SILICON VALLEY TRENDS: SERIES A INVESTMENTS IN FOREIGN COMPANIES

Trending in Silicon Valley: Process, Timing, and $ for Series A Investments in Foreign Companies

On a recent trip to Silicon Valley, in collaboration with Nordic law firm Synch, I had the privilege of meeting with partners at leading tech and venture law firms (Wilson Sonsini, Cooley, and Wilmer Hale), representatives of Stanford University and UC Berkeley (my alma mater- Go Bears!), angel investors, venture capital firms, capital finance partners, incubators, organizations (e.g. Business Sweden, Nordic Innovation House, Swedish American Chamber of Commerce), and even had an opportunity to attend a pitch event at the Vault in San Francisco.

rawing on the meetings above and my experience (as a California business lawyer living/working in Stockholm and advising companies on, among other things, US market entry, financing, and deals), this appears to be the current pulse of Silicon Valley with respect to investments related to foreign companies.

The Process

Investment opportunities in foreign companies are often met with a higher degree of caution because there are more unknown variables than with local prospects. With this said, valley investments in connection with foreign companies generally occur in one of two contexts:

US presence
In this context, the foreign company either:

(i) does a Delaware flip ( the foreign parent becomes the subsidiary and the entity in the US (generally a corporation formed in Delaware) becomes the parent company). In this context, the investment would generally be made into the Delaware parent company. There are a number of legal and tax issues (relating to both the foreign jurisdiction and the United States) to be addressed before carrying out a Delaware flip.

or

(ii) the foreign company forms a US subsidiary (again, typically a corporation in Delaware). In this context, the investment may be made into the foreign parent company (or the investor can initiate discussions for a restructuring - ie the Delaware flip scenario explained above) whereby the investment would subsequently be made into the Delaware parent corporation.

The investment criteria for funds may require the target company to be either a US corporation or otherwise have a US affiliate. Further, many investment firms deem legitimate US business presence a hallmark of credibility. Such business presence not being merely form over substance but rather bearing attributes of substantive operations, e.g., employees, customers, partners, deals, and revenue.

Foreign presence
Some U.S. firms (i.e. investment houses with foreign affiliates and/or corporations with caches of U.S. dollars abroad) may prefer to utilize foreign affiliates to invest in foreign (non-U.S.) companies. In such scenarios, the U.S. presence requirement may be less relevant.

Otherwise, valley investors may take an interest in a foreign company if a foreign investment firm previously invested therein and such investment firm has a pre-existing relationship with the valley investor.

The Timing
The lead time for closing a Series A financing has become considerably longer, with many stating the typical timeline is upwards of 2-4 years. There are loads of investment opportunities and investors are monitoring companies’ progress over time before committing funds.

The Amounts ($)
Not only has the lead-time for closing Series A venture financing increased, but so too has the level of investment. The range now appears to be $5-10 MUSD.

*This article is not legal advice and is offered for educational purposes only.