Valentina Casella

INTERNATIONALIZATION OF ITALIAN

START-UPS

The United States

1

Internationalization: Born Global

• The Concept Yesterday (McKinsey & Co. and others in the 90’s)

– Sales focus: “Management that views the world as marketplace from the outset” (Knight and Cavusgil, 1996)

– Domestic market perceived too small for profitability

– Specialized, high technology products for competitive advantage

• And Today (start-up ecosystem)

– Broader focus: fund raising, R&D, human capital, sales

– Clearly define from the start the activities to do locally and those to start abroad

– If you believe in Unicorns: need a market of at least 100 million people to scale your company up to 1 billion capitalization

2

Why The United States?

• The American Dream Factor

• Investment Opportunities

• Large and Profitable Market for Products

• Efficient Market and Regulations

• Strong Startup Culture and Ecosystem

– Sophisticated incubators, investors and professionals

3

What Formula for Italian Start-ups

• There is no right answer

• The “Multinazionale Tascabile”

– Italian headquarters

– world leadership in market niche with high value added

• The Dual Model (Funambol, Decysion, Gild and others)

– Italy: R&D, human capital

– United States: headquarters, fund raising, sales

– Generally: US holding, with Italian subsidiary

4

How to Attract US Investments

• There is no Right Answer

• Still, three words of advice: You Need Traction

• What is traction? “Quantitative evidence of market demand” (Naval Ravikant, AngelList CEO)

• How to get traction?

– Test your product and market in your home country

– Get a seed round at home

5

How to Attract US Investments: What Else?

• Be ready to move to the US

• Find the best “bridge” to move over, don’t do it in a vacuum

• Build a strong local network

• Be ready to form a US Company

• Work with local professionals from the outset

6

Moving to the United States: the Legal Side

• Immigration

– Identify the best visa option

• Corporate Law and Corporate Governance

– How to best structure your business

– Instruments to raise capital

• Intellectual Property

– Paramount to protect your IP and trade secrets

• Tax

– Be prepared to navigate both Federal and State tax intricacies

7

Corporate Law and Corporate Governance

• Corporate law is state based

– Decide in what jurisdiction to form your company

• What corporate form for your legal entity?

– C-Corporation

– S-Corporation

– LLC

8

Jurisdiction: Why Delaware?

• Preferred by Angel Investors and VCs, top choice for IPOs

• Most sophisticate and flexible body of corporate law

• Director and business friendly

• Predictable and reliable: Court of Chancery case law

• Fast and efficient

• No corporate tax if company does not do business in Delaware

• Privacy Protection

9

Jurisdiction: Why Not Delaware?

• Other sophisticated jurisdictions exist

• Extra filing fees in the state in which the company conducts business

• Annual costs for registered agent for the service of process

• Annual franchise tax for the right to incorporate in Delaware

• Annual reporting obligations

10

Corporate Form: Which One to Choose

• The LLC

– “Flow through” for tax purposes

– More flexible, less formalities, but higher risk of “veil piercing”

– As a foreign investor, risk of paying taxes in the US

– VCs strongly prefer c-corporations: both for tax reasons and for predictability

11

Corporate Form: Which One to Choose (Cont’d)

• The S-Corporation (IRS election)

– “Flow through” for tax purposes

– Similar formalities as C-Corporations

– Limitations on ownership (max 100 shareholders, not for non resident aliens)

– VCs strongly prefer c-corporations: both for tax reasons and for predictability

12

Corporate Form: Which One to Choose (Cont’d)

• The C-Corporation

– Not a “flow through” entity tax wise: shareholder face double taxation on dividends

– More formalities to comply with

– Perceived as more solid by investors

– VCs strongly prefer c-corporations: both for tax reasons and for predictability

– Only viable vehicle for IPOs

13

Raising Capital: Before the VCs

• Convertible Notes

– Convertible debt instrument, with maturity (circa 18 mo.)

– Interest rate (around 5%)

– Converts to (preferred) stock upon “Qualified Financing” (around $1million or more)

– Conversion price determined through lower of cap and/or discount (usually 20%)

– If the company is sold: conversion or premium on investment (around 2x)

– Pros: company valuation not needed at the outset, relatively fast and cheap process

14

Raising Capital: More Flexible Instruments

• SAFE (Simple Agreement for Future Equity)

– Y Combinator, 2013

– Not a debt instrument: no maturity, no interest

– Cap and/or discount

– Promise to receive (preferred) equity in the event of a future equity financing (typically not qualified)

• KISS (Keep It Simple Security)

– 500 Startups, 2014

– Two instruments: Convertible Debt (a standardized convertible note) and Convertible Equity (similar, with no interest rate)

15

To Wrap it All Up

• Get the activities world map right

• Get traction

• Get on the move

• Get the right advisors

• Get the money

• Get the market

• Good Luck!