244. Cross-Border Startup Expansion — Lessons from 175 Companies (Stephen McIntyre)

Cross Border Startup Expansion

Stephen McIntyre of Frontline Ventures joins Nick to discuss Cross-Border Startup Expansion — Lessons from 175 Companies. In this episode, we cover:

– You recently published research on the expansion of 175 US companies into Europe. I’d like to discuss a number of points from the piece, but first off… what prompted you to do this research and write the piece?
– Part of the report is about timing… ie. when is the right time is for a b2b SaaS company to make the leap and expand into Europe.  Talk us through your findings and conclusion w/ regard to timing.
– In preparation to make that jump, you recently talked about the challenges for “globalizing” a company and that it really starts at the CEO’s desk… what do you mean by that?
– As an investor, how do you prepare a CEO to shift the mindset from US-centric to a more global one?
– When a company makes the leap to Europe, what are some of the most common pitfalls/mistakes they make?
– How do the challenges of growing a b2b software company across Europe differ from that of growing it in the United States?
– Is there a particular playbook that you follow when bridging the gap between the US and European markets, if so can you share the broad strokes of what that entails?
– Do you think it’s more difficult for companies to start in the United States and grow into Europe or start in Europe and grow into the States? Why?
– As part of the report, you talk about the difference between sales led expansion versus product and engineering led expansion, what are the primary differences?
– How has COVID affected which expansion strategy to choose, if at all?
– How to build a fully functioning sales force remote from the ground up
– What, if any, tailwinds have emerged for the growth of the European tech ecosystem?

Guest Links:

Transcribed with AI

Intro 0:02
welcome to the podcast about venture capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran. And this is the full ratchet.

Nick Moran 0:17
Stephen McIntyre joins us today from Dublin. He is general partner at frontline ventures, a firm that invests in seed companies in Europe and growth stage companies in the United States. Prior to joining frontline, Steven was an executive at Twitter and Google where he led expansion and growth throughout Europe. Steven, welcome to the show. Thanks, Nick. Yeah, appreciate you being with us. So I know that you’ve spent some time in the States I’m seeing, you tend to Cornell and HBS. And I think you’re probably an Irish native, based on your name and your accent, but walk us through your background and sort of your path through tacking to Vc, Irish,

Stephen McIntyre 0:51
native all rights. I’ve spent a lot of my career in the US though. So I’ve kind of had three careers really started off as an engineer in telecoms industry, then spent the majority of my career as an executive at Google and Twitter. And more recently, the last four years in VCs, I was born and raised in Ireland, studied engineering, electrical engineering here, in the 1990s, mid 90s, I did not even know a venture capital meant after graduating, those kind of engineering courses, especially in Europe at the time, were very theoretical, not very connected to business. But I got interested in mobile phones, went to went to grad school engineering grad school in in Cornell, and kind of started specializing in mobile technology, which is developing at the time, and then ended up leaving the us going to the UK and joining Nokia, which, in the late 90s, was kind of a superstar and joined them as an engineer, just before they took over from Motorola as the biggest mobile phone maker in the world, and they had 40% market share at one stage, it’s kind of amazing to think back and looking at what happened to them. And then inside the company, the engineering part of Nokia really was quite separate from the business side, very different to many tech companies today. And I could see that Nokia was kind of slowly driving off a cliff. But I didn’t have the business fluency at the time to kind of understand why but that got me interested in, in the business side of tech, and I decided to get out of a pure tech job at the time and and, and get out of telecoms as well. So went back to the States did an MBA, and that led me to Google. And I was kind of in the right place at the right time, because Google had just gone public. And it was the first it was the first MBA class that Google hired from. So class of five, Google while Republican Oh, four. So it was good timing, and tech was a little bit out of fashion. And it’s kind of hard to imagine that but I think Google only hired about six people from my class that year, whereas McKinsey hired 90. But to give you an idea of how the career choices were different than so I joined in Mountain View, and then move back to Europe, that a variety of sales roles. And then well, tech roles first, and then sales roles at Google. And then in, I was there for six years, then joined Twitter, when Twitter was really just emerging. It was it had grown faster on the user side, but it almost no revenue outside the US when I joined 2011 and became one of the first international employees and then VP of Europe, Middle East and Africa. And I was responsible for setting up and running that business. And then I moved to move down on to VC four years ago.

