I’m starting a series of posts with tips for founders of startups originating from Eastern Europe who are planning to move to Silicon Valley or who have moved recently. These will cover lots of various topics from product strategies to fundraising tips. Today let’s talk about choosing locations for R&D offices.
So you’re building a global tech startup doing computer vision for cancer diagnosis in cats. Or a fun AI app superimposing kitten images over your selfies on Snapchat. Or a chatbot platform for accounts of celeb animals on Instagram. Oh, wait, if you’re making the latter — you’ve probably moved to Silicon Valley in 2015 and don’t need my advice, just pivot into a deep learning startup to stay with the hype.
Let’s assume that you are not aiming to become the next $70bn unicorn, but rather want to raise a solid series A and get a $300m exit to Google in 4–5 years. Actually, the majority of entrepreneurs would agree with you, its just the Sand Hill road guys, who would probably choke on their organic, sustainable farm raised quinoa if you offer them a 15x return over a feeble opportunity to get into the Silicon Valley hall of fame. For me, your plan sounds good enough, but you need to start thinking about a strategic acquisition early on, so you don’t make mistakes which might become deal breakers when the time comes for the Deal.
So, you have moved here from Eastern Europe, rented a one bedroom apartment for your HQ, and now your top management, business and product teams (yourself and your cat) are based in Silicon Valley, whereas your R&D department (everybody else in the company) is in Moscow/Minsk/Kiev. I won’t be trying to teach you how to structure your mighty international corporation legally; there always are lawyers who would be happy to charge you a $500 bill to tell you that you need a Delaware C corp and an Easter European LLC. I’d rather talk about where your R&D will end up. Why is this so important? The answer is — for a corporation, opening an office in a new country is often way harder than acquiring your startup. It requires a lot of time, effort and might lead to legal consequences (like having to obey Russian internet regulation laws). It also makes sense to keep employees together, so they won’t have to deal with additional time zone differences and communication barriers. Having some contractors in Russia or Belarus is usually fine, but if the majority of your core personnel is there — this might become a problem. Moving people from outside of US already was a complicated process, but is becoming even harder for corporations with the new White House administration. Moreover, it’s not just about corporations, most of VCs will think the same way.
An ideal case — all of your employees are in Silicon Valley. However moving all your engineers here is not only tricky and expensive, but often not a good option for them. You see, most engineers are “not entrepreneurial” (by saying that I mean they are totally sane people who won’t fancy living a sleep deprived life following a diet consisting of microwaved noodles and a hope for the better future), and they often got families they don’t want to leave on the other side of the planet. If your strategic acquirers have their R&D offices in your home country, you’re fine, but not many corporations do nowadays. So let’s open a map and see what countries look appealing as your main R&D location.
People raised in the bitter weather conditions of St Peterburg or Grodno usually tend to search for countries with a pleasant climate and cheap food. Some even end up opening offices in Thailand or Bali, but let’s leave this to the true punks of the startup scene, as exotic locations are not anyhow better for the smoothness of the Exit than your home country.
Hoards of entrepreneurs are now opening offices in Cyprus. Member state of the European Union, good weather, proximity to Moscow, and the magic Tax Regime all look very appealing. However scaling an actual R&D headcount there might become really tricky in absence of local sources of skilled engineers. Moreover, there are no R&D offices of Silicon Valley corporations, so in a coveted event of the Deal they will still have to struggle through the full relocation process for the core personnel. So let’s open a map of Facebook, Google or Microsoft locations in Europe and see which would suit the following criteria:- Entrepreneur friendly tax regime- High quality of life (developed infrastructure, healthcare, education, etc.)- Local sources of engineers- Proximity to Eastern EuropeFrom what I’ve learned from entrepreneurs who have already spent a considerable amount of time on such research — there’re three viable options: Poland, Ireland and Israel. Let’s apply one more filter — number of successful tech exits in the last 3 years. And it looks like we’ve got the winner — Israel. No, this post is not sponsored by the Israeli Government and I don’t know anybody from Mossad. Israel is clearly not the ideal place to live, but I believe that this is a very good location for an R&D office of a “Silicon Valley based” startup looking to get acquired by Facebook, Google, Microsoft or you-name-it-corp.
However, the goal of this post is not to compare countries or perform a thorough research of tax/labor laws differences, but rather to encourage founders to think about their R&D office location from an acquisition standpoint.
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