How to Fundraise in the US Market

31 August 2023

Thinking about how to raise investment from US investors? Here’s our comprehensive guide to help you along the way.

advice : Fundraising, Investment, Leadership and Valuation

The motivation for UK startups entering the US market is clear – the nation has historically put some of the world’s highest venture funding into startups, there’s an established relationship between the UK and the US, and it gives companies access to one of the largest economical markets in the world. It has the potential to be eye-wateringly lucrative, but it’s not without its risks. Deals can fall through, intricate US regulations can get in the way, and budgets can rapidly dry up.

In 2023, VC activity in the US has plummeted. The 2021 boom of investment has slowed down considerably. In that year, UK companies raised £10.8 billion from US-based investors, which is 8% more than what UK-based investors invested. This number has since been declining – inflation is the biggest obstacle at play here, contributing to venture debt. It’s not just UK companies feeling the reluctance from US-based investors. The first quarter of 2022 saw $71 billion venture capital raised – this crept down to just $11.7 billion in the first quarter of 2023. Our article goes into further detail on recent US VC activity here.

The investment is still out there, and better days are on the horizon. The current downturn is teaching investors to deliver more realistic valuations, new government programs are being designed to assist high-growth industries, and interest rates are starting to fall. Get ahead of the game and be prepared for the eventual economic turnaround. Getting VC investment is a long-term endeavour, and now’s the time to start planning.

Fundraising in the US Market

Understand what American VCs look for in investments

Ultimately, the goal is to generate a big return. This is the same for VCs in any market, but there are slight differences in what drives VCs. The main difference is that most US VCs have previously worked at startups or have founded startups. Research carried out by Diversity VC tells us that 60% of US venture capitalists have experience inside a startup. By contrast, in the UK, the same is true for only 8% of VCs.

Therefore, American venture capitalists will likely be able to apply their expertise and experience to a US company better than a UK-based one. This means you’ll have to prove that you are a safe bet and lower risk than other US startups in your space.

How to prove you’re a safe bet

Investors aim to help their portfolio companies as much as possible, and US venture capitalists might be more hands on than others. But first, you must prove that your company is worth putting the effort in, and that you know how to work in the US market. Investors bet on people just as much as the product or service, so they’ll need to be able to trust that you and your team are US market ready. Ideally, you will hit at least three of the below criteria.

  • Have management based in the US

While you don’t need the whole US subsidiary figured out, it is a good idea to hire a few people locally. It could even be just one excellent senior candidate that’ll take a significant role in your management team. This gives the US investors a local contact, who can meet for meetings and proves that someone in the leadership team has first-hand experience working in the US market.

  • Have customers in the US

Prove that you have either sold your products or services in the US, or that there is serious interest in it. Use data to show this traction. Less than 3% of investment at Series A stage comes from a US-based investor before the company has a US presence.

  • Previous experience fundraising with US investors

Investors want to be reassured, and if someone on your leadership team has raised investment with US investors before than that will go down well.

  • Personal previous experience fundraising in general

Most US-based investors will only consider startups at Series B stage or later. By that point, you’ve proven that you can get beyond the Seed and Series A stages, and that you have the metrics to prove you’ve got an established customer base.

  • Demonstrate that you understand US market dynamics

US regulations can be a minefield. Market dynamics are nuanced and each of the 50 states will have different rules and regulations. Show the investors that you’re aware of the differences and how it will affect your business and demonstrate how you plan on navigating the complexities of this.

  • Your product is better than your competitors’

This might be subjective, but as we mentioned earlier, a US-based venture capitalist will lean towards a US-based startup. It’s more straightforward they have first-hand experience in the market. However, if you can prove that your product or service is better than anything they’ll find in America, they’ll have much more confidence in you.

  • Prove that you have localised your product

While the US and UK share a language and are culturally similar, many startups can go wrong by assuming that the target audiences will be the same and value the same things. Ensuring that whatever you’re selling is a good fit in the marketplace is essential. Don’t underestimate the power of localising your product and demonstrating to investors how you plan on marketing this to a US audience.

  • Don’t overshoot your forecasts

We know that US investors are looking for the highest possible return. And while you might be tempted to overshoot your forecasts, it’s best to be realistic. They don’t want someone that’s going to build the company to a good level then sell after a few years.

Attracting fundraising in the US market is extremely competitive and ruthless. It requires careful consideration and planning, and of course, an excellent pitch deck. Prove that you are worth the investment and the door to the elusive US market will burst open.

The information available on this page is of a general nature and is not intended to provide specific advice to any individuals or entities. We work hard to ensure this information is accurate at the time of publishing, although there is no guarantee that such information is accurate at the time you read this. We recommend individuals and companies seek professional advice on their circumstances and matters.