Nick Moran 3:38
Very good. So was your first entree into VC with frontline? Yeah,

Stephen McIntyre 3:43
there was it was interesting. Yeah. And so frontline, Frontline, at the time was a b2b seed investor, only now it’s changed. And I kind of explain why but but we’ve got offices in London and Dublin. And we had at the time that I joined. And now more recently, actually, in San Francisco, we’ve got a partner partner in the Bay Area now. And today, we have more of a transatlantic strategy. So we’ve got two parallel funds as frontline seed, which invests early stage in Europe, although we do tend to help those companies expand to the US, which is always their biggest market. And then the other side, which is part that I run, which is frontline x, and that’s our growth fund. We invest growth stage in the US only, or US and Canada, and then we help those companies expanded to Europe. So it’s, it’s sort of a parallel transatlantic strategy. And the the idea for frontline X came from my personal experience of Google and Twitter, which is that there was this huge opportunity outside the US for for great US companies. But the opportunity was sometimes hard to tap and even and even great companies made avoidable mistakes along the way. And also, crucially, even the best US investors just tend not to focus there, they help us companies with other things, but usually not international for a variety reasons. So that that kind of led to the the idea that we were well placed in London and Dublin to which are most commonly chosen headquarters locations for US companies going to Europe. And because of our enhanced operating experience, we were well placed to, to, to help these companies expand.

Nick Moran 5:25
Yeah, I want to go deeper on sort of this cross border expansion. But why the stage disparity, right, you’re doing a growth stage deals in the US and in seed stage in Europe.

Stephen McIntyre 5:37
It was really a strategic choice based on our strengths and our ability to differentiate ourselves. So we started like many VC funds do with seed, and in in the market that we were based in, which was Ireland, the UK. And so that was kind of obvious, the lead to growth stage in the US was, was not at all obvious. But it was based on those strengths that I mentioned. So I ended up in in frontline with a kind of a unique set of skills for VC in Europe, which was international expansion for US companies, we had very strong conviction because of that experience, that this was a very common problem that was not being resourced correctly, either within companies and wasn’t being addressed by investors. So we had strong conviction on that. And and for the first year that I was working as a seed investor with with Frontline, I was still being tapped on the shoulders, but by every now and again by US companies coming over wave after wave asking for advice on either who to hire and in London to run a sales team or how to prioritize markets, what do you where do you go after the UK or whatever else? And gradually, we started to realize that was that was our way to tap into the US market? Otherwise, we had no reason to believe that we could, we had something different to add. So it came from there, you know, I used to work with a somebody who who worked at Procter and Gamble as a marketer for many years. And Procter and Gamble always ask themselves when they go into a new market, do we have a right to win? Before anything? And no, we wouldn’t have had a right to win as seed investors in the US. But because of this nice that we picked, we do love

Nick Moran 7:28
it. Love it. Great to see a firm actually, you know, finding a superpower in differentiating because there’s a lot out there that you know, do not. So an Associate here at at new stack, Nate actually turned me on to this research report that y’all put together. Fascinating report, I thought it was really interesting. You did research on the expansion of 175 different US companies into Europe. Before we get into the piece here, you know, I’d love to just understand what what prompted the research?

