they hold UK EMI options with a more heavily discounted strike price, they will otherwise be liable for additional income tax when it comes to filing their US taxes.

For deeper insight into stock options, we refer you to the Index Ventures handbook Rewarding Talent, and to the section on US stock optionsin particular.

Payroll, HR & benefits

Most startups use a PEO (Professional Employer Organisation) to manage their employee payroll and benefits, at least until they reach 100+ headcount. PEOs operate a co-employment model; they pay the employee, and then bill the company. There is shared employer liability, and the PEO handles compliance with all filings, health & safety regulations, etc. The PEO model doesn’t affect stock option grants. The PEO will also look after the provision of US health and pension benefits, which are complex and unfamiliar ground for Europeans. PEOs leverage their group-buying power to negotiate with benefits providers, reducing costs for clients. Another benefit is that the PEO will take on the burden of registering offices and/or employees with state-level departments. This allows for simpler management of a remote workforce throughout the US, which is becoming more commonplace now, of course.

PEO service proposition:

• Payroll (including time tracking for hourly workers)
• Employee tax and regulatory filings (state and federal level)
• Health (medical, dental, optical)
• 401(k) pension plan
• Life insurance
• HR advisory

Health benefits in particular are expensive, and come in many different flavours. Employees will pay careful attention to health plans. If you’re hiring experienced team members, you’ll be expected to offer a policy covering family members too. Depending on the plan (in particular, which hospitals are included, and the level of employee-deductible towards any claim), health insurance can cost between $150-$1,500 per employee per month, depending on the level of coverage offered, and whether the employee requires insurance for themselves or a family. By law, employers must cover at least 50% of the lowest cost plan offered to employees.

Pension plans in the US are referred to as 401(k) plans. Companies must offer these plans. Employees make contributions which are deducted from payroll pre-tax, and the company administers this transfer of funds. Companies can choose to contribute to an employee’s 401(k). However, this usually occurs later in a company’s lifecycle due to the cost. It is a way, however, to offer a competitive benefits package and could contribute to a positive employer brand when competing for talent.

Other benefits may be bundled into offerings from some PEOs and are becoming more common, as a way of enhancing your employer value proposition. For example:

• Online or telehealth appointments for primary care or speciality services
• Mental health services
• Fitness and gym access
• Fertility, adoption, and pre-natal services
• Ancillary insurances, like disability or life cover
• 1-1 guidance for both employers and employees directly, to lighten the legal and HR burden

Index Ventures is invested in one of the leading PEOs in the US, Justworks, which is particularly focused on the needs of startups, and the expectations of tech employees. They have a modern online platform for both employees and company administration, and a wide range of bundled benefits. Their Plus-Plan (which includes the provision of payroll, all filings, plus the full range of benefits) currently costs $89 per employee per month.

Property

You will probably operate from a co-working space when you first land in the US. Not only does this offer flexibility, but you will need a US office address to apply for visas in advance of having anyone on-the-ground. However, once you have more than five people in the US, it is worth considering leasing your own office space, despite the additional cost and unused space. A permanent space can be fitted-out to reflect your culture, and to a spec which matches your European HQ. It signals your commitment to the US, which will be noted by prospective hires, customers, and partners, as well as by employees.

Leadership talent

There is now a fairly deep pool of talent in Europe across all functions required by startups - technical, commercial and operational. It is growing all the time, and extends well beyond London - to Berlin, Paris, Amsterdam, and elsewhere. However, there are still only a handful of outlier tech successes that have been built in Europe. This means that the talent pool for leaders with proven experience of high-growth tech companies at-scale is still very shallow. This is true across all functional areas. The dominance of US companies, and more specifically, companies from the San Francisco Bay Area, is reflected in where this top leadership talent can be found.

On the journey from startup to listed company (or equivalent scale), we typically see two or three iterations of executive leadership, reflecting the evolution of capabilities that are required at different stages of growth. This is not a hard rule, and there may be one or two executives who stay and grow with the business through different stages. But on average, each function will see three successive leaders. We can characterise these stages as early, middle, and late.

The sequencing for these stages differs by business model, but we set out below a typical journey for a SaaS company, together with estimates for the number and location of experienced leadership candidates at each stage.

SaaS scaling journey - leadership requirements and talent pools

The most ambitious European companies will aspire to hire experienced and proven talent. By the time you reach the ‘middle’ stages, this will almost always involve candidates in the US, either to hire in the US, or to relocate to Europe from the US.

