Considerations for International Start-ups about

Entering the US Market

Dr Phil Budden MIT Sloan

School of Management

MIT Sloan Management

Introduction

I have long worked on start-ups coming into the US:

•  As a British diplomat in DC and then Boston

•  Then as a commercial banker at RBS/Citizens Bank

•  And now at MIT’s Management School, where I research ‘innovation ecosystems’ and teach about them in global programmes like ‘MIT REAP.

An article on Boston attracting so much FDI (on Boston Globe’s BetaBoston site May 2014)

http://www.betaboston.com/news/2014/05/27/why-boston-attracts- so-much-foreign-direct-investment-a-global-perspective-on-our-city/

Why are start-ups so interested in specific markets?

•  We were told that the “World is Flat” now…

•  ...but evidence to the contrary keeps on emerging, especially when it comes down to ‘start ups’

…the world of start-ups is in fact very ‘spiky’!

Why are all of us so interested in start-ups?

Start-up (ie young) enterprises now create the most jobs…

And why are start-ups so interested in the US?

The US has some regional ecosystems that are especially good supporting start-ups

NB: not all start-ups are created equal:there are two distinctive types - SMEs & IDEs

Revenue

Time Time

Small-/Medium-sizedEnterprise(SME)Innova9on-DrivenEnterprise(IDE)

Revenue

Start-ups interested in the US market…

…are more likely to be of the IDE variant, and these too fall into a number of categories (each with its own – and some similar – challenges):-

•  Those which are founded in the US by entrepreneurs who came specifically to found a start-up;

•  Those created by start-ups expanding into the US from outside; and

•  Those start-ups created by corporate enterprises from outside the US.

1. start-ups founded in the US by entrepreneurs who came specifically to found a start-up

The founders behind such IDE start-ups may find that:

•  They can be in competition with US entrepreneurs for local talent, resources and market-share…

•  …but they will also be part of the local ‘innovation ecosystem’ (eg start up scenes) which bring benefits

•  …even if they are not long-standing members of the local community and its networks.

2. US ‘start-ups’ created by those who found start-ups and then expanded into the US from outside…

In today’s global innovation, start-ups in one market are much more likely to expand to other markets (even in different countries) at a much earlier stage:

•  These start-ups founded elsewhere may face competition from (and local bias in favour of) homegrown US start-ups…

•  …and they don’t immediately benefit from networks and partners in the local US market…

•  …but, as start-ups, they will soon understand the local innovation ecosystem, and their ‘parent’ start-up knows what it means to be an early stage enterprise.

3. start-ups in the US created by larger corporate enterprises from outside the US…

In some ways, those startups founded in the US by large corporates from outside the US may face some of the biggest challenges:-

•  They have all the disadvantages of not being a ‘homegrown’ US start-up (as in the previous slide)…

•  ...but the corporate ‘parent’ may also not understand the issues for early stage ‘start up’ enterprises...

•  …and both US start-ups and more established US corporates may prove a challenge.

Challenges for all three variants of start-ups

For all these start-ups, the US market is likely to provide some common challenges to manage:-

•  Risk capital: with founders from outside the US, these start-ups will lack the local track-record, even of personal finances, that homegrown ones can take for granted;

•  Financials: without a few years of US financial statements prepared by accountants, these start-ups will seem even more risky than homegrown ones;

•  Intellectual property (IP): for start-ups with IP (eg patents or trademarks) from outside the US, there could be additional legal complications to safeguard their start-up

But there’s good news for start-ups in the US…

•  First, many US regions – including Boston – have a startup-friendly culture of their own already…

•  Second, within those ‘innovation ecosystems’, there are a variety of professionals (eg lawyers, bankers, accountants, etc) which specifically help start-ups…

•  Last, the mature ‘innovation ecosystems’ are used to encouraging start-ups to ‘scale up’ and ultimately become full corporate enterprises

Innovation Tours

Entrepreneurs Needing a

Community: Somerville

Greentown Labs

Artisan's Asylum Inc

Brooklyn Boulders

University-Catalyzed: Kendall/MIT

Martin Trust Center for MIT

Entrepreneurship

Massachusetts Institute of

Technology

Cambridge Innovation Center

Government-Driven: Boston

Innovation District

MassChallenge

District Hall

Fraunhofer Center for

Sustainable Energy Systems

(CSE)

…and especially those looking at Kendall Square, or now even further beyond…

Government-led:Boston Innovation District

University-Catalyzed:Kendall/MIT

Entrepreneurs Expanding: Somerville

From MIT’s One Broadway (e70), home to the Cambridge Innovation Center (CIC), out to its ‘District Hall’ and MassChallenge in Boston’s ‘Innovation District’…

Questions & comments, both now and later…

Questions? Comments?

•  Email: pbudden@mit.edu

•  Twitter: @Phil_Budden

•  LinkedIn: Dr.Phil Budden