Stephen McIntyre 7:59
Well, CSL CEOs tend to procrastinate when it comes to international expansion. And it’s because they don’t know where to start really, there are a lot of possible things that they could focus on. And so we just really wanted to demystify the process for CEOs by highlighting very simply five key questions, and, and then some of the answers. And then, you know, another reason so that was, I suppose the first reason why we built this report now. And also, we just took advantage of a few months initial months of lockdown, to do some heavy research that we probably wouldn’t have got around to otherwise, frankly. And then just going back to my time at Twitter, in particular, just a brief story from my early days there. My very first week, I recorded a CRO at the time, I spent my first few weeks in San Francisco, and and towards the end of the first week, I asked the CFO Look, do we have anything written down on international expansion or Europe in particular, you know, where’s the plan, and he looked at me and he said, You were the plan. And, and so that was very exciting at the time, right? So very kind of empowering, you have a big job to do and all that. And I ended up sitting in a cafe, I remember in North Beach on the Sunday at the end of the first week. And I had Excel and a PowerPoint in front of me. And I was trying to put together Twitter’s plan for Europe, Middle East and Africa. And there was nothing written down about any of this stuff. And there was already so much online, so much content on product development on scaling sales teams in the US on everything you can imagine. And nothing on this topic. And so that always stuck in my head as being this is this was a gap that has to be filled at some point. And you know, several years later, we just happened to be the ones to do it. And we wanted some data as well, like anecdotes are great, and we have plenty of them. But putting together a dataset of what companies actually did, it’s quite hard and so nobody really gets around. doing it. You

Nick Moran 10:01
know, it’s tricky because the decision to globalize, I mean you’re growing these, these fast scaling companies, right? You’re taking them from precede to seed to series A to Series B, timing of expansion is always a big question. And it’s a tough one that starts at the top right, it starts with the CEO. Yeah, and not all CEOs have a coach in their background like frontline, right, that has experienced doing this. But talk to us a bit about how you work with CEOs and, you know, figure out sort of when is the right time to consider expansion?

Stephen McIntyre 10:35
Well, first of all, it’s, it’s worth looking at looking at the data since we do have this report now to see what actually happens, then I can tell you a little bit about how we advise CEOs, first of all, of the 175 companies that we looked at, and many of these have gone on to go public and but it’s a very representative sample of sass companies over the last decade at the first office in Europe tends to come between Series B and Series C. So yeah, around six to seven years in, and that’s that’s been a fairly stable pattern, over 10 years. What has changed is that, of course, the average Series B and Series C rounds, the amount of money that these companies have raised by the time they go into Europe for the first time now is much, much bigger and bigger than it was 10 years ago, although they’re, they’re burning more money, too. So they they’re typically better financed. However, while while that is has been a fairly stay stable pattern, we tend to not talk about the stage, the funding round stage, when we talk to the CEO, it’s more about the organization’s maturity. And so there, there are a few questions that we ask. So one, is the US business working? I don’t always be fires all over the place. So it’ll always be a bit of a mess in some regards. But is it reasonably stable? Can you repeatedly sell to these customers, too? Are you well enough funded, so we do see companies sometimes trying to expand to Europe after Series A, it’s typically not a good idea, it tends to be a toe in the water stuff, and they just don’t have the resources to invest properly, which is three is there some evidence of international demand is in the world of SAS and self serve? Yeah, without without even trying it with a decent product, you should be getting some money from outside the US, especially if you sell to mid market or SMB. So some evidence of of demand is is important. And then the last two are softer. And I kind of learned those over time, which was, what are the exec team look like? And how important is this the CEO personally, so the exec team, while a series B, or Series C Company won’t have a fully built out exec team. And that’s not necessarily all it. This is a fairly big lift, like it’s cross functional in nature and international expansion that affects product to sales that affects marketing, every function the company really. And so it is important that there’s at least one other C level exec in the CEOs team who could share the responsibility or take full responsibility here. And if and if a team is still very, very CEO or founder driven, and especially if that CEO is extremely product driven and tends to delegate everything else and that is an indicator that the company is not going to be ready yet. How big a priority it is for the CEO is is really key because globalizing that company is is more than just hiring a sales leader in London and then sort of passing it on to them. globalizing a company is is really a, it’s not a short term project. It’s a decade’s long process. Interesting.

