A common question from UK and other European emerging technology companies considering U.S. expansion is where to establish their U.S. operations. The answer is not always “the Bay Area” or “New York;” the U.S. is a massive country with numerous economic hubs.
Based on our conversations with a few thousand UK/European scaleup founders and executives over the past decade, here are eight key geographic considerations for non-U.S. companies looking to set up in the States:
- Customers/Users: Where are the company’s actual or potential U.S. customers and users, and is there a benefit to opening an office near them?
- Talent: Does the company require U.S. employees with specific skills, networks, or experience and, if so, where are they located?
- Cost: What is the cost of operations in the relevant geography, particularly with respect to employee compensation expectations?
- Proximity to HQ: Is the company transferring employees from HQ or only hiring locally? For a UK/European-headquartered company, it’s difficult to maintain consistent culture between company HQ and a West Coast office of local hires unless the company also transfers to that office employees who embody the enterprise’s “DNA.” Time zone and travel challenges may weigh in favor of setting up further east.
- Travel: Does the company expect U.S. employees to travel extensively within the U.S.? If so, centrally located travel hubs such as Chicago, Denver, Atlanta, or Dallas may offer advantages to coastal hubs such as San Francisco, Los Angeles, New York, or Boston.
- Investors: Is it important for the company to set up near its existing or potential U.S. investors, and where are those investors located? The earlier-stage the company, the more likely it is that its investors will prefer the company have decision-makers nearby.
- Acquirors: Does the company believe that one or more larger companies represent a likely exit opportunity? If so, it may be sensible to set up relatively nearby to start building the relationship early.
- Government Incentives: While not every scaleup will be able to run a competitive RFP process in the manner that Amazon did when it selected a location for its second HQ, there is no doubt U.S. state and local economic development organizations (EDOs) are eager to attract high-growth technology companies. The U.S. Department of Commerce’s SelectUSA website has contact information for each U.S. state’s EDO, and a similar database for local U.S. EDOs can be found here.
Some additional observations:
Setting up in Delaware: The question of where to establish a U.S. office is different from the question of where to establish a U.S. corporate entity.
We most commonly see UK and other European technology companies establish U.S. subsidiaries that are incorporated in the U.S. state of Delaware and are registered to do business in the U.S. states where the U.S. company has employees and/or offices. There is no “national” corporation in the U.S., and Delaware has been the preferred state of incorporation for over fifty years due to (among other reasons) its robust corporate law, customer service, tax structure, and the quality of its judicial system in the event of disputes.
For more information on the logistics of establishing U.S. operations, including when to consider establishing a U.S. subsidiary, see the Tech Nation U.S. expansion and fundraising library, as well as this checklist and video.
The “Delaware Flip”: Opening a U.S. office typically does not require “flipping” into a U.S. (Delaware) parent company, unless the U.S. expansion is coupled with an investment from a U.S. investor who refuses to invest in a non-U.S. corporate entity. A U.S. subsidiary should suffice if the need for a U.S. company stems solely from employing U.S. residents or other operational considerations. In other words, a U.S. subsidiary addresses U.S. operational requirements; a U.S. parent company addresses (certain) U.S. investors’ requirements.
What Does U.S. Expansion Cost?: For the answer to this question, we often recommend Octopus Ventures’ “Question the Questions” report on U.S. expansion for European startups. Pages 159-61 include sample line-item budgets for operating a U.S. business in Silicon Valley, New York, and Austin.