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Does your startup need to move to Silicon Valley? Here are some things to consider

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It’s no secret Silicon Valley is #1 in the start-up city stakes.

After all, there are streets in the city for different staged start-ups, 3rd Street is where Series A players play, Market Street Series D… and so on.

Start-ups flow in to The Valley like honey from a bee hive. And they work just as hard as the bees that make the honey!

The question that is all too often asked is this – does an Australian start-up need to move to The Valley to be successful?

Having just returned myself from a recent trip, where I met start-ups and investors, we discussed this question with one of our clients, RangeMe, a client with whom we’ve worked together on for the R&D Tax Incentive.

RangeMe successfully transitioned to The Valley, raised capital and then successfully exited to a group called ECRM. They did this all within about two years of touching down in San Francisco.

A very important point to consider is sheer market size.

The new Census data released this week puts the current Australian population at around 23.5 million, while the same stat for America is a staggering circa 320 million.

What does this tell you?

Well, if your dream or goal is to create a Unicorn, or at least a start-up valued in the 100s of millions, then you must be able to penetrate foreign markets.

RangeMe articulated the benefits of having started off and grown (to a respectable size) in Australia:

  • In built long term connections: this was instrumental in raising its Australian seed round
  • Great test market for proof of concept: allowing them to get the company to a good valuation
  • R&D Tax Incentive: critical for cashflow to keep going
  • Educated and sophisticated population eager to try cutting-edge technology

But considering if, and when to move, is a tough decision. You will have many factors to consider. The industry your start-up is in, your stage of growth and whether you want to be overseas.

What to know about Silicon Valley

From our discussion with RangeMe, and from my own observations, there are 10 tips and benefits of moving to The Valley:

1. Easier to commercialise and grow in a big market geared for tech start-ups

2. Raising funds is easier: valuations are higher and there are many VCs looking for opportunities

3. Retaining the Australian R&D Tax Incentive can be done and is imperative: the incentive ensured RangeMe had an extra two to three months’ runway when raising capital, an unbelievable advantage but this should be structured properly with an expert

4. Technology start-ups are an industry in San Francisco: a good start-up can plug into the system and doors will open-up

5. Americans want to invest in an American entity: a flip up will be required between Australia and US entities

6. Shareholder’s Agreements are different in the US: there can be up to seven parts in the US but one main part in Australia

7. Understand San Francisco start-up lingo and terminology to be taken seriously

8. Only founders must raise capital – don’t take your lawyers to capital raising meetings

9. San Francisco investors only want to see a 10-page PowerPoint, don’t do investment docs: you will have 30 – 45 mins to pitch (unless you have entered a pitch contest)

10. When it gets down to negotiating a potential investment, get good tech lawyers to represent you (pay for this): they will understand if the investment terms are founder friendly or not

It’s very apparent that the decision to move or not is different for each founder and company. But to become a serious technology success story, start-ups need to be able to scale and penetrate the world’s biggest markets.

Lior Stein is MD – Business Development at Rimon Advisory

Lior Stein