For European Tech Start-Ups, the Best Direction for Growth Continues to Be Across the Atlantic

For tech start-ups, developing cutting–edge technologies or offering the best products or services is not enough to build a successful company. 

One of the most important processes in a start-up journey is figuring out where to take those offerings once they’re available. 

As a company grows, this includes deciding whether to expand into new markets. Traditionally, European tech start-ups have assumed that the global currents of growth pull toward the United States.  

But is that still true?  

Let’s investigate the relevance of the US as a traditional destination for European tech start-ups and consider if the classic model for growth still holds up. 

The Challenge of International Growth in the 20th Century

Some companies are global operations from day one. Consumer apps and gaming companies, for instance, don’t need local operations and logistics. They acquire customers via online channels or global platforms.  

For those who can’t follow this naturally international model, expanding across country borders presents formidable challenges. Leaders of growing global companies must manage disparities in languages and time zones. They need to address the complexities of culture, business practices, legal frameworks, taxation, labor dynamics, employment regulations, compensation structures, and competition.  

It’s a demanding process that requires resilience and determination. However, it is an absolute necessity for those aiming to establish themselves as a global leader in their industry. 

Scaling a Tech Company From Europe

If you are starting a business in Europe, you might feel the need to adopt an international perspective right from the outset. On the one hand, founders in the US can initially concentrate on their domestic markets and gradually expand to reach billion-dollar business status.  

On the other hand, European entrepreneurs in the past have recognized from day one that their business’s growth potential hinges on its international outlook. They felt behind the eight ball from the start and sought to accelerate international growth much sooner in the start-up process. 

This growth was naturally directed westward, with international expansion often meaning finding their way to the United States. This choice was driven not only by the sheer size of the U.S. economy, which ranks among the world’s largest. It was also fueled by the burgeoning tech industry in the North American market. 

Beyond market size, the United States offered (and continues to offer) other advantages, such as access to abundant capital and a diverse and dynamic workforce. This pushed past European tech companies to seek to scale in America — and it turns out that it’s a trend that is still alive and well. 

Before we zoom in on the specifics, though, it’s worth pointing something out. It isn’t easy to expand across the Atlantic. Despite the potential advantages, achieving success in the U.S. requires companies to make the right moves first. They must establish a strong presence, select strategic locations, and swiftly identify market prospects and funding sources. 

The Thought Process Behind US Expansion

According to Index Ventures, the US expansion plan for European start-ups should answer these 5 questions: 

• What percentage of your TAM (Total Addressable Market) is in the US? 
• What is your GTM (go‑to‑market) model? 
• Do you need a lot of local ops? 
• Do you face major US regulatory barriers? 
• Will you require significant product or GTM localization for the US? 
• Do you face a strong direct US competitor? 

Of course, even if the answers to these questions point in the direction of investing in US expansion, you still want to set about that process the right way. According to Dave Kellogg, executive-in-residence at Balderton Capital, the most common mistakes in US expansion are as follows: 

1. Failing to adapt structure and process as you expand into the US 

2. Hiring the wrong people 

3. Underestimating the importance of sales and marketing (S&M) 

4. Looking and sounding too European 

5. Delaying US expansion in the first place 

It’s also worth noting that when European start-ups venture into the U.S. market, it is advantageous to secure the support of a leading U.S. venture capital firm. In most cases, achieving unicorn status for European B2B companies is a rare feat without the involvement of private equity, usually in the form of a prominent U.S. VC.  

These firms bring substantial financial backing and extensive expertise in scaling within specific sectors or business models. They also provide a robust network and influential endorsements that resonate with talent, customers, and partners. 

So, Is the US Still a Top European Start-Up Target?

According to Francesco Perticarari of the leading European start-up news outlet Sifted, US firms have contributed a significant 42% of the funding for European start-ups—and their physical footprint on this side of the pond is growing steadily as of September 2023. 

