8 Most Common Mistakes European Founders Make When Pitching to the US Investors

Pitching to investors is not a desired daily activity for most early-stage company founders. How can it be?

As a founder, your days are hectic and dynamic, so it is natural that spending your valuable time asking for funding from a bunch of investors who will not get your vision hardly excites you.?

Here is an excellent thread to read about how US founders spend their day during the first year or two.

The situation is hardly any different when it comes to founders of European startups trying to raise funding from US investors. For many of the European founders, the decision to go to the US early stage investors for their pre-seed / seed stage funding rounds is both necessary and strategic.

Necessary because in most countries, there is not enough funding available when you are between the pre-seed and Series A stages.

Strategic because despite all the doomsayers, the US is still where innovation changes the world, and most of the exit activities (hence venture capital funding) happen.?

Here are some of the most common mistakes made by the European Founders (I have personally observed) when pitching to US investors.?

1-) Forming A Delaware Corporation Does Not Make You a US Company

Just like signing up to an online college two weeks ago would not get you a bachelor's degree, forming a Delaware Corp would not make you a US company. So even if you have been to the US three times in the last 12 months, and have a US contractor that makes sales call, do not claim you have established operations in the US. It just looks silly, and most US investors will see right through it.?

2-) Embrace Your Out of US Origins and Make It a Strength (not a Weakness)?

The US is a great environment to scale up a company with momentum since industry market sizes are enormous and, more importantly, large companies often dominate them. So you grow very fast once you have product market fit and establish channel partnerships with or get those large companies as your clients. However, that very same advantage of the US often acts as a disadvantage when you are starting up as a small company with limited resources. It is hard to get product-market validation or find partners who would like to work with your innovative solutions before your company reaches a certain maturity and size.??

That is why some industries and solutions (operative word here is?some) are more likely to have the validation and maturity achieved out of the US and then come here to scale up. So you can get the best of both worlds, sprout where it is easier to sprout and grow where it is a more friendly environment.?

So embrace your origin, not deny it. Your greatest weakness might become your greatest strength.

3-) Do Not Underestimate the Cultural Differences

Starting a company is hard, even if you start and grow your business in a single location. So be ready to address; preferably proactively talk about how you will deal with the cultural challenges of building and running multi-country teams and operations. Belittling the issue would make you look naive. All experienced operator/founder investors most likely have unpleasant stories and failures they have experienced due to this issue. Don't react but lead and own the narrative on this subject.

4-) Failure is Not Bad a Thing. Going Slow to Not Fail is

Please read this excellent article written by Glenn W. Leaper, Ph.D. here. There is a lot more in this article, but these few sentences explain a lot:

The mantra in Silicon Valley has become "fail often, fail fast" (though there are many objections to this oversimplification), the governing principle being that the more mistakes are made earlier on, the faster entrepreneurs learn and the better their business models become for future attempts. In Europe, failure is perceived as a negative, hushed up, whispered about, and hidden like the crazy old uncle in the attic.

While pitching, European founders would do themselves a great favor if they kept this in mind. The US investors listening to them would much rather invest in a fast-acting with momentum, pivoting with the right reasons company with previous failures than a company that has shown a 100% success rate with their decisions. Especially that success rate came at the expense of slow, consistent growth.?

5-) Size of the Numbers Matter

Early-stage investment is a risky business. Especially the Angel Investors that invest in more than 70,000 companies a year compared to 8,000 by VCs .

The best way to deal with that risk is to make a good number of bets (a diversified portfolio of a minimum of 30 companies or more) and invest in companies that have the potential to achieve a market cap of 1 billion or more in less than eight years from the time of your investment.?

The main mistake here by the European Founders is that unless their company has a feasible path to a nine-digit revenue number, their chance of getting an early-stage US investor is low. It is much better for an investor to bet on a potential $1 billion company at a 1% chance than on a $50 million company with a 10% company. After all, even with significant dilution, a $1 billion company would bring a 50-100x return for an investor, whereas a $50 million company might only get 3-5x.?

6-) Need for Change in Product Market Fit and Go-To-Market Strategy

Validating your product-market-fit and seeing results of your go-to-market strategy is excellent (and necessary) locally, but assuming that you will mostly build on that success in a different market like the US is wrong. Founders need to address that in their plans and pitch deck.

7-) Don't Underestimate the Complexities and Delays in Dealing With Large Partners and Clients

I find dealing with large US companies a lot more complex and slower than large Out of US companies. In terms of getting their attention to talk to or doing pilots, large US companies could be swift to deal with. However, when you are discussing large-scale sales deals, integration, and partnerships, US companies will be more diligent, ask for more and act slower. So when European Founders have a couple of calls with large US companies and make that a core part of their pitch deck, they lose credibility in the eyes of US investors familiar with the success rate of project completion with large US companies.?

8-) Humbleness And Humility Are Good; Underselling is Not

US investors are used to the "Fake it until you make it" mantra of many US founders. So they automatically adjust what to believe when they hear the founders talk about their background, technology, validations, and even revenue. If 25 is the actual number, the US investors automatically discount the 100 they hear from US Founders to 20.?

On the other hand, I have noticed that most European Founders tend to undersell their achievements and backgrounds when they pitch. What is the result? If 25 is the actual number, the US investors automatically discount the 15 they hear from the European Founders to 5.?

I am not recommending here that the European Founders also follow the "fake it till you make it" mantra and go with 100 for the actual 25. Instead, go with 25 instead of 15, and clearly explain and convince the US investors that your 25 is 25. Explaining your milestone achievements and validations better helps. Or spend more time on your background, and don't assume that the US investors are familiar with all the acronyms or institutions listed on your pitch decks.?

There are probably a few more mistakes I could have added to the list, but I will save those for another day and another article.?

Diversity (and adversity) fuels innovation. And innovation fuels productivity and economic growth (while creating value for the founders and investors).?

I will finish this article with this piece from Mike Leigh's Two Thousand Years that I saw in this great book I recently read about the entrepreneurial success of Israel by Dan Senor and Saul Singer (Start-up Nation: The Story of Israel's Economic Miracle )

Four guys are standing on a street corner…?

An American, a Russian, a Chinese man, and an Israeli….?

A reporter comes up to the group and says to them: "Excuse me…. What's your opinion on the meat shortage?"?

The American says: What's a shortage??

The Russian says: What's meat??

The Chinese man says: What's an opinion??

The Israeli says: What's "Excuse me"??