Anthony Rose:  All right. Hello. Today we are talking about US expansion raising from US investors and the Delaware Flip. Now if you’re a growing UK company, at some point you’re going to be eyeing us expansion. It’s a huge market you might also be looking to raise from US investors because you hear across the pond the valuations are higher and some people tell you you need to the Delaware flip.

Anthony Rose: So to create a US top Co and move your company to the UK to the US. But should you do all of those, what’s the expert news. Well today we’re going to talk to the experts. Please meet Daniel Glaser from preeminent US law firm Wilson Sun senior. So Daniel, tell us about yourself.

Daniel Glazer: Hi, Anthony. Great to see you today. So it is, you know, I head up the London office and the US expansion team at the Silicon Valley headquartered law firm Wilson’s in Sydney. I head up a team here in London of American and British lawyers that work with UK and European startups through their US life cycle, launch scale, raise money, exit through M&A or IPO in the US.

Anthony Rose: Okay, great. So you’ve seen it from early stage through to IPO of some of the biggest companies. And now you’re in Europe. In the UK helping UK startups with US expansion. So let’s take an example of you’re a UK company. Maybe you’ve done your seed round, you’ve raised 1 million pounds, something like that. Business is great. You doing a couple of million pounds in recurring revenue and you’re now eyeing the huge US market.

Anthony Rose: So we’re going to start with just US expansion. Do you need to create a US subsidiary? How are you going to hire people in the US. Which state should you go to. What things to look out for. Over to you.

Daniel Glazer: Sure thing. Okay, so I think what you’ve accurately describe, I think the most common US expansion scenario company starts here in the UK and says, look, we’re getting traction in the US. We want to, let’s say put someone on the ground, in the US and let’s say we want to hire locally. So all of that structure at that point, all that set up typically takes about 3 to 4 weeks.

Daniel Glazer: Okay. And there’s five areas that you need to cover off legal tax, accounting, banking, business insurance and payroll and benefits. And I’ll take each of those in in turn. And as a straw man, let’s say that you’re looking to hire your first employee in the state of New York. Okay. And you’ve got a UK limited company as your existing company currently, what you’re going to do then is you’re going to set up a Delaware corporation, a wholly owned subsidiary of your UK limited.

Daniel Glazer: So first off, you do not want to hire employees in the US out of your UK company directly. That creates certain tax and liability issues that you really don’t want to deal with. The bright red line, when it’s time to set up a subsidiary in the US, typically is when you’re hiring employees in the US. Okay, so in this instance, you’re looking to hire your New York employee.

Daniel Glazer: And as I mentioned, Delaware Corporation subsidiary Y Delaware. The headline is Delaware Reduces friction. Right? Long ago, Delaware set itself up as essentially our de facto national company in the US. So there was no such thing as a national company in the US. You pick one of the 50 states to incorporate in, and the one that for many, many generations has been the state of choice is the state of Delaware.

Daniel Glazer:  Right? It has excellent corporate governance. Law has its own corporate governance. Courts, advisors all around America will advise on Delaware corporation, right. The two most common corporate forms in the US are corporation or limited liability company, LLC. Typically, UK limited companies tend to set up Delaware corporations rather than LLCs because under UK tax rules, having an LLC subsidiary is a little bit more complicated than having a corporation subsidiary, because under US tax rules, a corporation is a taxable entity.

Daniel Glazer:  It’s taxed for its own activities, whereas an LLC is by default a tax pass through entity. That is, the, the parent company by default would be taxed for the LLC’s activities. Now, there’s ways you can deal with that, but it adds an additional level of complexity of corporations a little bit simpler, right? And subsidiary rather than than a parent company.

Daniel Glazer:  We’re going to get into the so-called Delaware flip or having a Delaware parent company a little bit later on. But for purposes of simply hiring in the US, doing business in the US commercially, operating in the US, a subsidiary of your UK limited is sufficient. Okay. So now you’ve got your your Delaware subsidiary set up. You’re then going to register to do business in the states in which you have employees or offices.

Daniel Glazer:  And so in this instance, you’re going to set up, as a Delaware corporation registered to do business in New York, because that’s where you’re hiring your first employees.

Anthony Rose:  So we did that and moments later we got an email from New York about registering something, something in New York. So which we then proceeded to do, not rocket science, a few hundred dollars here, a few hundred dollars there for the registry things, and you suddenly start learning all these different bits and pieces. Which are you going to get the brain dump on right now?

