The great tech migration – why do scaleups move to the US?
Head of Retail – SuperscriptQ
Many tech businesses dream of cracking the US market. And there’s been a noticeable trend in UK and European domestic tech scaleups expanding their operations stateside – or upping sticks and relocating altogether.
At SuperscriptQ, we have the experience, setup and know-how to assist businesses as they move to the US. Let's explore some of the reasons why the US is so appealing to many tech scaleups, as well as some key considerations you’ll need to think about before making the leap across the pond.
Why do European tech businesses expand to the US?
There are numerous reasons why migrating stateside is an attractive proposition for many European technology scaleups, including:
Large domestic market
As largest and one of the most advanced economies in the world, supported by high mean average wealth of individuals (according to the Gini index), the US has a huge, diverse consumer market that offers significant growth potential for both B2C and B2B technology businesses.
High demand for innovation
The US is known for its strong culture of innovation and entrepreneurship, which creates a high demand for new and cutting-edge technology products and services.
According to the Global Innovation Index (2022) and analysis from the WIPO Global Innovation Index, the US economy is the 2nd most innovative economy in the world (behind Switzerland) based on business sophistication, human capital and research, infrastructure, market sophistication, technology outputs and creative outputs. According to the research, the US accounts for 30% of global R&D spending; over $700bn per year.
Access to talent
As well as having a large, highly skilled workforce, the US is home to many of the world's top universities and research institutions. This provides access to a wide range of talented and highly educated professionals, including engineers, scientists and tech leaders. The US continuously ranks highly in the indexes which monitor the number of entrepreneurs and self-made millionaires.
Access to funding at bigger valuations
The US is home to a large and mature venture capital industry, which provides a significant source of funding for technology startups. The competition amongst this VC market often results in valuation inflation for startups and scaleups, which is understandably highly attractive to founders and their early investors.
Legal and regulatory environment
The US legal and regulatory environment is favourable to technology businesses, with laws and regulations that encourage innovation and support the growth of startups.
For example, the Jumpstart Our Business Startups Act, or ‘JOBS’ Act, signed into law by the Obama administration in 2012, makes investment into small businesses more straightforward by easing many of the typically onerous federal securities regulations.
Challenges of expanding to the US
This all sounds pretty good, doesn’t it? But crossing the pond isn’t all plain sailing – and founders must ensure the company is ship shape (sorry about all the sailing puns…) and make themselves fully aware a few different considerations before setting off:
Understanding the market
Conducting thorough market research is critical for understanding the competitive landscape, target audience and potential growth opportunities in the US market. This can include researching competitors, analysing market trends and size, and identifying potential partners and customers.
Setting up a US entity
Establishing a US-based legal entity, such as a corporation or LLC, is necessary to adhere to various compliance and tax requirements. It's important to consider the different types of entities available, such as C-Corporation, S-Corporation, LLC and Partnerships.
Some larger UK and European businesses have made use of Special Purpose Acquisition Companies (SPACs) to launch in the US whilst also listing on public exchanges, without the need for an initial public offering. It’s important that each and every business takes advice from a specialist advisor on what is right for their own business.
Hiring and staffing
Finding the right team in the US can be challenging, as the workforce is far less centralised than the UK and Europe; the US has nine cities with more than one million people, compared to the UK with only two.
The challenges include recruiting, hiring and onboarding employees, as well as complying with US employment laws and regulations; both at a state and federal level. It may be necessary to work with a staffing agency or recruitment firm to help find qualified candidates.
Sales and marketing
Developing a sales and marketing strategy that resonates with the US market is crucial for success.
This includes researching and understanding the target market, developing a marketing plan and building relationships with potential customers and partners. The US marketplace is highly competitive, so any launch needs to be highly thought out and strategic.
It’s important to be aware of cultural differences between the US and the UK or Europe. This includes understanding the differences in business etiquette, communication styles and social norms – then adapting your business model and communication style accordingly.
Legal and regulatory compliance
Although many aspects of the US legal environment is favourable to technology businesses, complying with US laws and regulations can be complex and time-consuming.
While there are enough federal, state and local laws to fill a whole separate article, here are some of the laws that technology companies need to be aware of:
The US has a patchwork of federal and state laws that regulate the collection, use and protection of personal data, including California’s Consumer Privacy Act (CCPA), California Privacy Rights Act (CPRA) and the Telephone Consumer Protection Act (TCPA).
We often see alleged violations of these laws when handling US cyber insurance claims, which keep our US legal friends very busy!
Intellectual property laws
Laws around patents, trademarks and copyright protect the rights of creators and owners of original works and inventions. Whilst these laws exist here in the UK and Europe too, the laws around registration and infringement in the US are wildly different (e.g. the ability to patent software code in the USA).
Technology companies need to be aware of these laws in order to protect their own IP and ensure they’re not infringing on the IP of others, and how they differ to the laws which exist in the UK and Europe.
Net neutrality laws
In the US, the Federal Communications Commission (FCC) regulates the internet service providers and ensures that they do not discriminate against, or charge differently, any user, content, website, platform, application, type of attached equipment or method of communication. The cyber and media insurance markets see a lot of alleged breaches of these laws.
The US has strict anti-trust laws that regulate competition in the marketplace and prohibit anti-competitive behavior such as price fixing, monopolisation and other forms of restraint of trade.
As technology companies rely heavily on the internet-connectivity and data, they’re subject to federal and state laws that regulate the protection of digital profiles and personal information, including the Cybersecurity Information Sharing Act (CISA) and the Health Insurance Portability and Accountability Act (HIPAA).
The fines involved with HIPAA breaches (i.e. mis-use of a person's healthcare data) are some of the most punitive, and can cost businesses up to $50 per record breached or ‘misused.’
The US has strict export control laws that regulate the export of certain technologies and software. Technology companies need to be aware of these laws to ensure they are compliant and avoid any penalties.
How SuperscriptQ works with clients expanding to the US
When our customers announce that they’re heading west, it’s not a ‘goodbye’ from us. Far from it.
Insurance can be complicated, but we’re here to support multinational businesses with their insurance requirements; advising you on covers that can help you run your business effectively and efficiently.
We can ensure our clients can obtain local insurance policies in the US (such as Workers’ compensation), as well as the portfolio of coverages needed from a top-company basis.
This content has been created for general information purposes and should not be taken as formal advice. Read our full disclaimer.
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