Over the past decade, seed funding has exploded to the point that it’s become its own asset class.
For further context, between 2006 and 2010, only 3,200 companies received seed funding. That number skyrocketed to 23,000 start-ups by the end of the next decade.
What’s more, tech start-ups heading into 2021 experienced a 4% year-over-year increase in global venture funding, reaching $300 billion after an understandably tough start to 2020. This increased to over $621 billion in 2021; Even in the face of the pandemic, VC funding continues to be a force of nature.
So it should come as no surprise that in 2022, things look even more promising, with the record funding pace already set continuing into Q3.
This immense growth in venture capital funding for early-stage startups exists because investors are enthusiastic about getting in on the cutting-room floor. Instead of getting in too late when the ball is already rolling, they want to be hands-on in the decision-making process.
As such, early-stage start-up founders and executives all find themselves in a lucrative position to achieve exponential growth. The money is out there in droves, and with it will come cross-border expansion.
Why is Cross-Border Expansion Becoming the Rule for Many Early-Stage Start-ups?
Traditionally–a term with a meaning that gets murkier as we move further into the digital revolution–when people start a company, they think small.
Of course, even pre-tech-era, most business founders have a big picture in mind. However, they started with small steps and worked up incrementally. Even look at a global superpower like McDonald’s–Ray Kroc, the founder, opened his first McDonald’s in Des Plaines, Illinois. He didn’t simultaneously open a location in New York, then China, then Australia, or the UK. That came later.
Nowadays however, presents an entirely different story. As an early-stage tech start-up, you’ve got to think worldwide right away. In many instances, it’s your key to both surviving and thriving in the landscape. Those who work with a product-led growth model, offering freemium to premium solutions; and the ongoing recurring revenues this brings, are the high-value start-ups in demand.
The growth facilitated by early-stage VC funding is intertwined with market reach expansion. There’s really no choice in the matter. Funding demands growth. As such, young companies–like yours–immediately dip their toes into international waters.
It’s also worth noting that this rapid expansion–while becoming an increasing norm and a non-negotiable tactic–is new to the tech world..to a degree. Even technology-based start-ups prioritised home market dominance in the not so distant past. Only after establishing a domestic reputation, they set their sights on global expansion.
But now? The current infrastructure allows tech businesses to launch with ease. Plus, the available capital for early-stage companies along with the high-level industry talent means immediately, the day your business is founded, you’re up against globally-based competitors.
Is Your Start-up in the Right Stage for Global Expansion?
Given the factors already discussed, we’re in a time and place where global expansion is more expected than ever from early-stage tech start-ups.
However, just because the frameworks are in place for global expansion doesn’t mean it’s always necessary or the right move or the correct time to embark on such a strategy.
First, you must ensure your start-up is equipped for such an expansion.
For instance, hardware and product-based start-ups often face struggles with global expansion. The logistics are far more complicated than with a software-based VC-funded start-up.
While complex nuts and bolts are involved in any global expansion (which we’ll touch upon later), being software and service-based removes many hurdles. Stripping everything down to its barest elements–and ignoring the arduous red tape involved–it’s a mere matter of pressing a few buttons. From there, it’s possible to launch on the App Store or reach other global marketplaces.
Before moving on, there’s also the matter of location. Start-ups in enormous markets such as China or the US might not need to expand beyond their home markets. Conversely, European-based early-stage start-ups will struggle to reach venture scale without expansion.
Is it the Right Time for Global Expansion?
Other factors are at play to determine whether your early-stage tech start-up is ready for global expansion. A proven product-market fit is a non-negotiable must, naturally. The same can be said for having a firm grasp of underlying costs.
As far as those costs mentioned above go, ask yourself these questions:
- Will you need to build new warehouses?
- Is there a need for local teams?
- Do you have to create new products for different markets?
When you have answers that satisfy your scrutiny, it’s time to expand. And, as we’ve highlighted, it’s possible to have a strategically sound global expansion strategy even at the early stages of your start-up.
Still, tread carefully. You don’t want to make the same mistakes as a company like Homejoy, which–back in 2013–received $24 million in Series A funding from Google Ventures and First Round. At the time, this was considered a huge round.
There was a massive problem with Homejoy’s expansion efforts, however. The start-up had to cease international operations after only 13 months from when it launched in Germany. They simply weren’t ready to make the jump because the global demand wasn’t there.