Anthony Rose:  Yes.

Daniel Glazer:  It it may seem complicated, right. Relative to it to the UK starting from scratch, but you soon realize it’s a well-traveled path, right? And as long as you stay on that path, it’s actually all very straightforward. So now you’re registered to do business in New York, and you are going to provide your New York employees with two New York State specific employment documents.

Daniel Glazer:  The first is a New York State IP assignment and confidentiality agreement, which does what it says on the tin. Right. And the second is a New York State specific offer letter, which has the economics and the financials of the arrangement. And each time that you go and hire for the first time in a new state, you’re going to do these same things over again.

Daniel Glazer:  So, for example, let’s say your next employee you hire is in the state of California. You will register to do business as a Delaware corporation operating in California. And you will provide, your California employees with California employment documents. Now, there may be a temptation to simply cross out New York and right in California in your employment documents.

Anthony Rose:  How did you hear my next question?

Daniel Glazer:  I understand that that that you’re working with startups. Right. But I would I would suggest that you resist that temptation because in the United States, employment law is not national, it’s state specific. And so each state has its own unique employment laws. As a result, crossing out California in New York and writing in California would be like crossing out, let’s say, France and writing in Germany.

Daniel Glazer:  To give your French employment documents to your German employees, you wouldn’t typically do that. It’s the same concept in the United States. Again, sounds more complicated than it is. It’s not difficult to have appropriate state specific templates.

Anthony Rose:  Question do you only need to register in a state when you employ somebody? Or can you have a contract, or when you have an office there? What’s the conditions for needing to write.

Daniel Glazer:  So usually and and you know, it is state by state. But broadly speaking it’s if you have employees or offices, right. You don’t need to register necessarily if you’ve got a contractor that that’s the general rule there. There’s a difference between registering to do business for legal purposes and registering to do business for tax purposes. So if you’re registering for legal purposes, it’s do I have an employee?

Daniel Glazer:  Do I have an office in that state. But from itself, let’s say from a registering for sales tax purpose, that is that may be as broad as are you selling to customers in that state. And that’s something to speak to your tax advisers about.

Anthony Rose:  Okay. So from my limited research on that from us, it looks like when you reach $100,000 in sales in a given state in the last 12 months or a year or something, that’s the time you need to register for tax in that state, something like that broadly.

Daniel Glazer:  So each state is different, right? And even within each state what you’re selling has different threat okay. Thresholds. Right. And this is part of the the beauty of the United States. Right. Is that is that the, the of the levels of taxation and the nuances of taxation a little bit, more robust than in the UK. And elsewhere.

Daniel Glazer:  But but again, these answers are readily identifiable. You just need to speak to the right tax advisor about it.

Anthony Rose:  Okay, cool.

Daniel Glazer:  So now you’ve got your company set up and registered and you’ve got your employees. Now, American employees tend to be, on average, focused a little bit more on options and the value of options and how they work. Relative to some other geographies. And so you might find a UK company coming into the US that your employees are going to be, requesting options, you know, as part of their compensation package.

Daniel Glazer:  So the way that you set that up is that let’s say you’ve got a UK limited company with an EMI scheme, you’ll then look to create a non EMI sub plan. Right. And so importantly the options come out of the parent company. They do not come out of the US subsidiary. They come out of the UK parent company.

Daniel Glazer:  And what you would do is that you’ll typically provide what are called incentive stock options or ISOs to US employees. And that’s analogous to EMI or less tax advantaged options to U.S employees. The most important part of this is that in order to provide options to U.S employees, you need to get what’s called A409A valuation. And that’s different than an HMRC valuation, right?

Daniel Glazer:  The US Internal Revenue Service, the tax authorities, you know, standards for what your valuation needs to look like are a little bit different than HMRC.

Anthony Rose:  So it’s the equivalent of an EMI valuation. Yes. So with EMI you haggle with HMRC for the biggest possible discounts, which is usually quite low where your aim is to get to quite low for with A4A9 it’s usually somewhat closer to your last round valuation.

Daniel Glazer:  As a rule of thumb. As a broad generalization, the the discount is is going to be less in the United States than it is in the UK. And what that leads to is two different valuations and two different strike prices. That’s normal. That’s to be expected for a UK, US company.

