UK tech startups face challenges to US breakthrough

 

UK TECH STARTUPS FACE CHALLENGES TO US BREAKTHROUGH

TIM LEEMASTER

 
Conner Cosimo .JPG
 

UK startups seeking a foothold in the US have to get the staffing, market fit, focus and culture right if they are to succeed, according to Conner Cantwell, partner at venture capital firm COSIMO Ventures.  

“For UK, and Irish companies, the US is the central space on their radar,” said Cantwell, whose firm focuses on seed rounds of usually USD 1m.

The UK exit from the European Union, or Brexit, has also acted as an accelerant on entrepreneurial desire to land in the US, particularly in the rural areas that will be hardest hit by the change in relationship with the continent.

For those that successfully navigate the jump across the pond lie much higher valuations.

Attracting staff is probably one of the biggest challenges as cash strapped startups lack the big budgets to rope in the executives they need, such as a head of business development. Companies have to push for someone driven and “open to sweat equity” who can get a first US customer onboard quickly, Cantwell said.

Companies usually also have to tweak their marketing mix as well in the US as most products may find a roughly 80% fit in the US compared to their home market, Cantwell added.

COSIMO operates out of Boston and Dublin, and is focused on technology such as blockchain, artificial intelligence, augmented reality/virtual reality, internet of things and cybersecurity.

Noah Leigh is one company COSIMO helped bring to America and raise USD 3m in an upround that included two Irish funds, Suir Valley Ventures and Kernel Capital, which counts the Bank of Ireland as a cornerstone investor. Noah Leigh makes software designed to secure medical devices and has an office in Boston.

UK and Irish companies average a pre-money seed valuation of USD 3m while an exact US equivalent would get USD 8m. Series A rounds in the UK average an 8m pre-money valuation while in the US the same company would garner about USD 19m.

Another company COSMIO has brought to the US is Gecko, which is in the process of a private token sale that has already raised USD 20m on the back of strong interest from Asia. A planned public sale is now unlikely because of the response, Cantwell said.

Gecko started off as a regulatory compliance services company for hedge funds and financial institutions but has since extended that to initial coin offerings and security token offerings. The company has attracted its first few clients in Boston and has a business development officer in New York.

The chances of success can be higher if a company focuses on a narrow geographical region. With the concentration of cities and towns in the Northeast, for example, “you don’t need a lot of success to be successful relative to the size of the market,” Cantwell said.

That can also limit the regulatory risk that can come with a wider geographic reach as each US state may have a different set of rules governing one industry.

 

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