Relocating leaders

Within the US

It is a common misconception that relocation is much easier within the US than in Europe. Whilst this may be true for junior or mid-level talent, it is rare for executives.

On the other hand, commuting is more common for executives in the US than in Europe, and offers another way of broadening the talent pool. This doesn’t work between the East and West Coast - the distances are just too long to be viable over any period of time. However, there are many examples of execs who commute weekly along the East Coast (particularly between New York and Boston), or West Coast (e.g. between Los Angeles or Seattle, and the Bay Area).

Relocations to Europe

For relocations from the US, we advise looking for US candidates with some ‘hook’ to Europe. There is a growing pool of expatriate Europeans in Silicon Valley, who now have young families and/or ageing parents, and who are therefore open, or even keen, to return to Europe. Inversely, they may be American executives, with a European partner who is keen to return. Alternatively, they may have spent some time studying or working previously in Europe, or simply have run international teams involving frequent European visits. Another receptive talent pool we have seen are South Asian expats on the West Coast, who want to move significantly closer to home. Whilst it can be tricky to pre-screen candidates for some of these characteristics, our experience is that you need at least one of these hooks. Beware of US candidates whose interest boils down to “I want an adventure, and Europe sounds fun.” Not only might you waste time on ‘tyre kickers’. The bigger risk is hiring someone who then doesn’t work out, because they didn’t appreciate the realities of moving to Europe, either personally or professionally.

Ensure that your shortlist of candidates in any executive search is therefore weighted accordingly - eg 4 from Europe, and 1 or 2 from the US. Otherwise you run the risk of drawing a blank.

Another common challenge with relocations from the US relates to compensation. US compensation is significantly higher than in Europe, particularly for equity. This difference partly reflects the higher average experience levels of US candidates, and also the very high cost of living in the San Francisco Bay Area. However, even adjusting for these factors, you may need to re-think your executive pay-scales in order to compete for US talent. We recommend also thinking about this in terms of up-levelling compensation for your European-based executives. It creates resentment if a relocated US executive is offered a much better package than their European peers. Often, this is because companies have failed to increase compensation for their existing executives in line with growth.

It is important to recognise the ‘pulling power’ of different European locations for US candidates. Individual candidates will have personal preferences, but our experience of ‘city appeal’ is as follows:

1. London - by a significant margin

2. Berlin, Amsterdam, Barcelona

3. Paris, Dublin, Copenhagen, Stockholm

4. Other locations

Recommended Headhunters

For GTM hires in the US:

True Search - Pat Haggerty & David Ives

Renovata Partners - Mannie Gill

Daversa Partners - Gary Constance

For US to Europe relocations:

True Search - Nick Fairclough

Renovata Partners - Thomas Jepsen

Daversa Partners - Wendy Colvano

Distributed leadership teams

Successful US expansion implies that, for at least some functions, or time period, company leadership will be distributed across the two continents. This presents challenges, even for companies with a fully-remote model. The critical factor to ensure success with a distributed leadership team is a willingness to travel and meet frequently. This is essential for any executive in an organisation split between the US and Europe, and the expectation needs to be explicit before making any hire.

At the earlier stages, it is important that leaders are co-located with their functional team, until there is sufficient bench-strength to cover day-to-day management. We see this most clearly with R&D leadership - engineering and product leadership will remain in Europe for several years, before it is possible to consider upleveling these roles in the US. But the recommendation applies to other functions too - marketing, finance, operations, etc. When a functional team is small, there is a significant advantage to co-location, making it easier to establish systems and processes, and to train up more junior members of staff.

An exception to the co-location model is for sales leaders in companies with a field sales model. Field sales teams are likely to be distributed by their nature, and also composed of experienced individuals, so it is fairly common for these roles to be remote. But it is still preferable if sales leaders are located with other leaders.

Engineering stays in Europe

In every outlier success story of Europe-to-US expansion, core engineering has remained in Europe, even if commercial success pivots to the US. Once you have built an engineering team that has in turn built your product, it is simply too risky to move or replace it. Keeping your engineering team in Europe also allows you to take advantage of a strong talent brand, lower costs, and higher retention. Later-stage European companies sometimes add additional engineering centres within Europe as they scale, in order to tap into new talent pools. For example, King and Skyscanner in Barcelona, or Collibra in Wroclaw. But there is still an advantage to keeping hubs relatively close in terms of timezone.

From our research into 275 European companies that have expanded to the US, only 50 had any developers in the US. Much later in the scaling journey, we do sometimes see the opening of a secondary engineering centre in the US. This is typically triggered by the hiring of a US-based CTO.