Anthony Rose:  And so one question that founders will have is if my, US employees have got a smaller discount, so a higher price they need to pay for their shares, should I give them more options as a result? Or is it just do it. That’s your local taxes. That’s your problem, not mine. What? What do you see people doing?

Daniel Glazer:  We we we do see, us employees sometimes getting more options to make up for at this point. But I will tell you that this whole issue of options across borders and, and salary and compensation packages across borders is something that you do need to thoughtfully and actively manage between the UK and the US for, for example, it’s typical to give five weeks holiday or more.

Daniel Glazer:  Yeah, in the UK that is very unusual for the United States, right. Word on average, I believe, you know, the average American takes two weeks or less. In terms of holiday, on the other hand, salaries are a lot higher on average in the United States versus the UK. You know, the approach to option is slightly different. So this is something that you’ll need to manage to make sure that you’re you’re keeping a cohesive team, inclusive culture okay.

Anthony Rose:  So a question sometimes you’ll be hiring new people in the US. Sometimes you’ll be sending your team from the UK. And let’s say they’ve got EMI options. What happens then? Do you kill the options and give them a new grant to create a sub plan? Is there a formula for that?

Daniel Glazer:  Well, there’s there’s the existing options right, that have already been been in been granted. But then any new options you’re going to have to look at them as US tax residents US okay. And employees for most importantly here, if you are having people move from the UK to the United States or vice versa, make sure that they are getting personal tax advice.

Daniel Glazer:  If you want to keep happy employees, make sure that they are being advised on you know you’re taking advice not only as a company. Yeah, about the tax issues, but making sure making sure that your employees themselves are getting their personal tax position sorted. Just because the UK and the US approaches are very different and, and they’re going to be changing soon, as we know in the UK.

Anthony Rose:  Right. And that’s really important because I think there’s also this is you know, today you’re a UK, taxable person. And in some years time you’ll be a US taxable person. But in the meantime you could potentially be.

Daniel Glazer:  Oh yeah. Exactly. Exactly. Right. And so, you need to keep in mind not just what’s going on today, but but keep in mind what your tax position might look like for the future and how your op, your UK granted options may play out if it turns out that you’re down the road. A US tax resident. Okay, these are topics to delve into in some detail for your personal situation with your personal tax advice.

Daniel Glazer:  Okay.

Anthony Rose:  All right. Cool. So now I think we’re getting to insurance and litigation. And if you have yeah okay.

Daniel Glazer:  So so the the big three and legal when it comes to setting up in the US incorporation employment and options. There’s a couple other things to keep in mind like data privacy making sure you’re complying with, data privacy rules in the US, extending intellectual property patent and trademark filings to the US, if relevant. And then American using your terms and conditions for the US.

Daniel Glazer:  Yeah. So that’s the legal. There’s four other areas you need to cover. Right? Right. Tax accounting. So after you set up the company in the US you’re going to want to work with a tax accountant to make sure that you’ve got your employer identification number. Right. Or in. Yes. And your in is the unique identifying number issued by the US tax authorities the IRS.

Daniel Glazer:  And that number allows you to set up payroll and benefits and allows you to set up a bank account in the United States. Exactly.

Anthony Rose:  So when we created our Delaware Scope, we had to wait for our EIA. And you can do nothing until you’ve got your EO. And then when you’ve got it, it’s the magic door that opens everything. You can call a bank and get into a bank account pretty quickly. And so it.

Daniel Glazer:  Is the key that opens the door to the US. Right? Is the right. Okay. You’ll also want to work with your tax accountant to get, to help with certain current and then ongoing state and federal tax filings, and you’ll want to work with them, eventually on transfer pricing arrangements between the parent company and the subsidiary.

Daniel Glazer:  Okay. Bank account, you’ll want to work with your bank to make sure that the subsidiary has its own dedicated bank account. You don’t want to use the same bank account as the parent company. Business insurance. You want to make sure that you extend the business insurance from the UK to the US to cover the activities of the US subsidiary.

Daniel Glazer:  As you alluded to briefly, the risk environment, litigation environment is a little bit more robust than in the UK. You will see that when you start talking to insurance providers about insuring versus UK risk versus U.S risk, but one of the best ways to cover off against that risk environment in the U.S is make sure that you have appropriate cover your appropriate business insurance in the United States.

