A new report from Frontline Ventures has found that since COVID, European startups are delaying their expansion into the US.
The venture capital firm, focused on B2B software companies, said in its ‘U.S. Playbook’ that the average age of a company launching Stateside has risen from four years pre-2020 to five years after.
The US has a massive domestic market, accounting for 51% of global software spend. And $171bn of venture funding was deployed during 2023, close to three times the amount deployed to European companies.
One reason for the slowdown in US expansion is that since COVID, the world is more open to doing business remotely. Founders don’t need a physical office in the US to break into the market or they can employ US workers to work remotely for a longer period before moving into a physical office environment.
However, despite the challenges of physically launching in the US, 70% of the 73 European unicorns operating in B2B SaaS have launched there – demonstrating the importance of the US market for achieving a $1 billion valuation.
The U.S. Playbook includes analysis conducted by Frontline Ventures into European startups that launched into the US, identifying trends and sharing founders’ personal experiences to inform recommendations.
It says that time zone is the biggest driver for choosing a firm’s first location. While many European founders will assume US expansion automatically means landing in Silicon Valley, analysis of over 200 B2B companies found it’s actually New York City that is the single most popular location, with 45% of the sample landing there.
More broadly, the vast majority of the B2B companies (70%) chose a location running on Eastern Time, with Boston (12%) also serving as a popular option. Only 19% opted for the Bay Area.
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Deeper analysis into 10 startups’ hiring strategies when launching in the US found that seven of these companies hired at least five sales roles in their first 10 hires. Understanding which positions will bring the greatest value at launch is key given the rate at which many of these teams scale, with just 40% of the companies scaling to 10 employees within 12 months of their first US hire.
However, this doesn’t always have to be sales. Other companies analysed – including Algolia, Collibra and Quantexa – opted for more product-driven approaches which indicates a need for product localisation just as much as a go-to-market motion.
Meanwhile 60% of the companies’ first three hires were junior or mid-level – with only 30% of companies hiring an executive in their first five hires. This focus on junior and mid-level hires in the US points to the importance of being in time zones that enable collaboration with their European counterparts and for them to receive guidance from existing senior leaders.
Will Prendergast, partner at Frontline Ventures, commented: “We believe B2B tech companies must conquer both the US and European market in order to make it as a category leader.
“But expanding into a country where the competition is amplified exponentially can be intimidating. Early decisions about who and where you hire, for example, has a significant impact on new client acquisition and team integration.
“Drawing on the experiences and learnings of other founders is a great way to build a better roadmap when launching in the US.”