Nick Moran 13:42
Just, you know, quick sidebar, I had a call with one of our founders yesterday, it’s a seed stage company, and it’s hardware as a service. Right? So it’s not just pure SAS, it’s, there’s a hardware instantiation. But the the magic is kind of in the software, right. But he was approached very recently this week, by a huge incumbent in this space that has no technology quite like theirs, and has a huge presence in Europe. Right? So they suggested we’d like to be effectively a VAR, like a value added reseller. You know, we use your product, yeah, repackage it, you know, whatever. But we want to be your channel partner and your distribution partner for all things in Europe, and even some other geographies in Asia. You know, what are your thoughts on that? At the early stages?

Stephen McIntyre 14:30
Yeah. You have to balance the short term and long term. So in the short term, there’s something very tempting about that, because it feels like you could tap into some new revenue stream without having to do much work for it. In reality, most businesses in most businesses that sort of VaR type relationships partner relationships don’t tend to work that way. They usually require quite a lot of work to to, to get the returns that you you want and I would say in a priority market, which Europe is likely to be, if it’s, it’s likely to likely be, then I’d be looking, I’d be trying to predict what the business is going to look like in five years time and work backwards from there. So I can’t imagine many large, globally focused us software companies where Europe is not their second largest market at the point of IPO. And where Europe isn’t 30% of global revenue. If you take that to be true, then sort of handing the keys to Europe, to anybody. So early in your development feels like a strategic risk. I don’t have any of the details here, obviously. But that feels like a strategic risk. Now, having said that, when I give you an example from Twitter were worked very well. We Twitter didn’t have the scale of Google. And so whereas Google could have its own office in the Czech Republic, and in Hungary, because it was just so big everywhere, Twitter couldn’t possibly do that. And so we use partners in two different ways. And actually, it was quite effective at times. One, it was where there was a market where being a local player was so important for Saudi Arabia and Middle East in general, for example, was was one example, where we’re being a local player was so important for selling that a partner was going to just do a better job than you. And then the second big reason was opportunity cost where we were focusing on the UK, Germany, France, where we were not going to get to South Africa anytime soon. We were not going to get to Eastern Europe anytime soon. And so we we partnered with players in those places, because we just knew that it would take five or more years to get there, and they’d probably never be top 10 markets for us. But I think when you’re talking about the UK, Germany, France, maybe the Nordics and Scandinavian countries, they should be big markets for most US companies. And so I tread carefully before handing them away.

Nick Moran 16:52
You mentioned before that expanding into Europe, it’s not just a sales expansion effort, right? It’s, you have to globalize the company in Yeah, I’m sure that this is very complex. But is there a way that you can? Can you describe what you mean by that as their, you know, a framework or some way to think about what it truly means to globalize and expand cross border?

Stephen McIntyre 17:15
Well, one thing is a is a mindset shift. So some CEOs do think of Europe, for example, as a short term project that they have to think about until they hire somebody to sort of run it for them. Like a VP of EMEA. I think a better way to think about Europe as the first step is thinking of this as being, let’s say, a 10 year process of globalizing the company. So taking it from where it is today a seed or series A to all the way hopefully success, public markets in 10 years time. And and then to think about what that company should look like. So for sure, a majority of revenue at that scale should come from outside the US, it’s just sort of the nature of where the where the dollars are in the world. That’s probably the easiest way. And also the wrong way to think about becoming a globalized company. I think a globalized company then has a few more characteristics. So the product is engineered from the ground up to be usable worldwide. So you don’t expect Germans to use credit cards because they don’t use credit cards, they use bank transfer. And so or you don’t expect the same low latency networks and every part of the world that you have in the United States or Western Europe, at the executive team at headquarters, I think needs to allocate their mindshare, in proportion to growth potential not to proximity, and an awful lot of companies that that probably you and I are familiar with. Pretty much ignore their New York office, nevermind if they’re based in San Francisco, never, never mind, you know, a London office or an office far away. But, but the more mature companies as they get bigger, allocate that mindshare and time in a more systematic way, in proportion to growth opportunity. And then sometimes, you know, I would like to see over time, at least one C level exact based outside the US, it completely changes the mindset of an exec team, when that’s the case, that’s not going to be the case before probably a company goes public. And then and then just having some execs or board members who have lived or worked abroad, like all of those things, they sound small, but actually most companies do not make meet those criteria, even after going public. One final thing to say on it is I think functionally organized, comm companies tend they tend to have bottlenecks at the head of function. So you know, marketing, the bottleneck is the CMO and that’s the CRO and say sales or whatever it is. cross functional issues then get resolved by the CEO and CEO is the only general manager really, and and since and that works more or less okay in the US, but an international expansion is a very cross functional effort. And so an awful lot of issues come up every day that are cross functional. And if they have to Go back to headquarters to be resolved by the CEO, you’ve got a bit of a problem. But that also raises the point that probably only the CEO is the one who can really deal with some of those issues in the early in the very early days, because every other executive has got a functional bias, whether it’s a CRO, who ultimately just wants to hit the number, maybe they don’t think about the cost of the location, or whatever it is, or a CFO thinks that that tax but doesn’t think about the revenue. The CEO is no matter what way you look at it has to be at the center of this for the first year anyway. So I