While we weren’t there shining a microscope on Homejoy, we’re very familiar with the challenges of global expansion for early-stage start-ups. In the next section, we’ll investigate how your company can take that next crucial step while vastly enhancing its chances for successful, profitable growth.
What Obstacles Stand in Front of Your Global Expansion?
We’ve discussed product-market fit, type of business, and your location as factors dictating whether expansion is correct for your early-stage tech start-up.
Provided you tick the correct boxes and there’s strategic soundness to your decision, it’s time to move forward.
But there remain other factors at play. First, you’re still an early-stage start-up. The landscape is there for you to expand. But that doesn’t eliminate the limitations of your ability to grow.
For instance, just because you’ve expanded into a new country doesn’t mean you’ll need to run a full subsidiary right away. In fact, you might not need a daughter company at any point during your growth cycle. After all, opening up a permanent entity is both inflexible and cost-intensive, chewing into all that funding you’ve worked so hard to raise. Furthermore, you’ll be stuck with those expenses over the long haul, on top of any other obligations required in the new territory.
The obvious solution here-or, so it would seem- is working with contractors. At face value, this approach offers you the best of both worlds. Your get to expand rapidly into new markets, and you're not betting the house by launching a subsidiary. It seems like a win-win, even if you end up failing fast and cheap.
Unfortunately, while the above approach is the wisest manoeuvre for many early-stage start-ups, it’s rife with obstacles in need of navigation.
A global trend has taken hold where countries are handcuffing companies masking ‘pseudo-employees’ as contractors. If you offering Full Time Employee benefits to contractors, they essentially become a 'pseudo-employee.' Offering benefits such as; Holiday pay/ Paid-Time-off, sick-pay, bonuses or commissions, benefits, or is an open-ended project, is not legally compliant. Therefore, you’re likely to face a massive social tax bill by going this route, which is often the only viable path for early-stage start-ups. On top of taxes, there are also potential legal ramifications involved.
Additionally, cultural nuances are involved, which you’ll need to grasp for impactful marketing and hiring the best available talent.
How Can You Knock Down These Global Expansion Hurdles?
Okay. You’re implementing a Go-To-Market & Professional services team in a country where you’re entirely unfamiliar with local tax/labour laws.
For the sake of argument, we’ll say you aren’t yet launching a subsidiary and must hire contractors in those countries.
We’ve established the challenges at hand in executing this growth strategy. So, how do you overcome those obstacles?
One answer is Emerald Technology’s Employer of Record (EoR) solution, through which your tech company can simplify payroll data processing. This allows your start-up to run regional specific payrolls throughout several countries, using only one solution.
Clients see EoR as the Engine Room powering their expansion.
In a nutshell, our EoR solutions allow you to extract all the potential value from global expansion while neutralising many of the risks involved.
How Does EoR Give Your Early-Stage Start-up a Strategic Advantage?
You know more than anyone, time is of the essence in tech. Often, you need to act fast to be the first mover, and your expansion efforts must be streamlined to gain an advantage over your competitors.
By partnering with Emerald Technology and leveraging our EoR solution, you’re empowering your start-up to get that crucial leg up.
Here’s what your business can expect from our EoR services:
- Your employees in new countries will be covered by the necessary insurance.
- All employment contracts in new territories will be compliant with all regulations.
- If necessary, we’ll handle employee visas.
- Compensation and ongoing HR issues (e.g., on-and-offboarding employees will also be 100% compliant.
- You’ll have access to our diverse local market knowledge due to our global network of regional offices in 170 different countries.
Is Global Expansion in Your Company’s Future? Then You Should Think About our EoR Solutions.
Like global expansion is the right move for some companies, so is EoR. The subtext in the previous sentence is that both worldwide expansion and Employer of Record solutions might not be best for your business.
However, reach out to one of our Business Development Managers, and they’ll break our services down to the last detail. We want you to be well informed to make the best possible decision for your startup, whether you partner with us or not.
Specifically, our representative will explain how we can handle everything, from managing staff benefits, paying salaries, and government reporting in your new territories. Your only concern will be your company’s rapid growth.
You can discover more about EoR by visiting the dedicated Employer of Record section where you can also get in touch with us.