Earlier this year, Petricacari said many experts in Europe predicted a major retreat by US investors. This came amid a global market slowdown, with the US VC market cooling from its 2021 peak.  

Despite the circumstances, 2023 has seen US funds intensifying their focus on Europe. US investors have been busy establishing bases and augmenting rather than diminishing the venture capital they funnel into European businesses. 

This means while the challenges of raising funds have led thousands of European start-ups to scale back expansion plans in recent months, there has been a notable upswing in European start-ups eyeing North America. 

This trend includes German HR unicorn, Personio. The Munich-based software company was valued at $8.5bn in 2022 and is backed by multiple VCs, including Greenoaks Capital, Northzone and Index Ventures. It has also established a New York office to access the rich talent pool in the United States.  

Having an office footprint in the US will help us to better tap into the substantial talent pool that exists there, says Hanno Renner, Personio’s Co-Founder and CEO. 

Another example of current European companies following past westward-oriented growth trends is Druid AI. The European start-up conversational AI and automation platform was originally founded in Romania five years ago. However, its leadership made the strategic decision to expand to the United States in March 2022, citing the US as the most innovative and competitive environment. 

Druid recently closed its Series B funding round, securing $30 million in September 2023. Co-founder Andrea Please expressed her contentment with the choice to use their current run of success to expand into the U.S. Please noted a significant uptick in adoption, an increase in their Annual Contract Value (ACV), and the emergence of new use cases that were previously unexplored in Europe. 

Political Incentives Are a Factor, Too 

According to Sifted News, an increasing number of European founders are relocating their operations to the United States following the announcement of the American Inflation Reduction Act (IRA) last year. That act funneled an impressive $369 billion into green technologies, enticing European companies with the promise of attractive tax credits. In contrast, most of Europe’s government incentives for climate tech do not directly provide financial support to companies. 

The IRA stands as the most ambitious climate legislation in history. One year after its enactment, it is projected to generate approximately $1.7 trillion in new investments in the United States over the next decade.  

Companies are not required to move their headquarters to the U.S. to qualify for the IRA; they simply need to engage in manufacturing and sales within the country. Analysis indicates that 12 months into the IRA, 15 out of the 20 largest qualifying projects are managed by companies headquartered outside of the United States. So far, Norwegian battery manufacturer FREYR, British electric van start-up Tevva, and direct air capture start-up Climeworks are among the notable companies relocating their headquarters to the U.S. 

The US Remains High on the List of European Tech Start-Ups 

Looking at everything as a whole, it seems that the United States remains the primary choice for European tech start-ups looking to expand. The region simply possesses too much potential to ignore. This includes its vast market size, attractive incentives, abundant talent pool, lucrative funding opportunities, and its overall innovative approach to business. 

For those considering a push across the Atlantic, it’s important to remember that potential doesn’t always translate into reality. You need to set the stage, starting with your team. If you put the right people in place, you can trust that your start-up will be able to make the most of every opportunity.  

“If you put the right people in place, you can trust that your start-up will be able to make the most of every opportunity.” 

If you’re expanding to the US—or even if you’re investing in Europe or doing business in Asia, Stanton Chase can help you build a leadership team capable of effectively building your brand. Our executive search partners bring you the local expertise, global network, and recruitment tools and techniques to succeed. We customize solutions for you so that you can unlock success from the top down, no matter where you’re doing business. 

About the Author

Aylin Oktem is a Director at Stanton Chase South Central. Prior to joining Stanton Chase, Aylin was the Head of Research and Development for a London-based boutique executive search company specializing in VC-funded SaaS start-up companies in the United Kingdom and Europe. She was instrumental in organizational growth and building leadership teams for clients in the SaaS space. 

Aylin also set up a UK distribution arm for a US Headquartered SaaS company and advised local government authorities in London on how to optimize procurement processes and procedures using SaaS-based cloud-based services. Aylin has over two decades of experience in international banking, finance, commercial real estate, and technology in Europe and Asia.