Daniel Glazer:  And then finally is payroll and benefits, right? You’ll want to work with, with an outside payroll and benefits firm often what’s called a professional employer organization pro. Sometimes you might work with an employer record service in EOA, which employs the employees for you. But if you’re hiring employees yourself through a subsidiary that a PEO professional employer organization tends to be the right answer because they’re jointly employing the employees together with the subsidiary.

Anthony Rose:  Right. So that’s one thing we realized quite quickly. So in the UK, like everyone else, you just employ people directly, right. And you’ve got an accountant that does the payroll stuff. But in the US we realized within seconds it’s far too complicated to use deal remotes acquire one or others as this peo and then they sorted out and they also abstracted.

Anthony Rose:  So if the person if you got people in 12 states, you don’t have to learn it 12 times. They just sort that all for you. Of course there’s an overhead for them, but

Daniel Glazer:  That’s exactly right. Is it? It’s outsourcing the relative complexity of the US payroll and benefits market to a provider. So number one, you don’t have to reinvent the wheel for a small handful of employees. And number two, you get to take advantage of the economies of scale. If you go out and try to price your own benefit programs as you know, a four person startup, the rates that you’re going to get aren’t going to be as good as if you’re working.

Daniel Glazer:  Let’s say with a PTO that’s got a million of its jointly employ employees and gets much better rates overall.

Anthony Rose:  Okay, so one interesting thing is bank accounts. So in UK startup groups, the bane of everyone’s existence are UK banks. You get D bank too. It’s hard to get set up. You get index entries in your cap table and so and so bank will remove you and so on. So we were pleasantly surprised to see how easy it is to set up a US bank account, particularly with the new banks like Mercury, this Bank of California and others.

Anthony Rose:  And so one of the things I learned is that bank with a K and bank with a C are two different things. A bank with a K is a proper regulated bank, and bank B A and C is not a bank, it’s one. It’s a neo bank which doesn’t have the federal, insurance and things like that. But those guys, you know, you don’t need to be physically present in the US.

Anthony Rose:  You can be a director, you can be anywhere in the world. It looks like a few days, and you’ve got your US bank account set up. So that I’m delighted is something that seems to be quite easy to tick off.

Daniel Glazer:  Relatively speaking, yes. Is that, not every bank has figured out how to do this seamlessly between the UK and the US, but a number of the more startup friendly. Yeah, banks have definitely figured this out. And if you if you go to the ones that are experienced in this space, I think the feedback that we get is that you’re right.

Daniel Glazer:  It’s a pleasant surprise that it’s not as as friction heavy as might be perceived.

Anthony Rose:  Okay. All right. Great. So let’s switch tack from, you know, US expansion to raising from US investors. So here’s the problem space that I keep seeing in founder chat groups or people reaching out to me, going, Anthony I those UK investors are terrible. They didn’t return my calls I sent early. The valuations suck. I’ve been looking at, you know the crazy valuations in the US.

Anthony Rose:  Should I raise from US investors. I’m going to flip to the US and raise from US investors. And I immediately go, oh my God, they’re going to spend a large amount of time swapping one set of rejections for a different set of rejections. Or is it the amazing box? It’ll get opened. So tell us about your thoughts on when it’s time to raise from US investors what they looking for and when you should and when you shouldn’t bother doing that.

Daniel Glazer:  So I think first off is to understand whether you are the type of company that American investors would want to invest in, and also whether you actually would want American investors to want to invest in you. So first of all, before we go any further, I probably let let’s sort of define terms. What do we mean by American investors.

Daniel Glazer:  So for purposes of this discussion let’s let’s sort of think about American based VC funds. But let’s put aside the ones that have offices in London. Right. Because the ones the American VC funds have offices in London, typically tend to go a bit earlier into UK and European companies because they’ve got people on the ground.

Anthony Rose:  That’s why they set up here, that’s why.

Daniel Glazer:  They set up here. And, you know, just to preview what we’ll talk about later, they don’t necessarily require the Delaware flip, the corporate version transaction because again, they’re here. They’ve gotten a level of comfort with UK and European companies. What we’re talking about for this discussion, when we talk about us VCs, is sort of US based venture capital funds.

Daniel Glazer:  In in places like New York or Boston or Silicon Valley that don’t have offices outside the US. Okay. And what are what are they looking for, especially at Seed and series A, right. Those funds more often than not, are looking for companies that can return the fund or more not will return the fund or more. But they want to see a path, right.