Index Research, sample size = 251

Organisation design

With the exception of engineering, the impact of US expansion on organisation design varies widely, depending upon your archetype. A summary of each potential journey is presented below, after which we will discuss some specific recommendations for each of the archetypes.

Organisation Design and Leadership - division between Europe and US

Scaling Compasses

The Compass archetype is characterised by a pivot of the whole organisation to address the US market. After the founder has moved, and US commercial traction is established, this has a ripple-effect on all other functional teams, and on leadership. At the point of IPO or listing, the entire leadership team will be in the US, along with about 50% of the overall team.

Product

In the early stages, your product team needs to be close to engineering - close collaboration is critical. But following US expansion, the requirements of US customers will drive your product roadmap. It is essential that your product team is oriented to these needs, hearing them first-hand from customers, as well as from US-based sales and customer success.

This can be achieved whilst keeping your product team co-located with engineering, but you need to put in place rigorous processes to foster communication and collaboration with the US GTM teams.

However, what we usually find is the creation of a dual product team. The majority (maybe 70%) of product managers will remain in Europe alongside the engineering team, with a technical orientation. But a smaller team of (usually more-experienced) product managers will be hired in the US, with an explicit customer-orientation.

At later stages, with the product organisation growing in complexity, the pressure builds to hire an experienced leader - someone with the gravitas to counterbalance demands from the sales team, whilst capable of maintaining a consistent and integrated product roadmap. The talent pool of proven Chief Product Officers is very heavily weighted to the US, which results in a further pivot towards the US. This individual will often also oversee engineering, through a VP Engineering direct report based back in Europe.

GTM

Sales and marketing organisation and leadership will rapidly pivot to the US, reflecting the growth opportunity and focus, as well as availability of talent. This naturally creates tensions during the transition, particularly if early GTM leadership is already in place in Europe.

Over time, you will probably appoint a VP Sales (Europe), responsible for sales activity across the whole region, and reporting into a US-based CRO. If European R&D is in a secondary hub, the European GTM hub may well be in a different location - London or Amsterdam being the most likely. For example, Collibra and UiPath have both chosen London, despite R&D being centred in Brussels and in Bucharest, respectively. For further insight into building out European GTM operations, read the Index Ventures handbook ‘Destination Europe’.

G&A

As the commercial focus shifts to the US, functions such as finance and legal will tend to follow, albeit at a slower pace. The ‘2.0’ leadership hires are likely to include a US-based CFO, General Counsel, and Chief People Officer.

Scaling Anchors

In the Anchor archetype, US expansion involves the creation of a condensed mirror-org across GTM and G&A functions, and hiring a US President. Expansion tends to be later in the journey, by which point ‘2.0’ European functional leaders are likely to already be in place. The US is not expected to become the dominant market in terms of revenue share, although it may become the highest-revenue single country (20-30% of total). At the point of IPO or listing, the leadership team will remain entirely or mostly in Europe, along with 70%+ of the overall team.

Matrix management in the Anchor model can be tricky. With most functional leadership sitting in Europe, it is usually best to give significant autonomy to the US, so that they can optimise for US market needs. In practice, this means dual-reporting lines for US functional heads, but with the stronger line into the US President for sales, marketing, and customer success functions. Ideally, the US President will be responsible for the full US P&L, although this depends upon your business model.

Unlike in the Compass, the product function usually stays in Europe alongside engineering, although you may scale to having one or two US-based product managers, focused on ongoing localisation.

Scaling Pendulums

The Pendulum archetype poses the toughest leadership and management challenges with US expansion. Distributed leadership works best when functional teams are built on a distributed-basis from early on. In fully remote teams, this approach is part of the DNA of the company. But if your initial engineering team is centralised, a deliberate ‘remote-first’ decision needs to be taken when hiring later for functions such as marketing and finance.

Criteo provides a good example of successfully navigating these challenges. In 2013, in the midst of hyper-growth, the CEO and founder, Jean-Baptiste, was in Palo Alto. The CRO was in New York, the CPO was in London, whilst the CTO and CFO were in Paris.

Scaling Telescopes

Telescopes are able to build a customer base in the US with little US headcount. The core customer acquisition channel is usually self-serve growth, which is run by teams back in Europe. Instead, US hiring tends to centre around two functions:

• Business Development and Partnerships - key distribution and technology partners are in the US
• Customer Support - proportional to the size of your US customer base

As you scale, you will probably hire a VP Business Development based in the US, to run this function, although it will never become a large team. In terms of headcount, the US support team is likely to become larger, depending on the relative % of your US customer base. If the majority of your support team ends up being in the US, it might make sense to have your global team leader there too - ie VP Customer Support. Most other functional leaders are likely to remain in Europe, even if they are individuals relocated from the US.

