An Irish venture capital firm has raised an $80m (€72m) fund to focus on high-growth US tech startups which need to expand into Europe but are unsure how to get it right.
Frontline Ventures, which usually focuses on early-stage startups in Ireland and the UK, has launched its Frontline X fund to deal with "flawed expansion strategies" it claims fast-growing US companies adopt when picking and launching a European base.
The division of Frontline is being led by two partners, Stephen McIntyre, a former Twitter lead for Ireland and Europe, and Brennan O'Donnell, a former Google and SurveyMonkey executive who is based in San Francisco.
Frontline X will invest up to $5m in each venture backed, but won't be a lead investor in the companies it backs. Instead, it will focus on high-potential startups which have already raised money from high-end venture capital firms in the US.
It has already made three investments, in the Andreessen Horowitz-backed firms TripActions and People.ai, and the Highland-backed Clearbanc.
"US tech companies should be getting about 30pc of their global revenue from Europe by the time they go public," Mr McIntyre told the Irish Independent.
"The median revenue for companies going public is about $250m. When you realise that the business is on that scale, you have to resource your European operation accordingly. It's a really substantial opportunity. Thanks to Saas software, it is possible for American companies to get up to around 10pc of revenue outside the US without putting anyone outside the US. But to get to that 30pc figure is not possible without putting people on the ground."
Yet when US companies go about setting up a European operation, they make avoidable mistakes, he said.
"Timing is a common one," said Mr McIntyre. "Some expand too late, some go too early. A company with $10m funding in the US might find things are going well for them in America. But then they try to expand with no fully built-out executive presence in Europe.
"It's just too early to do that. Other companies wait too long or don't expand out of fear. Some are doing so well in the US that they sit back and conclude that they're only scratching the surface of the domestic market. Others hesitate to expand because they believe they don't have international experience or networks on the ground.
"In both cases, it can lead to copycat competitors coming into the European market to eat your lunch."
Other mistakes US firms make include "copying and pasting" processes which got them to where they are in the US, said Mr McIntyre. But such techniques can fail when they overlook the need to have a "hard core" of product advocates in Europe, performing a similar role to the one advocates in the US had when the firm was in its early stages.
"It's pretty important to get these companies to retrace their steps," he said. "Some element of market development is essential."
In a previous job, Mr McIntyre was tasked by Twitter to set up its European operation, headquartered from Dublin. The experience taught him many things, he said.
"Picking a headquarter city can be quite important," he said. "Dublin is the best city for some things, London is better for others. Then cities like Berlin are also worth considering for other reasons."
London is the most commonly chosen international location for US companies, followed by Dublin and Amsterdam. When offices are opened in France or Germany they are typically second offices rather than HQs.
Having a decent network and getting the best executives is also central.
"Hiring is crucial," he said. "Not just in getting the right people, but in setting up reporting lines and structures. It's not straightforward to know how to do this. It's often overlooked."
About a third of "first senior hires" in Europe don't work out, he said. The most common reasons given are that they either "too junior", "too sales-focused" or there isn't a "culture fit".
Addressable markets are also critical.
"A lot of US companies just start selling to whoever speaks English," he said. "But you can't get to that 30pc figure without addressing big markets like Germany and France. There are also channel issues to consider. This is really difficult unless you've done it before."
One company that Frontline has already seen through this process of expanding into Europe is TripActions, a specialist business travel platform which has raised almost $1bn from funds that include the top-tier Silicon Valley VC Andreessen Horowitz, giving it a $4bn valuation.
"We've grown from zero to 150 people in Europe and scored a major strategic partner in 18 months," said the company's chief executive, Ariel Cohen.
"Stephen even coached one of my VPs for six months," said Mr Cohen.
This is the third major seed fund created by Frontline, with around 70 companies backed in all.
Some of Frontline's hits include Britebill (acquired by Amdocs), Logentries (acquired by Rapid7), and Orchestrate (acquired by CenturyLink). Frontline was also an early investor in Pointy, which was acquired by Google for more than €100m last month.
Mr McIntyre said the outbreak of the coronavirus was unlikely to have much impact on US companies considering a European base. "Certain companies will take a short term hit in some sectors; but international expansion is an inevitability for most of them," he said.