Why Investing Outside of the US is so important to solve

And also valuable (a cross-fund post)

The short answer - Less needs to be invested and risked, the money goes further and founders can be happier/go harder which will result in better companies and better valuations later if the potential is there. There is always the option to prey valuation wise on founders too but we'll be avoiding that.

There are both problems and opportunities with this approach and we'll outline them below.

Problems (aka what one loses by not being in the US)

*The networks / VIP brand names on cap table are all US based. Building momentum/buzz/FOMO on a deal is much harder being far away from investors or major tech media which usually means no one is talking about or referring you. For this reason we recommend global HQ to still be US based after a 7 figure+ seed round is closed but hopefully your eyes will have been opened to what advantages you can continue to leverage outside of the US as well after the experience.  

* Capital is slower and worse quality. Everything from "wealth managers" who are really money launderers to venture captalists who deliberately eat too much of a company to hold them hostage forever knowing they will be considered uninvestable afterwards without re-capping. Sometimes this is done specifically to chain a company to a corporate as an R&D or services division forever through their VC arm without any intention for the startup to ever grow and find it's wings. Finding other co-investors or even your initial investor under such circumstances is much harder. Capital scarcity means poor quality of investors (in terms of knowledge, morals, and as human beings) get far more attention than they deserve whereas in the US such firms would be shut out of any dealflow from the beginning and not be able to establish themselves. On the lighter end of the "bad" spectrum, many are just not as knowledgeable and more risk averse.

* Once you can afford to pay 6 figure salaries, the top decile "brand name" talent is in the US and unlikely to want to relocate. You can be more dependent on your investor networks to help recruit "known" executive level that the markets will get excited about in the future. However post-Covid making remote work more mainstream, this may no longer be a factor. Being outside of the US may be seen as an opportunity for adventure and to broaden new horizons, experience other cultures. As the majority of Americans have seldom left their home state or worked elsewhere outside of Calfornia or NY if they have, we strongly encourage this. This is both problem and opportunity dependng on the eye of the beholder.


* There aren't thousands of deals to look at. Some countries have barely a few hundred startups, some  not even close to 50.  Venture outside of the US Is more about building vs betting. This can be an advantage for founders to cut through the noise also eventually but for now the US still has FAR more capital available despite the noise. For investors there's more time to consider many more factors including the "could it work? and if not now, what about later?" factor that's critical to not missing out on any good deals. Below is the typical startup scene outside of the US on the left vs the US on the right. It's also easier to avoid and be less pressured "buzzy" deals like Theranos, WeWork, Juicero, Quibi and others where FOMO (especially from LP's) may distract from proper diligence that can reveal critical flaws.

broken image

A big thank you to Patrick Ryan of joinodin.com for the above as well as Alex Danco the original poster and inspiration for ongoing disussion who so comprehensively outlined Toronto's trans-generational ecosystem problems. The problem is the same everywhere, not only in Europe and Toronto.

* Costs to invest and operate are much lower usually, far less competition for rounds. Also great for founders, less distractions, more "shade" to hide in and time to cook. Less competition for talent resulting in less staff churn as well. At the end of the day. Only focused execution matters.

* Executing only with US level talent but paying inflated US costs (especially for fresh graduates) is like boxing with one arm tied behind your back. Teams can hit sustainability earlier, go deeper into acquisition costs than US based competition.


If capital can be solved, the optimal move now is to raise the capital from the US and leave or better yet, not be required to spend time in the US at all until much later rounds. 

The hole is already wide open with the US falling behing in both infastructure and healthcare with quality of life varying as a function of wealth inequality by region.  The US retains the edge mostly in capital and operational experience from an unrivalled track record in building more unicorns than anyone else. However the question is whether the US was particularly special in startup execution, or if the execution could have happened regardless if a similar capital ecosystem existed for others.