Nick Moran 20:35
imagined, you know, not having total buy in from the CEO is probably a big mistake when doing this expansion. But are there other common pitfalls or mistakes that you’ve seen companies make? Or the research suggested, you know, companies are making mistakes when expanding into Europe?

Stephen McIntyre 20:52
Well, in the report that we did, we found that about half of companies make get their first senior hire wrong. So they end up that person ends up leaving within two years. That’s a big problem. Because, you know, five or eight timezones away from home, your first senior hire is even more important than it is on your on your doorstep. So that’s one, I think, not recognizing the size of the opportunity in Europe is is actually the very first mistake. And the reason why that’s important is because unless you unless you sort of correctly dimension the size of the opportunity, you’re not going to resource it accordingly. And a lot of things fall from that. So what we’ve seen, I think the median IPO ARR for for SaaS companies. 2019 was I think, I think it was something like $278 million 30%? Well, we’ve seen across the board as the benchmark in Europe, at the point of IPO is about 30% of global revenue, that’s about 80 million arr. Coming from Europe. So interest is at Series B, Series C, you think, okay, in five years time, we want to go public, and we’re gonna have an 80 million business in Europe. How would you resource that business? Five, you know, five years in advance, you probably wouldn’t just dip your toe in the water you’d like you’d go big. And so that’s pretty important. There’s also kind of an interesting one, which we, we kind of refer to as success, amnesia, which is, and I was talking to talking to executives as slack and Dropbox, and they spoke about the same thing with different language, which is that when you go to a new market, it’s very easy to forget, in the early days, what made you successful back home in the early days, because by the time you get to that new market, you you you’re five years further on, you’ve built a brand, you’ve got a community, there’s a glow about you, there was a lot of like growth hacker type stuff that you spent years sweating on, and then you go to the new market, and you expect sales to just pull it all together. It’s like the curse

Nick Moran 23:07
of knowledge. Yeah. You have the same issue with serial entrepreneurs. They forget. Yeah, what got them there? Yeah,

Stephen McIntyre 23:13
yeah. And so. So actually, as a result, marketing is more often a failure point in Europe in the early days in sales is because sales goes over sales and sales will look more or less like it does in the US. There are adjustments for sure. But you know, more or less, but But the big difference is you probably don’t have a brand. And you probably don’t have a community of advocates. And you if you’re not willing to invest to put that work in to get to that point, it’s very diff difficult to apply the same sort of go to market sales model that you would in the US. So yeah, there are a few and then and then actually, another one, which is a pet peeve of mine, actually, which came out of the research was, was Brexit, like Brexit probably doesn’t get very much coverage in the US anymore. Because just so many other news stories have taken over. But we were really interested in seeing what the impact of Brexit was on US companies going to go into Europe, I only really had anecdotes to back that up until we had done the research. It turned out there was quite a big drop in expansions of US companies to not just the UK but into Europe after the referendum in 2016. And and so so that was one that was one point, right. But what we decided to do was to check whether that was rational behavior, irrational behavior. We also looked at US companies that were already in Europe. So in the UK and North London, Dublin, Amsterdam tend to be the most common initial locations. We looked at US companies that were already there, and we saw that they grew like crazy with with almost no change after the referendum. And so what that told us was when you were a CEO or an exec in San Francisco or Chicago or New York, reading, Brexit headlines and far away, you were kind of spooked out So you thought, Ah, not sure what’s going on over there. But it seems kind of crazy, let’s just delay. Whereas when you’re already there, you realize, actually, the situation on the ground hasn’t changed at all. There’s a little bit of political uncertainty, but that actually the customers are still buying exactly as they did before. We’re hiring exactly as we did before. Everything is, you know, full, full steam ahead. And so what that tells me is that companies were unnecessarily spooked. Sure, there was a little bit of additional political risk, but the companies that are already in Europe have shown that the opportunity is still there, just like, just like it all was possible

