US Expansion: 7 Site Selection Criteria for Tech Scaleups Entering the US
If your UK or European tech scaleup company planning for US expansion there are 50 plus states and hundreds of cities to evaluate as potential sites for your initial US office. Here are 7 site selection criteria to take under consideration when determining the ideal location for your first US office, plus a few topics that are often misunderstood.
- Time Zone
One of the most important and often overlooked US expansion site selection criteria for UK and EU tech scaleup companies is overlapping operating hours with the home office. The United States is a huge country and has 4 primary time zones. Locating your company’s US office in the Eastern Time Zone has the strategic advantage of having 5+ hours of operating overlap with London (GMT) and 4+ hours of operating overlap with Berlin (CET). Office locations in the Pacific Time Zone have 3 fewer hours of operating overlap with your home office. Locating your US office in the Eastern Time Zone will give your US team quick and regular access to the product, technical, finance, and executive support from your home office they will need to move at the speed of business in the US market.
2. Access to Talent
The ultimate success of your scaleup’s US expansion efforts will come down to the people you hire for your US operations. Locating your US office near areas that have a close geographic proximity to a combination of major universities, large tech employers, and other tech startups is a real plus when it comes to recruiting and hiring top talent for your US team (even if you’re hiring remote roles). A few locations on the US East Coast that have this unique combination include Research Triangle Park in North Carolina, New York City, Boston, and Atlanta. One consideration for accessing talent with specific industry experience is to locate your US office in a city on the US East Coast that has developed into a sector specific tech hub such as New York City (D2C, Fintech), Boston (MedTech, BioTech), Research Triangle Park (B2B, BioTech), Northern Virginia (Defense, GovTech), Atlanta (Payments, B2B), or Miami (Blockchain, Crypto).
3. Operating Costs
Keeping your cash burn rate in check is critical to every startup and scaleup company. Costs for talent, office space, professional services, and taxes vary significantly from state to state and city to city in the US. Where you establish your US operations will greatly impact your company’s overall burn rate. According to CBRE the per square foot costs of Class A office space is $35.88 in Raleigh, $36.84 in Atlanta, $75.44 in Boston, and $99.59 in New York City. According to Indeed the average salary of a full stack developer in the US with 3-5 years of experience is $144,126. Salary variances by state include North Carolina: -12%, Georgia: 0%, Massachusetts: +8%, and New York: +7%. One often overlooked operating costs is corporate taxes. In addition to the Federal tax levied on corporate profits by the US Federal government, many states also levy taxes on corporate profits. State corporate income taxes range from 2.5% in North Carolina, to 5.75% in Georgia, to 7.25% in New York, to 8% in Massachusetts. Of course, establishing your US operations in the absolute lowest operating cost location in the United States shouldn’t be your top priority and would almost certainly limit your access to talent, customers, partners, etc. as well. It’s ultimately all about finding the right balance between operating costs and the other important site selection criteria.
4. Startup Ecosystem
Locating your US operations near an area with a robust startup ecosystem is beneficial in many ways. First, it can’t be emphasized enough that the competition for recruiting and hiring experience tech talent in the US market is fierce. Being located near other startups provides plenty of opportunities to build personal and business relationships through meetups, social events, and pitch events taking place in the area. Building strong relationships in the startup community in your area will make recruiting, hiring, and getting referrals to great talent much easier. Knowledge transfer on all kinds of important topics within the community will also help your US team keep up to date on important industry trends and best practices. Investors from across the US will regularly travel to the area for pitches, due diligence, and board meetings with their portfolio companies. Lastly, having access to service providers like accountants, law firms, insurance providers that are knowledgeable and experienced dealing with tech startups is a real plus for your US operations. If you don’t think the startup ecosystem is important to the success of your US operations just wait until you try explaining transfer pricing and SaaS revenue recognition rules to an accounting firm that’s never done that before!
5. Proximity to Customers & Partners
The importance of your US operations’ proximity to potential customers and partners will largely be dependent on your company’s overall go-to-market strategy. If your company is an enterprise B2B software company with traditional GTM motions around direct selling to C-Suite decision makers, locating your US operations in the same geography as many of your target customers may potentially be beneficial. If your company’s GTM strategy is more of a product-led-growth (PLG) strategy, proximity to your customers will be a much less important factor. When contemplating how important locating your US operations near customers or partners may be in your overall site selection criteria, keep in mind that many US employers now regularly hire remote workers. Planning around the proximity to customers or partners is much more complicated now given the person or team you want to work with could very well be working remotely hundreds of miles away from their corporate office.
6. Ease of Travel
The United States is huge country and doing business here often requires traveling. Make sure to locate your US operations near an international airport with frequent, direct flights to the major US cities and business hubs. Having to use connecting flights from smaller airports to fly internationally or within the US adds significantly to travel time and expense. Also, choosing a location that is centrally located within the US reduces travel time. For example, Charlotte, North Carolina is on the East Coast of the US and has an international airport that is located equidistant between New York City to the north and Miami, Florida to the south.
7. Expat Community
If executives or employee from your home office plan to relocate to the US to support your company’s US expansion efforts, it may be helpful in their transition if there is a sizable expat community from your home country who are active in the area where your US office is located. The size of the expat community probably shouldn’t be one of the primary drivers to decide where to base your US operations but if the choice comes down to one or two locations the size of the local expat community could be a “nice to have” that helps with the final site selection process.
Topics related to site selection tech scaleup companies often misunderstand:
Proximity to investors
Many venture backed tech companies initially think that opening their first US office near the venture capital investors in Silicon Valley will help them raise their next round of venture capital. Unless your company’s CEO is also moving to Silicon Valley, opening an office there will be of little help with fund raising. Venture investors typically want to deal directly with the company’s CEO, not the head of US operations as a proxy. It’s a misnomer that the Bay Area is the only place to raise venture capital in the US. According to PitchBook, only 20% of the total venture capital deals done in the US market originate out of the Silicon Valley Area. Also, review points #1 and #3 above anytime you start thinking about opening your office in California.
Delaware C-Corporations
The topic of Delaware C-Corporations will be its own blog post in the future. When it comes to site selection just know that your company being incorporated in the state of Delaware has no impact on where your company’s office is located in the United States. If you form a Delaware C-Corporation (which you probably will) your company does not need to be located in the state of Delaware.
State Incentive Packages
While it’s true that many states in the US compete to attract businesses to their state by using incentives (usually in the form of tax credits), these incentives are almost always structured for large manufacturing operations or employers with a significant number of local employees. Most tech scaleup companies entering the US market for the first time start with a small number of employees based out of a startup co-working space then test their product market fit assumptions before hiring rapidly. Most state incentive plans simply aren’t structured appropriately to reward tech startup or scaleup companies opening their initial operations in the US.
If you have questions about US expansion or US site selection for your tech company, contact us. We are always happy to talk and answer your questions.