The Kiwi Landing Pad has an ongoing relationship with Simmonds Stewart, and have been working together for the last four years. Simmonds Stewart is a technology law firm with offices in Auckland and Wellington, and much of what we do is helping our clients grow internationally.
It is natural then, that many of our tech clients gravitate to San Francisco to crack the US market, often simultaneously trying to raise investment to fund that entry. We have recently produced a blog series for Kiwi tech companies thinking about raising investment in the States, and today share three key tips with the Kiwi Landing Pad community.
Raising money in the US is hard – prepare yourself
Many New Zealand companies arrive in the States under-prepared for the market, or with little appreciation of how ferocious the competition is in the Valley. Think carefully about whether going to the US is the right option for your company. There is a lot of material available online to inform that decision-making (including advice from KLP’s own John Holt), and if you do decide to go to the US, get your company in a strong position before heading over.
Talk to others who have done it, read up on what to expect, and feed that value back into your company. A poorly executed entry into the US can waste a lot of resources, so don’t go all in prematurely.
In terms of your company’s legal structure, you don’t need to flip into a US company in order to look for investment in the US. You can make it clear to investors that flipping the company is just an admin step which can be done at any time. Flipping is a hassle, and if you aren’t successful at raising US money, it is expensive to reverse. We suggest that founders put off flipping until you at least have a term sheet, and make it a condition to the financing closing.
If you have gotten to the term sheet stage, signing it is a fairly solid commitment to doing the deal. It’s essential to get the input of a US VC lawyer when negotiating a term sheet – there is a lot of shorthand drafting which may have significant commercial consequences once spelt out in full in the final documentation. The term sheet pretty much sets the core investment terms, and then it just becomes a mechanical process of turning it into full investment documentation.
Not all that glitters is gold
There are benefits to raising in the US, including:
- a massive pool of investment capital, where higher valuations are the norm
- tremendous networks and expertise that can transform your prospects
It is worth thinking about a raise in the US if there is a big addressable US market for your company. However, not all that glitters is gold – and there are two key things to be aware of:
- valuations are higher in US deals, but the investors manage the risk by other means. Investment documents will include a lot of mechanisms to redress the high valuation if the business plan isn’t met or successful.
- there is often a significant loss of control for founders when taking on US VC investment, and VCs can be ruthless about replacing founders or executives who are not performing (read Hatching Twitter for a dramatic real life example).
We strongly recommend the book Venture Deals by Brad Feld for anyone who is considering raising investment, whether in the US or elsewhere.
While it is difficult to raise US money as a Kiwi company, it is certainly possible. Fortunately, there is a growing NZ-US network focussed on helping NZ tech companies get started in States. Tap into the Kiwi mafia, including the good folks at the Kiwi Landing Pad, and test the US waters for your company by jumping on a preliminary trip to San Francisco.
Andrew Simmonds is the Managing Partner of Simmonds Stewart, and regularly advises high-growth tech companies on capital-raising. See the firm’s website for more detailed information on raising capital in the States or New Zealand. They also provide over 40 free legal templates for the tech community.
Guest post written by Lucy Luo , Simmonds Stewart