The Internationalization of Startups

For years, I’ve been deeply fascinated in how startups go from their home market to new international markets. From what I observe, it seems like the pace of international expansion is only getting faster. This might be a result of companies raising larger rounds earlier in their lives, drawing on the experience of executives who have launched products and companies in new markets, and the proliferation of the internet and new communication platforms that make it easier for companies to reach new customers and allow employees to communicate with each other more effectively.

I’ve personally been a part of numerous international expansion efforts. Some went fairly smoothly. Others flat out failed. But it’s always more expensive than we’ve budgeted for and more time consuming than we planned on. Through these experiences, I’ve amassed many techniques that I hope will help future companies plan and execute their internationalization efforts.

After one terrible experience that I had a few years ago with a startup I was involved with, I’ve been especially cautious when advising European startups about their new market efforts. When I started looking around for information on how previous companies had successfully launched and grown new markets, I was surprised that there is virtually nothing out there. So I decided to do some of my own research.

Since late last year, I’ve been collecting data and interviewing founders and executives who have played crucial roles in the internationalization of their startups. I’m especially interested in how B2B companies plan, organize, set goals, execute and measure their growth in new markets given they almost always need to build local sales, marketing and operations teams. I’ve had dozens of enlightening conversations with folks from companies like Dropbox, Hubspot, Logmein, Marketo, Salesforce, and Zendesk to better understand how they executed on their international efforts. Some of their stories are entertaining, in other cases I wondered how the time and investment that they put into their operations didn’t cause more strain on the business.

In one dataset that I have amassed of 66 publicly listed SaaS companies, I found the following:

  • Only 42 of the 66 (76%) had an international presence. The average company was founded in 2001 (youngest was 2011 and the oldest was 1987), the average time to $100m in revenues was 10 years (fastest 4 years, slowest 27 years) and average time to IPO was 9 years. So there is an obvious selection bias given these software companies had the pedigree to IPO. All but three of these companies are HQ’d in the US.
  • The average company launched their international efforts in year four.
  • The average time to achieve 20% in international revenues as a percentage of overall revenues is seven years (the fastest being one year and the slowest of companies who had internationalized 14 years).
  • Only 13 of these companies have reached $50m of international revenues in 10 years or less.

I have further data that I’ve collected on privately held startups in the US but what I’m really interested in is what the European data looks like. Anecdotally, most of the software companies that I have been involved with to date have opened up their first international office in the second or third year of their existence. Typically, they are well beyond product market fit and in the middle of what I would call their ‘sales execution’ phase. This is the phase where the founder(s) have handed over responsibility of driving new leads and opportunities and closing deals to a small but growing team of marketing and sales professionals. There are still several quarters to go for them to start fully accelerating their sales, but they have an identified sales process and cycle.

Typically, European startups have raised less money and are on less revenue by the time they launch their first international market (which in many cases is the US) compared to their American counterparts. In most cases they are disruptive products that are first to market and are clearly wanting to take advantage of first mover advantages before other companies do. If European founders want to build large global companies, then taking your company international is an obvious stage in the companies lifecycle.

This is why I’ve launched a survey to collect data on European B2B startups international efforts. I’d like to invite any European HQ’d company to complete this survey which takes under five minutes if you meet the following criteria:

  1. You must be HQ’d in Europe (including Israel and Russia)
  2. You must be a B2B business (we will conduct a follow-up B2C study in due course)
  3. You must have launched in one international market to date
  4. You must be on a revenue run-rate of at least $1m

All information will be kept strictly confidential and in return for completing the survey, your company will be mentioned in the report and you will be invited to a lunch event where I will publish the International Playbook for founders in London.

Thank you in advance for your participation. The survey can be found here.

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  • Laura

    Hi Scott, I did my master thesis on a very similar topic, i.e.: the role of venture capitalists in the internationalization of high-tech new ventures from Europe and North America.

    This research was aimed at exploring the role of external support in the fast internationalisation of high-tech new ventures. More specifically, the purpose of this research was to understand how venture capitalists support and influence the fast internationalisation of their portfolio ventures and why they do or do not do so.

    In order to complete this study, we sent a survey to European and North American new ventures and equity investors. We also interviewed nine founders of international venture-capital-backed companies and four equity investors. From both sources we obtained qualitative data that were predominantly analyzed based on the resource-based view.

    The results show that internationalisation is widely considered by entrepreneurs and investors, and that international resources are not the main driver of the firm’s international strategy. This can partly explain why the majority of the interviewed entrepreneurs perceived they had the resources required to succeed in international markets. Related to this finding, only few participants argued they sought intangible support from their investors in order to expand to foreign markets.

    The findings also demonstrate that venture capitalists support and influence the international strategy of their portfolio ventures but that it is not often valuable. Venture capitalists are lacking the industrial and international resources required to bring them relevant support. Moreover, because of their revenue-oriented objective, venture capitalists tend to influence the international strategy of their portfolio ventures for their own interests rather than those of the firm. However, the overall satisfaction of entrepreneurs is relatively high because they already possess the international resources required or because they can access them thanks to other stakeholders.

    If you want to receive the full work, just send me an email.

    All the best
    Laura

    • Scott Sage

      Super interesting and I would love to read your report. Can you please send it to jscottsage at gmail

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