Daniel Glazer:  And if that’s the case, you have to think about whether you want to and can build a company that meets those sort of expectations. I remember I just a quick anecdote being with a group of British companies in the Bay area a few years ago where the VC started explaining this point, he said like, yeah, like, you know, we like every other fund in the Bay area, is looking for startups that can return the fund or more that we want to see a pathway that if everything breaks right, right, that you could be that that fund returner, he said.

Daniel Glazer:  Think about what that means mathematically. It’s like we as a fund invest, you know, oh, is a $300 million fund. And we typically take 10% when we invest, which means you need to pitch us a credible pathway to a 3 billion plus exit, or you’re too small and the room gasped at that point because they were like, well, wow, a $3 billion exit.

Daniel Glazer:  Like, can we really build that? Do we want to really build that? Right? And that that’s the thing is, and you put it well, swapping one, you know, group one set of dynamics for another set of dynamics.

Anthony Rose:  Because that is super important because, you know, if you’re raising from UK angel investors, if you can give them a five times return of investment with assets in, you know, 3 to 5 years, that’s awesome. It’s way better than they getting from the bank. A UK VC or a private equity. If they’re looking for 3 to 5 x, that’s great as well.

Anthony Rose:  But if you’re playing the roulette game so that each one is going to come up 26 red and they’re only investing on that basis, then firstly, after you’ve aged six up your plans for global and so on, and secondly you’re a greater risk of being fired if you don’t perform as opposed to, you know, the angel investor gig where it’s growing slowly that will get a return and so on.

Anthony Rose:  So it seems to be, you could be rich or you could be out.

Daniel Glazer:  Yeah. And that’s actually a topic that we talk to a lot of UK founders about when they’re thinking about, you know, raising from the US and going on that kind of classic, what I’ll call it, like the classic Silicon Valley unicorn journey of we’re going to go raise from the from the tier ones, and we’re going to go build the great American unicorn.

Daniel Glazer:  And okay, that that is amazing. But keep in mind, do you want to for the next 5 to 10 years. Right. Focus on nothing other than mission and money, mission change the world, whatever it means in the context of your business and money. Make as much money as possible, right? For your investors, for the management team, for the employees who are going to be disproportionately motivated by optimizing for the exit for the options.

Daniel Glazer:  Right. And you’re going to be laser focused on the biggest possible outcome. And that’s great if that’s what you want to do. But I but you got to make sure that that’s consistent with the outcome that you want with your life. Right? Right. And this company for the next five, ten, whatever it is, years.

Anthony Rose:  So there’s another part to it as well, which is, those US pieces have the cream of US companies with the US market as their market size coming to them on a daily basis. So if you come from the UK, from a smaller market size, far away, trying to get on a plane with different timezones, scheduling a meeting with illegals, a different, you’re at a disadvantage to all folks coming to them.

Anthony Rose:  So that’s the key thing for UK founders to realize. When you go hunting in the US, you need to really be different sufficiently. Otherwise, why would a US investor, when they’ve got so much incoming so that they completely understand, want to go shopping elsewhere? And maybe the valuations are better for them? Or maybe there’s some thesis that it’s Europe they want.

Anthony Rose:  But if you’re competing with their home ground where they understand the market, they meet the founders, they’re in the same town. They did events. I think it’s much more difficult. Well, what we found.

Daniel Glazer:  Right, is that first off, a lot of early stage, especially seed and series A VCs in the US or former startup operators, they built and they exited startups and then they’re now looking to leverage their expertise and their network to guide the growth of the business. Right. They want to literally and furtively roll up their sleeves and help build the business.

Daniel Glazer:  They know how to build American businesses. They don’t know how to build British or right European businesses. Right. And so when you’re going to them to raise money, right, the assumption is you’re going to them because you want their help in building a big U.S. but there’s some exceptions. But as a general rule, that’s what’s going on there.

Daniel Glazer:  So when does it make sense for those former startup operators to to cross the Atlantic and invest in early stage seed and series A UK companies? And what we found is that typically for the US fund to lead. Right. Remember we’re talking about US based VCs into UK based companies. You usually have to tick one, two, four boxes if you’re a UK company.

