Proven Fundraising Strategies for International Early Stage Startups in the U.S.
Startups looking to raise significant funds, regardless of their location, face a challenging period. Banks have failed. Inflation has hit everyone. The popularity of special purpose acquisition companies (SPACs) has declined. Delayed exits and a scarcity of initial public offerings mean investors find it harder to access cash for investing in new companies, as there haven't been as many liquidity events to free up capital. But don’t give up! We see trends and fundraising strategies that can give internationally based companies, including early stage startups, a competitive advantage and improve their chances to raise funding and succeed.
WorldUpstart supports international companies in expanding and fundraising in the United States. In just three years, we’ve successfully guided 54 companies in the fields of MedTech and Biosciences. Twenty-three of them have achieved significant growth in the U.S. market and we have gathered valuable insights from these experiences.
In this article, we share fundraising strategies discussed in a conversation with Glen Gaddy, a WorldUpstart Mentor and Managing Member at Robin Hood Ventures, one of the region’s largest angel investment groups.
The “Unfair Advantage” is Key for Early Stage Startups Growing Across Borders
Whether your company is based down the block or across the world, investors all want the same thing: to invest in companies that have an “unfair advantage,” defined by Jason Cohen as “something that cannot be easily copied or bought” – i.e., the thing that makes your company unique and irreplaceable. Where your company is based can matter less than who you are, what you do, your expertise, and your approach. Investors are interested in companies that possess an unfair advantage, regardless of their location. If your advantage lies in unique knowledge or technology developed abroad that sets you apart, many investors will find it attractive. Your unfair advantage could be intellectual property, founder expertise, or a successful track record in your own market. Success transcends borders—it's an international language. If you're seeking to raise funds in the United States, identify your unfair advantage and effectively communicate it to investors.
The U.S. is home to numerous major companies whose founders hailed from other countries. We live in a global economy and the United States is a global country. Noubar Afeyan, co-founder and board chairman of Moderna, most known for its COVID-19 vaccine, was born in Lebanon to Armenian parents. BioNTech, which produced another COVID-19 vaccine, was founded by Dr. Sahin and Dr. Türeci, whose families both migrated from Turkey to Germany. Google co-founder Larry Page is from Michigan, but Sergey Brin is from Russia.
According to Matthew L Sawyer’s "Make it in America: How International Companies and Entrepreneurs Can Successfully Enter and Scale in U.S. Markets," approximately 45% of the top 500 U.S. companies were established by immigrants or their children. This includes notables like Biogen, DuPont, Kraft Heinz, and Pfizer. Early stage startups from abroad can do well in the U.S. with the right knowledge and a solid game plan.
Think Globally to Reach Angel Investment Groups
Nowadays, local knowledge is rarely the deciding factor for the success of VC backed companies. Instead, ask yourself how you can stand out among a crowded field of startups. Five years ago, almost all angel investment groups and early stage VCs invested locally – they may have thought globally, but they invested locally. Everybody wanted to be within two hours of their portfolio companies. Now, things have changed.
Some investors moved away from that local link before the pandemic, but pandemic-induced changes sealed the deal.
Everyone understands that today you can meet on Zoom whether you’re ten minutes or ten hours away. The vast majority of contacts between investors and companies, founders and funders, are now virtual. This has broken down borders between investors and companies, making today, in many ways, an ideal time for internationally based early stage startups to pitch – and find – investors.
Understanding Regulatory and Reimbursement Pathways
Because the United States does not have a single-payer system, the healthcare payment and approval process here is vastly different from most countries, and a good deal more complicated. A life sciences company going after the human healthcare vertical stands a much better chance of succeeding if you possess an in-depth understanding of how to navigate the complexities in the United States. The learning curve in terms of getting into the market and getting paid can be daunting.
The federal system in the U.S. means you may require the approval of and need to build a relationship with not one contact, but 50. Now multiply that by metropolitan areas. CEOs outside the U.S. looking to come into the United States for healthcare and life sciences need to understand how they get paid and what the relationship is between reimbursement, acceptance, and the FDA. Early stage startups from abroad may not initially realize how complex the U.S. system is at the federal, state, and local levels, with both public and private payers. Mistakes can be painful, expensive, and potentially criminal.
A good soft-landing program for international companies seeking to dip a toe in the waters before committing to an all-out push in the U.S. includes building a custom strategic roadmap for how to tackle all these requirements. We hear from early stage startups in the medical field that they are focused on gaining FDA approval but don’t fully realize that this step alone will not generate revenue until a reimbursement code is in hand. Healthcare companies must be informed and understand the whole system before approaching investors. If you don’t, those angel investment groups will notice.
Fundraising Strategies Should Emphasize Your Track Record
Even if 10,000 hours doesn’t make you a master founder, it goes a long way to convincing investors that you are. The number one determinant of the success of your fundraising strategies in the United States is whether you’ve done it before, preferably multiple times. The amount companies can raise depends on the industry and the investor appetite, but a demonstrated track record is key to U.S. investors. International companies with FDA-approved products and reimbursement codes in hand can still struggle to raise funding. And international early stage startups that were barely a concept and faced huge headwinds in their regulatory pathway have raised tens of millions of dollars. Why? It may seem unfair, but it’s a fact: Track record can take priority over product.
It is much more difficult for first-time founders to raise money than people who have raised previously. Some of that is due to not having a track record of successfully raising funds in the U.S. Working with a good soft-landing program to help you connect with early stage investors and perfecting your pitch can help you feel and sound like a veteran even when you’re a rookie.
Fundraising American Style
Raising money is a skill best honed like a muscle. At WorldUpstart, we teach international companies how to exercise that muscle and execute U.S.-style fundraising strategies. It starts with knowing how to tell your story.
Consider that many early stage investors – both individuals and groups – who invest in life science companies may not be familiar with your science. So instead of starting your pitch with the product or the science, tell a clear story about the problem that your idea or product solves and how you will solve it. That will frame it for the investor in terms of your market and your customer.
Take the investor on a journey, laying out the problem, which is significant for your customer, and show how your product or technology solves this problem. For the story to have a happy ending, of course, you need the means to present the solution to customers who are ready, willing, and able to buy your solution. And if you can’t fund the solution, that’s where the investor comes in. But be aware of one important potential pitfall:
Sometimes the problem, solution, and customer in your own country will not be the same in the United States. In other words, the customer here may be different from the customer in your home country. Make sure you do the right research so you can make clear to investors that you understand both the problem and the customer in the U.S. market and that your solution meets those needs.
All of this can seem overwhelming, but these difficulties can be managed with the right guidance. WorldUpstart is here to help you navigate through the challenges so you can stand out to U.S. investors and find your path to scale in this extremely attractive but difficult healthcare market.