How to expand into the US market as an Aussie founder

Think & Grow, along with SBE, brought an all-star panel together last week at an exclusive panel event to share how Australian founders can expand their businesses to the US successfully, including an overview of the US market right now, challenges to be aware of, how to navigate the separate markets in the US and the differences between Australian and US VCs.

On the panel were Andy Tsao, Head of Global Gateway at Silicon Valley Bank, Sara Rona, Director of Australia, New Zealand and Global Channel Partnerships at Silicon Valley Bank and Kerri Lee Sinclair, Non-Executive Chair of SBE, moderated by JJ, Co-Founder of Think & Grow. In this recap article, we’re delighted to share with you our highlights:

The big event that people are looking at right now is the pending recession. Australian media is very fond of following what’s going on in the US tech scene and making a reasonable view of the trends that are happening. So, firstly – let’s burst that bubble and dig into the actual trends happening on the ground in the US.

The long-term outlook for innovation and opportunities in Australia, the US and across the globe is fantastic.
The amount of capital that came into the US ecosystem and was invested last year (around $10 billion) was incredible, which played out in a similar fashion like an echo through all the markets including Australia.
Later-stage companies had valuations that generally were out of kilter with public market valuations, which led to investors putting a pause on investment so they could revalue their portfolios.
What we’re seeing today is continued solid activity at the pre-series A levels of seed rounds because they’re the furthest away from all the challenges than later stages.
Solid companies showing good economics and growth continue to get funded, just at a rate much less than last year.
Inflation in the US continues to be really stubborn and the Fed is determined to tamp it down, meaning rising interest rates.
For companies looking to enter the US, the economy is still robust despite the rise in interest rates. Unemployment continues to be at record lows, similar to Australia.

Since Covid-19, we’ve seen a shift all over the world from being in the office every day to remote working arrangements – working from home, hybrid, co-working and even travelling and working. Here’s what you can expect in the US with regard to this shift:

San Francisco is a reflection of the pandemic and this new shift to remote working arrangements because restaurants that used to be open all day are now only open for dinner. In general, it’s a lot quieter during the working day, but Mondays and Fridays in particular have less buzz than before.
Having said this, things are reversing again with some companies insisting on daily office presence.
The digital nomad trend that started years ago is being kept alive by Gen Z candidates now starting their first jobs and wanting them to be 100% remote.

There aren’t currently a huge amount of Australian businesses landing in the US, mostly down to competition. But, there are some great and interesting sectors continuing to come out of Australia such as climatetech, construction, SaaS and fintech.

Lessons learned and experiences from scaling and launching internationally are powerful ways that founders can educate themselves on how to do it successfully for their own businesses. The panel shared how to prepare for scaling your organisation to the US:

Tip one: Silicon Valley Bank is definitely Silicon Valley, but that’s not the place your business needs to be. There are ‘pockets’ that are more aligned to certain businesses. For example, tax brackets differ per state as well as nuances around universities. Boston and Texas are both known for healthtech. There are a lot of ICT companies choosing Denver or Austin as their hives for example.
Tip one (extended): Consider where you need to be and what you need access to like local VCs. For example, if you’re a fintech company then the banks in New York make sense. If you need to be near bigtech then the Bay is right for you.
Tip two: Get partnerships with something like Silicon Valley Bank early on, don’t land then go on a mad dash to secure them because some partnerships take more time than you anticipate.
Tip three: Your expansion is your unique journey. Just because your friend did it this way or that way, doesn’t mean you should. Focus on your journey and what you need to do to make it a success.
Tip four: Many smaller business founders work with specialists that SVB can connect with to handle all of the employee regulations when they’re all in different states, especially working remotely. So, you avoid things like double taxation and penalties. You just want to be sure that all those boxes are ticked.

While Australia is a big country, it’s not a big buying audience. So, Aussie companies end up being a big fish in a small pond before expanding to the US. This can present many challenges with finding the right salesperson or the right partnership and building an impactful brand presence in a new market to secure your first customers. Here are some key solutions and recommendations to help with those common challenges:

Plugging into that new ecosystem early on is crucial because the network you can create will be important in saving you time and energy in order to make the connections you need to make.
Be engaged on Linkedin, join groups, connect with relevant people, reach out, share updates to keep people in the loop.
It can help to hire local salespeople who have the US accent, know the markets, have the connections and most importantly, know how to get their foot firmly into doors.

Question time! We’re sharing a couple of the key questions around expanding an Australian business into the US that were asked and the solutions given by the panel.

Does the equation change when you factor in the R&D tax incentive in Australia and the opportunity to get that money back? Can you keep certain entities in Australia and the tax advantages of keeping that IP in Australia?

You can definitely try. We’re seeing a lot of US companies take advantage of this. With the Australian law and the notion that more and more investors are getting comfortable investing directly into Australian companies, it’s on the same basis, having your IP here to take advantage of the R&D tax credit. Investors are aware of it and the substantial benefits.

How have you seen the risk appetite affected in terms of scaling a business internationally from Australia?

It doesn’t seem to be slowing down, instead founders are being more thoughtful on entry. Things like product development, extending their runway, making sure they are ready to scale to the US and having everything that comes with that as opposed to expanding and rapidly hiring people that you probably don’t need in order to grow and show that the expansion was a success. The advice being given to founders right now is to be strategic about their growth.

Covid-19 shut borders for a long time, so it forced founders to ask the question of whether they need to expand to the US now or could they do more virtually. That question hasn’t gone, it’s just seen as good practice now.

There’s nothing worse than expanding to the US and being successful in that, but then having to pull out because you ran out of money. We see so many founders go through our program and they actually realise they’re not ready to expand to the US yet, they’ve just been told by investors to expand overseas before having enough of the market here.

In addition, the sheer cost difference of expanding to the US vs Australia is huge. Bear in mind, this varies depending on stage and type of business, but generically speaking, it will cost around $1.5 million AUD to expand into Australia vs £4.5 million USD to expand into the US. Part of that is down to the salary expectations vs cost of living in New York for example, and the cost of headcount as you grow will just be through the roof.

What are your predictions for when the capital that VCs are holding onto will be deployed? And what should Australian founders look to do in order to be more eligible for accessing that capital when they do start deploying it?

It’s interesting because, as we all know, the market has shifted to focusing on path to profitability and reasonable unit economics, which begs the question how did we get so far from the basics in the first place?

But, right now it’s a case of who is going to blink first. VCs want to invest, companies are doing reasonably well just not at that value, and the companies going into this correction with more capital added cash runway to go for longer. So, in the next quarter or two, we might start to see people beginning to blink.

Most investors want their money back and they think they’re going to get it back in a public market listing. So, if the public markets are shut, they may as well keep hold of it for now.

What are the top three things you should be doing differently from when you approach a US-based VC from an Australian-based VC?

US founders tend to be much more direct and to the point, whereas Australian founders tend to be more fluffy with making their points and telling their story. US VCs want to hear the crucial elements of the story and the milestones that have been hit, but not every single detail.

The size of the market and the sophistication of the depth means that the founders really need to do a lot more research and the VCs that they're trying to address. That’s what being a good entrepreneur is, doing your own due diligence when looking for that right investor and tailoring your pitch to them. This is where finding that warm connection through your network or an extension into your network is useful in connecting you with the right people.

Thank you to Andy Tsao, Sara Rona and Kerri Lee Sinclair for their contributions to this conversation. This event was a private panel. If you want to be on the list of people who receive our exclusive invitations, please join our community here. If you’re looking to expand your business overseas, take a look at our Global Expansion service.