Daniel Glazer:  Not all four, but at least one of the four, right? The first is management on the ground in the United States or is there someone or multiple someones that the VC in the US can work with to guide the growth of the business? Is there someone that can move the needle, to to turn the business into one that can compete and win in America?

Daniel Glazer:  That’s the first one without management on the ground in the US. Okay. The second question is do you have traction in the US? Do you have product market fit in the US, and if so, that’s a good stand in for having management on the ground. In other words, clearly if you’ve got a product market fit or strong traction in the US, that if you put people on the ground, there’s something there to build on and that’s investable, okay.

Daniel Glazer:  If you don’t have that, do you have experience on the management founding team? Building a U.S business previously and or raising money from US investors previously because a lot of early stage investors, for better or for worse. Right. And there’s some better and there’s some worse are engaged in pattern matching that if you’ve done it before, you’re more likely to do it again.

Daniel Glazer:  So if you say, right, okay, we don’t have traction in the US. We know people on the ground in the US. But hey, look, you know, our CEO in their last business raised 50 million from a tier one VC in the valley. That’s helpful.

Anthony Rose:  Right?

Daniel Glazer:  Right. And that’s something that they can pin their hopes on as VCs, because especially at the early stage, a lot of the VCs are investing in primarily two things team and team, right quality the team and the large total addressable market. When it comes to the United States, the large Tam, almost, you know, sometimes is is is assumed, right, is the bigger.

Daniel Glazer:  So then then the question ends up being is this team one that I can bet on? And if they’ve bet if Americans have bet previously and one by working with this team, that’s helpful.

Anthony Rose:  Okay. So the advice to a UK thousand a year, let’s say seed pre-seed finding it hard to raise investment. Eyeing the larger valuations and larger investments amounts in the US. What is it cue to say don’t waste your time on US investors or do go to US investors. Any thoughts? So that founders and then I’ll hop in.

Anthony Rose:  Yeah. With my thoughts.

Daniel Glazer:  So so I think that the the first thing I want to I would just want to add in there is that if you don’t have a U.S story. Right, management in the US, traction experience in the US previously then the box you really need to think about taking is are you materially better than homegrown American alternatives? Because when you think about it this way, raising a seed in series A is a little bit like the VC is going to the casino, right?

Daniel Glazer:  And the the pieces are comfortable being at the casino. Right. And but they’re not reckless and, and they want to make sure that they’re getting upside for their risk. And if you as a UK company are exactly as good as the homegrown American alternative, there’s an additional layer of risk that you have, which is the geography risk.

Daniel Glazer:  And you have to account for that additional risk when, when pitching or when and hoping to get money from U.S investors. If I’m a U.S investor, I’m comfortable with risk, but I want financial upside for the risk. So if you’re coming to me saying well, I the UK company present additional risk of of the geography I want, I as the VC want to see additional upside.

Daniel Glazer:  So that’s, that’s the additional box you might have to take if you don’t have a U.S story, is are you better and maybe materially better than homegrown American alternatives? Now all that said, if your model and your vision as a UK founder is I want to go change the world and I want to focus on building this business for as long as it takes to change the world.

Daniel Glazer:  And, and, you know, I’m cool making money for my VCs and my employees and maybe make some for myself, and that that’s great. And I comfortable and I look at those four boxes and say, yeah, I can take one or more of those boxes. Well, then, yeah, I mean, go after the US because US VCs may absolutely be the right ones for you.

Anthony Rose:  Okay. That’s great. So let’s get on to the third part of this discussion, which is the Delaware flip. So the Delaware flip is you’ve got your UK company. And it’s not about making a subsidiary in the US so you can hire people locally. This is about creating a new top company, taking all the shareholders in the UK, company moving them into the US company.

Anthony Rose:  And now it’s the top company, the Delaware flat. And so you know, I have a founders call me is I’m sure they call you and go, should we do the Delaware flip, and make us more investable and I my starting point is spending $500 on a Delaware company cannot add a zero to your company valuation. It might add $500 to a company valuation, but it can’t be more so.

Anthony Rose:  The the US top Co is part of a building block to a solution. But take us through when you think it makes sense to create a US top company. And when it’s not a solution to a real problem.

Daniel Glazer:  Okay. So we often get feedback, that from UK companies and European companies going to talk to us investors that a lot of US investors will say to them, certainly it’s seed. And sometimes it’s series saying we the VCs only invest in US companies and when and when they come and tell me that, I always tell them, you need to.

