What European founders need to know about raising in the US

I was fortunate to have some time with Daniel Glazer of Wilson Sonsini who is well known for his deep expertise and network in the US venture capital ecosystem.

As promised, here are a few topics he often discusses with European-based founders who are considering raising from US-based VC investors.

Please share widely as this is important information for all founders.

Part 1 - raising advice:

- It usually doesn’t make sense to Delaware flip ahead of reaching out to US investors. Just make clear to US investors you will do so if necessary and flip as needed as part of the financing transaction. There’s a substantial difference between having a business that is interesting to US investors and simply having a Delaware parent company. Spending money on a Delaware flip, only to find out that the business is not interesting to US investors from a commercial or operational standpoint, is not an optimal use of limited funds.

- The earlier you raise from US investors, the more likely it is you will need to flip as a condition of the raise.

- At Seed, roughly 75-80% of US investors leading the round will insist on it. Those with European offices often will not (most of the 20-25%). Rarer: some large US firms without European offices are comfortable with UK and some other European docs, and some but not many US-based investors will lead a Seed round before the company is ready to commercially and operationally expand to the US.

- At A, about 20-25% of the time UK companies will need to flip when raising from a US-based VC investor leading the round; the percentages are somewhat higher for other European companies.

- He virtually never sees it required of UK companies at B or later. Again, the likelihood is somewhat higher for other European companies.

- Post flip, the admin to run your business is more expensive. There is no Companies House or equivalent in the US. You are expected to keep your own house in order. This requires more regular interaction with US lawyers, in a manner that may seem strange or even off-putting to European founders.

- Term sheets are typically more founder friendly in the US, in part because the US National Venture Capital Association (NVCA) model documents generally are more founder friendly relative to equivalent documents in Europe. No good/bad leaver provisions. Fewer investor consents. Founder non-competes are unusual. On average, European term sheets tend to reflect a greater level of control over the business.

- When negotiating term sheets, European founders would be well-served to get up to speed on US market-standard terms.