Congratulations on the London office opening! You have been advising UK-based clients on US matters for several years, what has driven the move to open a physical office here now?
We are very grateful to have been “pulled” into the UK by our relationships with hundreds of UK technology, life sciences, and growth enterprises, much like we often advise UK-based companies to expand to the US only after they feel a commercial pull from the States. It makes sense for us to have a more formal presence in the UK to be more available for those companies we support and for the ecosystem more broadly.
Why might a UK-based tech company want to work with WSGR?
We support tech and life sciences companies throughout their US growth journey – US launch, scaling, fundraising, commercial partnerships and IPO/M&A exit – and help facilitate access to our transatlantic network of capital providers, corporates, and advisors. To highlight a few examples, we help UK tech and life sciences companies establish their first US office, negotiate US commercial partnerships, raise US investment, acquire US businesses, and list on the NASDAQ or NYSE.
You are already a major player in the London fast growth tech scene, what do you find most exciting about it and how is it different to other tech hubs around the world?
The growth here is extraordinary. In 2010, when the Tech City initiative launched, there was $100 million of venture capital investment in London. In 2017 there was $3.3 billion. We have been fortunate to participate in this ecosystem since the early days, and it has been exciting to see it scale so rapidly – we’ve seen some truly world-class companies come out of London. Helping to scale and support London tech is a once in a lifetime opportunity.
What misconceptions do you think start-ups and scale-ups have about how and when to engage US lawyers/advisers?
In the US, advisers are generally brought on board at a much earlier stage, perform a supplemental community connector role, and provide commercial and strategic advice in addition to their core competency. US law firms and other US advisers that work with start-ups and scale-ups typically engage in a model of professional services that is analogous to making a venture capital investment – they invest their time as capital to support the growth of a scaling company, with the goal of collaborating with the company and its investors to support the company’s mission and build wealth.
This approach stems in part from a difference between the UK and US legal systems. In a UK business dispute that ends up in court, the loser pays some or all of the winner’s legal fees. In the US, each side typically bears its own costs, such that it’s expensive for both winners and losers, and the better-funded company often can push the other into an unfavorable settlement without regard to the merit of the underlying claim. The lack of fee-shifting in the US means that once a company has legal or compliance exposure, it can be expensive to resolve the problem, even if the company prevails. As a result, there is real incentive for US companies to proactively take advice on a “problem-avoidance” basis, rather than a reactive “problem-solving” basis.
This dynamic is quite literally foreign to many companies coming into the US – indeed, it’s often wrongly perceived as lawyers and other advisers upselling unsuspecting companies on “unnecessary” services – and something UK businesses should keep in mind when they are planning US expansion. Savvy US start-ups and scale-ups leverage their advisers for all the value they can, whether it be through introductions to investors and corporates, market insights, or practical operational guidance; not doing so puts UK companies at a disadvantage relative to US counterparts who have experience working with advisers in this manner.
Can you highlight a few other considerations for UK scale-ups considering a move to the US?
In our experience, UK scale-ups tend to have a more “DIY” business approach than US counterparts. We often encounter UK businesses expanding to the US that wonder how they can manage everything themselves. For example, there are roughly 10,000 different taxation geographies in the US; if a scaleup operates in multiple states it can be a struggle to manage the resulting tax complexities in-house.
American companies typically build a team of cost-effective, efficient advisers to handle these complexities on an outsourced basis so the company can focus on its core business. If you don’t do that, you could end up spending a disproportionate amount of time dealing with administrative matters.
Also, keep in mind that planning to expand to “America” is like planning to expand into “Europe”. There are 50 US states, each with its own distinct business culture and state and local laws and regulations. Rather than tackling the whole country at once, consider focusing on one or two core markets and scaling from there.
The differences in doing business in the UK and US often come as a bit of a surprise to UK firms, as the US feels familiar due to its export of media and entertainment, and the (seeming) lack of a language barrier. UK companies should not get discouraged – the commercial opportunities are extraordinary. Millions of companies create trillions of dollars of wealth each year in the States – somebody apparently has figured out how to succeed in the US!
What are a few do’s and don’ts for UK companies looking to successfully expand to the US?
Consider your first US sales hire carefully, and be sure to do plenty of research and due diligence before making an offer. We consistently receive feedback from UK companies that they have difficulties hiring the right US staff (and vice versa!) because of the cultural differences. It is important to take your time and get as much information and background as possible.
Also keep in mind the high cost of employing staff in the US, relative to the UK. For example, it would not be unusual for a senior sales executive in New York to have a base salary of $250,000, plus bonus, retirement benefits, health insurance, commission and equity. When expanding to the US, companies have to be prepared to spend money to make money. This partly explains why US funding rounds are often much larger than in the UK, i.e., to enable companies to spend on a larger scale. UK companies need to arrive with a realistic budget for launching and scaling in the US, and for competing with US rivals. It often makes sense to raise a round of funding (typically from UK investors) to cover the costs of US expansion.