Daniel Glazer:  You need to clarify what of the following three things that that VC means? Do they mean they only invest in companies that operationally and commercially are based in the United States, which has nothing to do with the corporate structure? Yeah, right. It means do you have people on the ground creating real traction in the United States? Right. Which could be through a US subsidiary of a UK parent company, or the VC could mean, are you a Delaware parent corporate structure?

Daniel Glazer:  Or they could mean both. Right, right. That are you both operationally and commercially successful in the United States? And is the top co a Delaware parent company? Right. And it’s important to understand what you need to change about your business to become investable to American investors. And for the most part, right, that if the company is not investable because it doesn’t take any of those four boxes that I mentioned earlier, simply having a Delaware parent company does not make an uninvestigated company investible.

Daniel Glazer:  The way that I often frame it is a Delaware parent company may end up being a necessary condition to close around from a U.S fund, but it is not a sufficient condition. Right? You? Everything else about the company needs to be investable, and then the last item, the last box to take is to make sure that the corporate structure works.

Daniel Glazer:  The other thing I want to highlight, right, is that in general, pretty much anything that you want to do in the United States, to the extent that it requires a company visa, like, you know, getting visas for you or your employees hiring, hiring employees in the US, maybe commercial contracting, maybe setting up a bank account, all of that stuff.

Daniel Glazer:  Generally speaking, can be done with it with the US subsidiary.

Anthony Rose:  Right.

Daniel Glazer:  The one exception where it really has got to be a parent company is the following. You are raising from typically seed, sometimes a virtually never series B and beyond. Right. Investors in the United States. And those investors say we are willing to give you a term sheet not we might give you a term sheet, but like we’re willing to invest, right.

Daniel Glazer:  But we need you to be a Delaware company. And this is the big end. And you as a UK company, decide that the quality of the terms, the quality of the investor and the amount of money coming in is worth the time, the effort and the cost of the Delaware flip. Because the Delaware flip is not simply a $500 or whatever the number is going to be Delaware Corporation.

Daniel Glazer:  It is a corporate inversion transaction where you take the cap table of your UK company and you do a share for share exchange. So now the cap table of your new Delaware company has the cap table of your UK company. And the UK company survives as a wholly owned subsidiary of the Delaware company. To add to the complexity, a lot of UK companies will have taken S’s or e I s right.

Daniel Glazer:  And so now what you’re doing is you’re asking either your existing e s or this investors to give up the sister gas treatment which comes sometimes can create frictions, shall we say, or I think in our experience, more likely you end up trying to do an S this is compliant Delaware flip. But now you think about this. What does that mean?

Daniel Glazer:  You are asking HMRC to give UK tax breaks to UK investors for investing into a Delaware corporation. That’s not simply setting up a company online. That is a fairly complex transaction that requires real specialist tax and legal advice. And when you think about it that way, that’s not surprising, right? Asking HMRC to bless that shoot probably is not going to be simple.

Daniel Glazer:  Now we see this happen all the time, but it’s a real transaction. And this is why it’s so important to make sure that, number one, the money is going to come in if you do the Delaware flip. And number two, that it’s worth it that the deal in front of you is worth that complexity and that effort and that that money.

Daniel Glazer:  And that’s why, you know, the answer to should be flipping a Delaware is not, I hate to say it, it’s not a simple yes or no in a vacuum. Right? Right. As I said, there’s there usually is a clear yes or no once you understand the potential deal in front of you.

Anthony Rose:  Got it. So the short answer is don’t waste your time speculatively doing it. Wait until there’s a real clear and present need to do so. I think there’s one other nuance which is should you when you start your company in the first place, to skip going in the UK and just incorporating Delaware from day one, because then you skip all that friction.

Anthony Rose:  And if you can product ties it so that it’s $500 on it for Delaware C Corp and 250 pounds or 50 pounds. Okay. With companies House, you’ve got more transaction overheads, but maybe you future proofed. What do you think of that is, it seems a compelling possibility.

Daniel Glazer:  Yes. So what we have found is that for, for for a company that’s debating UK versus us more often than not where they end up landing on. And this is, I think what we, we, we generally advise as well, is that where is your first round going to come from. Right. Because if your first round is likely to come from the UK and you think, well, I want to create the Delaware company for the future, well, once you get past seed, yeah.