An important caveat is that in B2B, Telescopes have a tendency to evolve into Compasses. This happens when a software product based on a freemium or bottom-up growth model, starts to get traction with larger enterprises. In this case, the GTM model shifts towards sales, which requires people on the ground. Zendesk, Dropbox, and Slack all evolved in this way. In Europe, Pipedrive, the Estonian CRM software company, is also now shifting from a self-serve to a more sales-driven model, and building a sales team in the US. When this happens, the gravitational forces described in the Compass model kick in - drawing the founder/CEO and the leadership team towards the US.

Marketing & branding

Compasses pivot their entire GTM focus to the US. Companies following the other archetypes, however, need to make deliberate choices. These are often trickiest when it comes to the marketing function, particularly in B2C, where marketing rather than sales drives customer acquisition.

Analysing the location of marketing teams in nine later-stage companies reveals differences in approach. However, what is clear is that marketing rarely pivots over to the US. The function usually stays unified, and close to the CEO in Europe.

Location of Marketing Teams in late-stage companies (non-Compasses)

The factors which influence the location of marketing teams include:

• Co-location - the benefits of co-locating marketing teams across sub-functions - paid digital, social, CRM, content, brand, comms, etc
• Talent - availability of marketing talent in HQ location - eg world-class in London, much rarer in Helsinki
• Proximity to product team - strong collaboration required, eg for acquisition funnel-optimisation, growth mechanics and viral loops
• Evolution of comms - the comms aspect of marketing is more strategic with scale, encompassing internal comms, investor comms, and public policy. Staying close to the CEO is important
• Localisation - certain marketing sub-functions tend to localise more obviously, such as offline campaigns (TV/radio, outdoors, sponsorship), events, and content

How and when do US investors help?

It rarely makes sense to bring in US VCs before you have a firm timeline for US expansion. They are unlikely to be interested in your company either. At this stage, you will get more value from having local or European investors, who can be more hands-on in supporting you.

As you expand to the US, however, having one of the top US VCs involved becomes very valuable. They offer:

• Deep pockets
• Sector or business model ‘at scale’ expertise
• Network
• Signalling and validation for talent, customers, and partners

It remains a fact that very few European B2B companies have reached unicorn status without a top US VC involved.

It is no longer necessary to actually be in the US in order to access the top tier US investors - they are all active internationally, and should be willing to come to you. However, there does need to be a clear US angle to the business plan in order to excite them. And if there isn’t, why would you meet with them anyway?

Our analysis of US VC funding for European startups confirms this perspective. Only 11% of European startups who expanded to the US, received US funding in advance of their expansion. A further 37% secured US funding afterwards.

Index Research. Sample size = 183

Make sure that the US VC you choose - and this is as much about the individual as the firm - is insightful on the complexities of building a business out of Europe. They must show a willingness and commitment to spend time with you in Europe - for board meetings, and beyond.

Because US investor involvement only makes sense once you are executing on US expansion, the optimal timing for engaging with them varies by archetype.

US fundraising by Archetype

Optimal timing for US fundraising, for each archetype

Compasses will look to pivot to the US early on, so are more likely to engage successfully with US investors for their Series A. Other archetypes will usually expand to the US later. In these cases, your proposition will only resonate with US investors for later funding rounds.

Internal communication

Cultures are unique, but there is a common scaffolding of practices and processes that will support and shape your culture. Whilst these are important for all organisations as they scale, some of them are particularly relevant to US expansion:

All-Hands

All-hands need to be inclusive of both your Europe and US teams, and they need to be high impact and high production. Planning, agenda-setting, and speaking, should involve individuals from both continents.

Global and Team Offsites

Holding regular, at least annual, global team offsites, can really help with alignment. At scale, they require a huge effort, and a large budget, to organise. But they are a unique touch-point to strengthen team bonding and trust. Annual offsites are usually 3 day events, ideally held in a neutral, non-HQ geography, with sufficient travel time, and a generous time allocation for social activities, built-in.

In addition to global offsites, it may make sense for distributed functions to also hold periodic offsites. The more distributed the team, the more frequent these offsites should be.

Documentation

A major learning from fully-remote organisations is the importance of scrupulous documentation of meetings, decisions, and processes. Tools such as Notion, Slite and gdocs make this easier to organise and share. For example, where a function (e.g. sales, or marketing) holds a weekly global meeting, maintain a single rolling record of what is discussed and agreed. This avoids confusion, and also makes it faster for new team members to onboard.

