By Nathan Lustig, managing partner of Magma Partners.
You're only a Google search away from some great articles about how to raise venture capital for your startup. But almost all of them are U.S. centric. While international venture capital has increased dramatically over the past decade, much of that capital is concentrated in China, India and parts of Europe. Some U.S. venture capitalists are starting to invest outside the U.S., but most non-U.S. founders still struggle to raise money from U.S. funds.
For the past three years, I've run a micro-VC firm that helps Latin American entrepreneurs break into the U.S. market. We've found a formula that has worked well for our portfolio companies that I hope will work for yours. We've broken down our strategy into two parts: getting ready to look for an investment, and actually doing so.
- Build a great product and team. This sounds obvious, but having a great product and team is table stakes. We like to see balanced teams solving real problems, whose solutions people will pay for.
- Follow standard procedures. U.S. investors want to invest in businesses they understand. They have such great deal flow where they are that it doesn't make sense to try to understand foreign investments, laws and teams. Incorporate in the U.S., ideally with a Delaware C corporation. Use a standard share structure and include founder vesting. It's what most U.S.-based VCs are used to and is quick and easy to set up.
- Open a U.S. office. Get a membership in a U.S. coworking space in the startup hub where you plan on raising money. This shows you have a U.S. office. You can then use the space every three-to-four months. We have portfolio companies that have been in WeWork, The Port and similar coworking locations. Some of our startups have used extra space in other startup offices, which works well too.
- Get U.S. clients. Investors like to see U.S. dogs eating U.S. dogfood. There are so many great U.S. startups and deals that come across a VCs desk that they want someone they can call in the states. We suggest getting U.S. clients from abroad first to save money. If you can sell product over the phone or internet, do it. If you can't because you're in an industry like larger B2B SaaS sales, set up two weeks' worth of sales meetings over the phone and then plan a U.S. sales trip. Make sure investors can call your U.S. clients in due diligence.
- Make inroads into the ecosystem. Interact with locals online or in person. The best way to get on their radar is to get direct introductions.
- Get introductions from people who have a good track record or a connection to the region. There are likely top startup founders with a U.S. track record from your country. Connect with them and show them you're serious.
- Research U.S.-based VCs who have invested in non-U.S. teams. Some VCs only invest in a specific geographic area. Others are more open. Try to get meetings with these funds.
- Don't focus on your foreign track record. Our company's foreign track record was seen as neutral or even negative. Just go straight to gaining traction in the States.
During Investor Meetings
- Offer to come to them for board meetings. Take Mark Suster's advice and offer to hold board meetings in the investor's home city. Many investors will not invest outside of their geographic location because of travel time. Take this objection off the table up front.
- Don't assume investors know anything about your home country. Some investors might even have misconceptions. Answer questions and address misconceptions directly, but respectfully.
- Emphasize your U.S. product. If you have a version of your product in your home country, don't focus on it. Don't let investors think that you're going to use the money to work on your home country startup, not the U.S. version.
- "Be so good they can't ignore you." Steve Martin's classic quote is our mantra with foreign entrepreneurs when they come to the U.S. to raise money. You have a barrier to raising money in the U.S. if you don't fit the pattern of what a U.S. venture capitalist sees each day. Make this quote your mantra and you'll succeed, with or without venture cash.
Nathan Lustig is managing partner at Magma Partners, a seed-stage VC with offices in Latin America and the United States.