For many startups, the U.S. is the place for the big money. The majority of the largest venture capital firms are indeed based in the U.S., and funding rounds tend to be bigger. But U.S. dollars don’t grow on trees and accessing this money isn’t easy. Especially for a foreign startup, it can be quite challenging to raise money in the world’s largest market. There are some key differences between fundraising in the U.S. and Germany that are good to know before you start the process. It requires a lot of research, preparation, and a solid network. We’ve put together an overview of the most important steps on how to successfully fundraise in the U.S.

How Are American Investors Different From German Investors?

First, let’s take a look at some of the distinctions between German and U.S. investors. As a German founder coming to the U.S., there are certain things you should keep in mind. One major difference is the way Americans communicate and express their opinions. In Germany, the communication style is quite direct, and you quickly know where you stand. In the U.S., this isn’t always the case. A valuable piece of advice from Christian Busch, Managing Partner at German Accelerator in the U.S., is to not confuse accessibility with interest. “U.S. venture capitalists may seem very accessible – you can often find and contact them on LinkedIn or Twitter – but that doesn’t necessarily mean that they are interested in your company or that there is a shortcut you can take,” he says. “You will still have to go through the whole process, which starts with trying to get the investor to look at your pitch deck in the first place.” In general, you will find that in the U.S., the bar to receive funding is higher. The market is much noisier, and venture capitalists have better pattern recognition. They have seen numerous big deals and have a good understanding of what works and what doesn’t. Don’t expect them to say that directly to your face, though. You will rarely hear a clear no from U.S. venture capitalists. If they say something along the lines of “interesting, maybe later, let us know how you are progressing,” you know that you need to keep looking. Christian says, “when you get rejected, and you will, it’s important to stay focused: Don’t take it personally and move on.”

Another crucial aspect Christian points out is that already early on, U.S. investors have a strong focus on metrics. In his experience, German pitches tend to be too “fluffy,” talking slide after slide about product features but not presenting enough numbers behind them. Going hand in hand with the metrics, you will need traction in the U.S. to raise a round with U.S. investors unless you are a successful serial entrepreneur already. A simple definition of traction by AngelList co-founder Naval Ravikant is “quantitative evidence of market demand.” The more U.S. traction you have, the easier it will get for you to fundraise.

This leads us to the next question: At which stage should startups look for U.S. investors? Most German startups start their business in their home market and then think about expanding to other areas in the world. Given the general necessity to have a good record of U.S. traction if you want to raise money in the U.S., it is common for German startups to begin approaching U.S. investors at a later stage of their business, namely, stage B and after. This doesn’t have to be true for every startup, though. Suppose that your product is specifically aimed at the U.S. market. In that case, your first customers might be in the U.S., and you might therefore have solid U.S. traction earlier on.

Get the Basics Right

As with everything, there are exceptions to the rule. But in general, you need to be legally based in the U.S. to do business there, which means that you need to set up a business entity. The most common entity foreign companies choose is a C corporation. While forming an LLC (limited liability company) is also an option and has its benefits – e.g., flexibility in management structure and pass-through taxation – the most significant advantage of a C corporation is that investors prefer investing in them. Most of our German Accelerator portfolio companies create a U.S. subsidiary. However, some decide to have the U.S. Inc. be the parent, especially those who know they would like a U.S. investor.

What Do Investors Look For When They Look at Startups?

Regardless of which sector the startup is in, the most crucial metrics are the total addressable market and the product-market fit. Or to phrase it differently: What benefits does the product give to its users, and are there enough people who need those benefits? Investors want to see that there is a market for your product in the U.S., and the best way to show that, again, is U.S. traction. Without any U.S. revenue, the chances of getting U.S. investors are meager. Once you have secured some revenue, the next important factors are growth and retention rate. Investors need to see that your product is scalable, that you’ve achieved some growth in the U.S. market, and that you can keep existing customers.

German Accelerator alumnus Frank Wolf, co-founder and CMO of Staffbase, knows the challenges of fundraising in the U.S. and the importance of U.S. traction. They started their U.S. expansion very early on, and once they saw that there was product-market fit, good growth, and some early traction in the U.S., they made the step to approach U.S. investors. They received their first pure U.S. investment a year later when they “were big enough and had enough traction in the U.S.” From Frank’s experience, “enough traction is at least one million dollars of pure U.S. business and showing strong U.S. growth. Investors are looking a lot at the product’s success. Of course, they want to see new business, but they mainly want to see if we have a high retention rate.”

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