ACTIVIST VC BLOG
There is a clear leader in the sport of flipping tech companies to US: Israel has pushed over 250 companies to NASDAQ.
So, should you also consider a Delaware Flip and move your startup to US?
Flips in the Nexit Portfolio
A flip to a new growth market is a common method for an Activist VC to speed up the scaling of a startup. In fact, Nexit portfolio companies have executed a dozen US flips.
The outcome has not been bad, either: several exits made to US top tier companies like Akamai, Google, Sybase, and UL. Another handful of companies are rapidly growing and working on a great exit.
These Nexit samples represents many different types of flips:
- Resource flip: moving just selected parts of the operation like top management, business development, and sales. Hantro and Futuremark are good samples using also Nexit support in their US operations.
- Corporate flip: moving the domicile of the parent company, often to a Delaware company. Both Ekahau and Conformiq are examples of a full corporate flips with R&D staying in Nordics.
- Flips with varying timing: sometimes the flip is done already in seed stage, even before the first VC round. Flips are more typically done during the scaling phase.
Sample Nexit portfolio companies with some type of US Flip
Corporate flip: pros & cons
Based on our experience, the legal side of a Delaware flip is not extremely complex. If the flip is done early enough, the tax consequences are also nominal: we talk about flipping a very small and heavily loss-making entity. (More of the Delaware flip implementation in next week blog.) We think other factors are more important in determining whether a flip makes sense.
Positives often include
- Funding: Better access to both VC and venture debt funding.
- Talent: Great amount of experienced top-flight people.
- Agility: Ability to scale and refocus staffing fast.
- Customers: Proximity to many global key customers and distribution channels.
- Biz dev: Interaction with market thought leaders & trend setters.
- Tax: US corporate tax more competitive since January 2018.
- M&A: Often the most important single reason for the flip – better position and more visibility in US M&A radars.
Negatives may include
- Higher operating costs: rents, salaries, benefits, etc.
- Growth in legal & administration costs.
- Potential loss of EU or local government R&D support.
- Flip execution entails some legal costs and management time.
- Relocation cost and distraction, especially if whole families move.
- More difficult IPO for a small tech company: currently more feasible in the Nordics or Hong Kong.
The Nexit recipe
We very often recommend creating a US-facing company front with strong key resources:
- A credible, visible and well networked US operation to optimize further scaling, funding and exit in US.
- Making the US the centre of sales, marketing, and business development by moving most of the top management in to the US. Typically at least the CEO and VP of Sales move to US.
- Potentially hiring some additional skills from US to to make the transformation faster and more genuine.
- Adding a US-centric board member for local guidance and networks.
- Using the advantages of lower admin costs in the Nordics by keeping the parent company in the Nordics.
- Utilizing the loyal and less expensive Nordic engineering talent and government grants by keeping the R&D in the Nordics.
But the right solution is of course case-specific: there is no one-size-fits-all solution.
Especially in ICT industry, the US is strikingly often the lead market where the global winners and best exits are created. This is a key reason why Nexit opened its own US office on day one and why we strongly urge many of our portfolio companies to consider building a strong US presence.
If you are interested in the details of the Flip, please stay tuned as the next blog entry will describe the Flip execution in more detail.