The Problem With Raising Money Overseas
“A lot of the funds we got introduced to in the U.S., they quickly closed the conversation when they realized we weren’t U.S.-based,” says Ollie Walsh, CEO of a European B2B company.
Executives from overseas companies say that raising money abroad is harder than one might think. The distance between investor and investee is a major deciding factor from an investor’s perspective, and this is more so amplified by the current pandemic situation.
In our latest DiffuseTap conference, three executives from Ireland gave their takes on the topic: Ollie Walsh, Chief Exec of Pip iT; Paul Burfield, SVP of Enterprise Ireland; and Luke Feeney, COO of TerminusDB.
DiffuseTap is a weekly virtual event that is part networking (you’ll meet at least a half dozen high calibre startup players) and part purposeful (you’ll DiffuseTap new ideas). Last week, we raised a new awareness on the many hurdles for foreign companies to raise money abroad, and what they can do to guarantee that dollar cheque.
Why is raising money overseas so hard?
Luke shared that from his experience, investors in Ireland have a tendency to avoid risk without careful consideration. They tend to invest in companies where they can see more immediate returns, and that is pushing European early stage companies to look out to the rest of the world for growth.
“Well, the big thing that’s very important for us in raising money, and one of the problems of raising money in Ireland, is that the risk appetite is quite limited. As you’re looking for patient investment in a deep tech product like ours, which requires a large degree of engineering in order to get it to zero, the people with the appetite for that type of investment are few and far between,” Luke said.
He also shared that one of the things he was surprised by was how investors in Ireland, from his experience, typically do not want to wait around to see a company grow.
“The thing that surprises us when we compare the relatively short term investment that we see here at home, to the longer-term investment that we’re looking for overseas… There’s a lot of angels here [in Ireland] that are looking to get out at series A, rather than people who want to stick round on round to see a company grow, and have that ambition and that appetite to grow something big.”
“So, patience and patient capital is often what we seek when we look overseas,” Luke shared.
What are the struggles European companies face in raising money overseas?
More than that initial struggle to raise money locally, the speakers also expressed that it is relatively difficult to raise money from other countries as well.
Ollie shared that starting out, he was surprised by how “local” the money really is. “A lot of the funds we got introduced to in the U.S., they quickly closed the conversation when they realized we weren’t U.S. based,” Ollie shared.
And this phenomenon isn’t limited to the U.S. Ollie said he is also seeing the same thing with other investors generally outside of Ireland, where his company is from.
“I did find the same in the UK, that we actually had an offer of an investment from a fund in the UK two years ago, which was blocked by the fund’s own legal team. They said they wouldn’t participate in an Irish investment because it was outside the UK. That’s at the time the European zone is a regulated area, so it shouldn’t make any difference,” Ollie expressed.
Paul argued that one of the biggest reasons behind that is because face to face contact has always been a staple within the industry, and he argued that you cannot have the same level of intimacy in trying to strike a deal just through Zoom.
“Venture investing is a contact sport, and unless there is proximity between founding teams and local investors, it just doesn’t happen,” Paul said.
And given the current pandemic situation, it’s a greater hurdle that companies have to cut across.
“You know, this is going to be the new normal for a long time. So if you want to write a cheque or receive one, we are going to have to adapt this. And it will change, but it takes a while for that legacy to roll out of what is a very, very traditional channel,” Paul said.
What Qualities Do Foreign Companies Need to Raise Money in the U.S.?
When asked the question of “what do all the foreign companies who are able to thrive off of U.S. capital have in common,” the speakers generally agreed that perseverance is a common denominator.
“I think a lot of it is down to focus and perseverance. There are a lot of specialised VCs, for us, it is FinTech, so find ones where your business has the best match. If you are a niche business, don’t spend time with generalist VCs. Once you have identified the best opportunities, then perseverance is required. Being from overseas means you are immediately at a disadvantage compared to local opportunities the VC can invest in. Make a strong case for your business and keep making it,” Ollie shared.
Luke added that foreign companies also have to be open to different ways of funding. Funding through debt instruments or convertible notes, for example, is one good way to receive funding that companies might want to consider, given that these notes can be converted into an equity position of subsequent investments.
Paul also said that the fundamentals have not changed: “It’s still about team and then traction.”
“Some local investors will consider European traction as proof of product market fit, and so the third variable is ‘how soon is the founding team or the C level team prepared to relocate to the U.S. to embed themselves in the market, and demonstrate commitment to it?’” Paul said.
Paul Burfield is the Senior Vice President at Enterprise Ireland, the venture arm of the government of Ireland that invests in Irish technology companies at pre-seed to early stage to help them start commercializing.
Ollie Walsh is the Co-Founder and CEO of PiP iT, an international cash platform that powers international cash transactions, helping migrants safely support their families at home for much cheaper.
Luke Feeney is the COO of Terminus DB, an open source and full-featured, in-memory graph database management system that focuses on making the lives of data scientists easier.
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