Coming To America: Grow Big or Grow Home?
Last week saw the great and the good of the adtech world descend on The Ivy to share the lessons and scars of US expansion.
Hosted by yours truly at FastPay, Ben Titchmarsh of Propeller PR guided a panel of fantastic industry spokespeople through an advice-led discussion that followed the growth of a hypothetical adtech firm from inception to US expansion and exit plan.
Adam Ludwin of Captify and Abeed Janmohamed of Volando provided the ‘been there done that’ point of view as founders that have successfully established US bases, whilst Mark Williams at Results International did a sterling job of detailing the nuanced differences between UK and US investor attitudes. For those confident they are in the right position to make the jump across the Atlantic, we had some interesting takeaways…
US venture capital isn’t compulsory for US success
Many founders feel that a big valuation from US VCs provide the answer to their problems, yet this can be disheartening when many Silicon Valley investors want to see triple digit growth before they even bat an eyelid. With East Coast funds zoning in on double digit growth, European funds remain an attractive option. As ever, finding a venture capital partner should always come down the money involved and who you trust.
Founders must not be put off by overconfident US competition either. It was post-Series B for Captify (around £8 million), when a US competitor with £50 million in the war chest came over to compete. It wasn’t long before said competitor shut up shop as the technology wasn’t quite there.
Before rushing off to new locations, Mark advises that it’s vital to make sure the home market is stable. The cost of expansion is often underestimated; overconfidence can often lead to executives not building in failure and re-hiring staff to the plan.
You can’t enforce culture
We all speak the same language, but the US can a big culture shock for British entrepreneurs. Adam needed to overcome Captify’s Britishness when opening Captify’s US office, and found they nailed the culture when the balance of British to American staff was about three in 10. It takes time to nurture culture and nobody cares if you’re the hottest thing in Europe – you’re a start-up all over again in the US.
On the money front, $1m doesn’t even make a dent in sales and marketing, with salaries averaging at double compared to the UK.
Stateside, investors have a different mentality too. Whilst European investors are poring over EBITDA, out in the US, culture plays a big part and belief in a founder’s vision can often trump pure financials. They back teams and often ‘bad tech, great team’ wins out over ‘good tech, shit team’.
Preparation is key – exhaust all options
What came across loud and clear from our founders is the old adage of failing to prepare is preparing to fail. US expansion is not something one should rush into. Deals in adtech have decreased and it’s now about established businesses positioning for an exit. There’s still a diverse range of potential acquirers including broadcasters, telcos, agency networks, consulting firms and private equity. As with any move, US expansion should only ever feed into an overarching growth strategy.
The panel agreed that founders should exhaust all debt options before diving straight into equity. However, for companies that have already secured investment, debt can also complement equity by providing cash flow solutions without further dilution of ownership. Debt is much more cost effective in the long run and faster to obtain – Abeed and Adam both highlighted the sheer time commitment involved in campaigning for equity raises, and if founders aren’t careful this can impact on the day to day growth of the company. With debt options, the finance team can apply for a loan or alternative finance pretty easily. When you consider that payment terms in the US are even longer than the often stretched timeline that vendors face in the UK, it is essential for founder to factor in working capital solutions early on to ensure success.