Daniel Glazer:  The chances of having to flip in a Delaware fall off a cliff. I mean, rule of thumb these days is that we say if you’re raising a US LED seed, the chances of flipping in a Delaware are probably about 75 to 80%. But by the time you get to like, let’s say series A, it falls to about 20, maybe 25%.

Daniel Glazer:  And by the time you get to series B or later, it’s virtually zero, right? So if you get past seed, the chances you ever have to flip in the first place, like or lot lower, right. And now if you’re going to if you coffee, you’re gonna raise your first round from America then yes. Maybe setting up as Delaware makes sense, but if you’re doing it speculatively, you got to weigh this against the reality that, oh, okay.

Daniel Glazer:  But by the time that you’re ready to actually credibly raise from us VCs, there’s a good chance you’re going to be so late like later stage that they’re not going to acquire the flip anyway. And what’s the trade off? The trade off is it is more complex and expensive to run a Delaware company than it is to run a UK limited company.

Daniel Glazer:  Right? That Delaware companies require real advice, real legal advice, real tax advice. And in our experience, that is not something that the UK and European founders are as comfortable with when all of their friends and peers are running companies that don’t require, let’s say, as much in the way of admin and logistics and advice. Right. And it’s worth the overhead and it’s worth and you get ROI if you’re going to use that Delaware company for a purpose.

Daniel Glazer:  But if you don’t, and we’ve gotten this feedback a lot from UK founders who maybe proactively set up Delaware companies as they go along or, you know, they look back in the like, well, it seemed like a good idea, but now I’m finding that I have to take a lot more advice. And there’s no companies house, which means I have to keep really good records because no one knows who my directors are.

Daniel Glazer:  No one knows who my officers are. I have to keep track of all my grants and options and everything. There is no the only source of truth on that is what is the records that I and when my outside advisors keep. And that’s not what their friends and peers are dealing with and what our experience is that a lot of founders don’t like that, that friction.

Anthony Rose:  Okay, which actually to wrap up nicely, I think aligns with my advice, which is growing a business. You know what, if you wake up and think, what is the laser focus thing that’s going to make or break this business? It’s establishing product market fit. It’s building a product your customers want. Everything you’re doing there is not that is noise.

Anthony Rose:  And you should do less of it. You know, moving the pieces around the corporate puzzle board and the legal overheads. All of this is taking time away and money away from building a product. So if on the one hand you can spend 50 pounds and this evening have a company, you know, in the UK and I mean the overheads for running a company in the UK are incredibly modest.

Anthony Rose:  You get tax back from the government in R&D, you investors get tax breaks. It’s really good. So would you swap that for the extra overhead. Of course the upsides offered later. But the last thing to remember is investors usually invest in their home country, as you said. And likewise if you’re in the UK, there’s an 80% chance your investors are going to be UK investors.

Anthony Rose:  And even if you can create a C Corp and get foreign entity assets, advance insurance, which is a bit of overhead, but you can do it, there’s still more friction compared to just having a UK company. So maybe to wrap up it’s you need to flip really your thinking model from am I likely to be focused on the UK market with team in the UK and investors in the UK?

Anthony Rose:  Answer is a UK company. If I’m largely going to be in the US as the CEO, get my dad on a plane, be in New York, whatever it is, selling into the vastly larger US market, talking about that term to investors and going hunting for US investors. And as you said, I’m a US company and I should have a Delaware company.

Daniel Glazer:  That’s a great way to think of it. All right.

Anthony Rose:  That’s amazing. Where can people contact you to find out more and when should they contact you?

Daniel Glazer:  So where we usually start talking to companies is when they come to us with one of two questions I’m looking to set up and launch and expand in the United States. What do I do next? I’m looking to raise money from U.S. investors. What do we do next or IPO? Yeah, or if you’d like to come to us and talk about an M&A sale or IPO, we absolutely talk about that as well.

Anthony Rose:  All right. Where do people contact you?

Daniel Glazer:  I am, readily reachable over, over LinkedIn and contribute regularly to latent. And then I’m also, Daniel glaser.com. Pretty easy to find. All right.

Anthony Rose:  Close with us.

Daniel Glazer:  Ed Glaser. What is that or is he if you’re in a okay.

Anthony Rose:  Thank you so much, Daniel. That was.

Daniel Glazer:  Awesome. Thank you Anthony. Appreciate it.