Staffing Project Teams Across Offices

Set up projects with multi-geo staffing, to promote close collaboration. This is particularly important for internal projects concerning HR or business systems. It will slow down execution, but improve buy-in, which is more important for projects that directly impact on culture.

Weekly Executive Meetings

Once you have a leadership team that is distributed across geographies, you need to formalise the rhythm of exec meetings. There should be a weekly all-execs call, and the CEO should do 1-1’s with each of their direct reports weekly or fortnightly.

Hiring an EA or a Chief of Staff

A great Executive Assistant can be a game-changer for enabling smoother communication in the leadership team, and for enforcing necessary formal processes. They will often prepare the agenda for executive meetings, as well as tracking follow-through on decisions taken and actions committed to. An alternative approach, gaining in popularity, is to have a Chief of Staff to the CEO, who takes on this responsibility.

Engagement Surveys

Once you operate across multiple geographies, team sentiment will diverge. Smaller US offices will probably feel ignored to some extent. The original HQ office can also feel downbeat if there is a sense that influence is shifting towards the US. Although the broad outline of these dynamics is predictable, it is helpful to track sentiment through employee engagement surveys or pulse tracking tools. Once you are at 400+ headcount with significant geographical spread, you should have a dedicated internal comms manager, who can also coordinate actions to address employee concerns.

Onboarding

Employee onboarding is a key period for reinforcing values and shaping culture. The ideal is a global onboarding process, which brings together all new hires for a shared program of induction and learning. In reality, however, global onboarding can be prohibitively expensive, and is instead run on a regional basis, maybe with some functional grouping.

Working Across Borders

When you are running an organisation across continents, you should be explicit with candidates about the impact this has on your culture, and what it may require from them. For example, you will benefit from having night-owls in Europe, and early-birds in the US, for roles which require extensive collaboration.

Communication infrastructure

The 2020 pandemic has forced everyone, even in traditional corporates, to rely upon video conferencing and collaboration tools, such as Zoom and Slack. With US expansion, investment in these tools becomes even more important.

Most of us will return to spending at least some, if not the majority, of our time working from an office. But when it comes to video conferencing, there is a lot you can do to ensure that collaboration between offices is optimised.

Travel and mobility

A recurring theme when talking to founders about US expansion is the need for extensive travel to and from Europe. This applies to the founders themselves, to the rest of the leadership, and also to the broader team as a whole.

Enabling this cadence of travel requires a large budget, as well as a culture and policies that signal to your team that it’s something to be encouraged. At Adyen, travel is the biggest line-item in the budget, after salaries. They allow employees lots of flex to move between offices as they wish, covering travel and alternative-accommodation costs, for weeks or even months. This facilitates team members getting to know each other across different offices, and is also part of their employer branding.

Renting a company apartment in the US can be a cost effective and creative way to encourage mobility. It also has a side benefit for team bonding.

Blending US and European business culture

Throughout this book, we have touched on differences in business culture between the US and Europe. These pop up everywhere, but require intentional education and adaptation, to avoid a sense of ‘them and us’.

To summarise some common sticking points and differences that need to be addressed:

Hiring processes

US candidates are generally more confident and better at selling themselves.

Compensation

US candidates get paid more, and are more aware of their market-value.

Psychological contract

US employment laws are looser than in Europe, and so is the general employer-company bond, which tends to be more transactional.

International outlook

Europeans think internationally by nature, whilst much of the US is domestically-oriented.

Etiquette and protocols

There is more sensitivity around physical privacy in the US, and around data privacy in Europe.

Glossary of acronyms

Thank you

We would like to extend a special thanks to Wilson Sonsini, and to Angular Ventures, for sharing expertise, content, and data.

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Contact

Index Ventures

5-8 Lower John Street
London W1F 9DY, UK
Telephone +44 20 7154 2020

139 Townsend Street, Suite 505
San Francisco, CA 94107, USA
Telephone +1 415 471 1700

indexventures.com

Copyright © 2020 by Index Ventures.
All rights reserved.

Contributions and insights from the Index Ventures Investment, Legal, and Strategist teams.

Researched and written by Dominic Jacquesson, VP Insight at Index Ventures.

Co-researched with Zheela Qaiser. Additional research by Darvesh Daswani.

The information provided in this handbook, in particular chapter 8, is a general guide and specific legal and tax advice should be sought when implementing corporate and HR arrangements.