The Lure and the Danger of Seeking International Investment

By SUSAN LAHEY
Reporter with Silicon Hills News

SalesVu’s Pascal Nicolas told the kind of story every entrepreneur fears, of draining his company’s investment money on trips to Dubai, and a useless valuation report, in expectation of a huge infusion from a United Arab Emirates investor. On a brighter note, Jagath Narayan of Orodoro told of the VC from Brussels who found his company on AngelList and invested nearly $1 million after spending two days in Austin. Austin Technology Incubator’s Startup Week session “Attracting International Investment” gave a snapshot of the possibilities for startups who seek investment beyond U.S. borders.
Though Austin is landlocked in the middle of Texas, there are more than 250 international companies that account for more than 25,000 jobs and billions in annual foreign investment, says Angelos Angelou, founder of a new international incubator in Austin and former vice president of economic development for the Austin Chamber of Commerce. Much of that financial investment goes into real estate. But there are also many companies in Austin that have their roots in the UK, France, Japan, Korea, Germany and the Netherlands. And investors from outside the U.S. sometimes invest in U.S. startups. One panelist, Rogelio de los Santos, is founder of the Mexican VC Firm Alta Ventures. This fund comprises a number of wealthy Mexican families seeking disruptive investments, not only in Mexico but in the U.S., Argentina and elsewhere.
The Long Reach of AngelList
Startups may rarely think of finding investors outside of Austin and San Francisco, but for the company Ordoro, which handles back end operations for small businesses that sell online, it was a Belgian company that gave them their big break. Narayan, an Ordoro founder, said he had made the rounds of VC firms and angels and had several potential investors, but no lead investor. Then the company was contacted by the Belgian VC fund E-Merge. It had done investments in the space in Belgium and Germany but had never invested in a U.S. company before.
“They said ‘We can’t be your lead investor but we can put $50,000-to-$100,000 in your round,” Narayan said. They came to Austin, spent two days looking at the numbers and the code and checking out the startup climate, and decided to invest $750,000.
There were no hurdles beyond getting the company accredited as a U.S. investor, which would be expected of any company. Once the lead investment was made, others jumped in and the company raised more than $1 million.
“Most people say your VC needs to be in town for you to work with them,” Narayan said. “But we send them a report once a month and we converse over Skype. Now they’ve invested in two or three companies in the U.S. and they come over here every few months. Geography has not been a constraint at all.”
Adventures in Dubai
SalesVu had also received about half of its first $800,000 investment from international investors. The company, that gives retailers and service companies a fully mobile point of sale solution had joined an American Express Incubator. The managers of the incubator felt they had such promise they hired a brokerage firm to help the company raise money. The brokerage firm had contacts in the Middle East, and off they went.
Huge Middle Eastern companies don’t do seed rounds, Nicolas was told. Any investment would be between $10 million and $40 million. So the flew to Dubai and met with the representative of a huge conglomerate with construction companies and high end retail. The representative loved them. Wanted to become a customer as well as an investor. They were extremely interested. All that was needed, he said, was a valuation report. The incubator suggested a company to write the report, for $30,000. When it was done, Nicolas was told that “these guys prefer to deal in person” so they flew back to Dubai, spending more money on plane rides and hotels. The representative was thrilled, said the report was exactly what he needed to present the company to his board.
And that was the end of that. No word, for months.
“We gave up on that a while ago,” Nicolas smiled. “But I’d never been to the Middle East before…that was an adventure. It’s hot.” The whole experience taught him several things:
• Pitch via Skype and get them to sign some kind of a term sheet, even if it’s non-binding, before you actually go.
• Valuation reports don’t mean anything.
Peter Cleaves, president of DRG International, who was in the audience, added that, in the Middle East, “fail forward” is not a popular concept. Losing or not winning big on an investment is humiliating. Knowing the rules and players is key.
Of course it also depends on the kind of investors you’re dealing with. De los Santos said the limited partners that make up his fund are less risk averse and more interested in disruptive technologies than a lot of institutional investors.
Said De Los Santos “We’re looking for entrepreneurs who are thinking very big.”