Nick Moran 25:34
early mover advantage, for sure. Yeah,

Stephen McIntyre 25:37
well, you end up with a little bit of a vacuum being created, then where local copycat competitors can kind of come in, where there would have been a US company, maybe they’re, they’re coming a little bit later now as a result, and that could be accentuated by by COVID.

Nick Moran 25:54
Hi, I’m Steven, how do you see the challenges of growing a b2b software company across Europe, you know, differ from from that of growing one in the States. The

Stephen McIntyre 26:03
US market is the most competitive and most demanding market in the world. It’s also in some ways, the most homogenous of the really large markets. So I think the I think about the problems are a challenge. It’s kind of in two buckets. There’s, there’s extrinsic challenges, sort of market related ones. And then there’s intrinsic ones, which are more company characteristics. And so I think when US companies are expanding into Europe, their biggest problems are actually intrinsic, they end up with self inflicted wounds. So the extrinsic ones are things like market fright, and fragmentation, all of the markets are smaller than the US. If you’re the sales team of 50 people in the US, that will translate to probably a sales team of 10 in the UK, which is, which is okay, that’s still scale. When you go to Germany, Germany, might your German team might be five people, when you start getting down to any team smaller than, you know, three or four. That’s really subscale. And so you’ll just get lower productivity as a result of that language is the obvious sort of difficult extrinsic one. Sure. And then things like buying preferences can sometimes be a little bit different, but I think that’s overblown, in certain software. So through channels, let’s say in Germany, but but actually, in the UK, honestly, you can sell in the same way that you do in the US. I think people make like too much of the differences sometimes buying the intrinsic challenges, though, are actually self inflicted ones are probably worse, which is, most US companies don’t have good talent networks in in Europe. And so the whole process of hiring and using referral networks is harder to kickstart that functional organization problem not having a tiebreaker, you know, the GM who’s the CEO at HQ, not having not having sort of a GM who is truly a tie breaker breaker rather than just a GM and title just leads to problems, the timezone issue, you know, all those kinds of things. And I say, I say they’re intrinsic, because I think they companies can overcome them if they have the will. But, but they often don’t. And, and often, the sort of executives in the US just sort of don’t dedicate enough time to, to understanding those international markets. And so as a result, problems arise that probably don’t need to be problems.

Nick Moran 28:32
It’s interesting, because, you know, in the states here, we actually see cultural divides from the Midwest versus the south versus New England. You know, Texas is kind of its own, and then you’ve got the West. But I imagine the disparity is, is even broader, right across these countries, different languages, different cultures. That’s got to create some challenges in I don’t know, building a large effective sales force and getting the momentum that you’re looking for in a fast growing tech company.

Stephen McIntyre 29:04
Yeah. Well, I’d say yes or no, because I think culture is sometimes used as an excuse, when when people can come up with anything more specific. And so like, you know, I think it’s easy to say, Yeah, sure. Of course, you know, Europe’s got 50 countries, and nearly as many languages is very diverse, for sure. But you’re not actually trying to sell to absolutely everybody across all of Europe, you’re trying to sell to b2b software, you’re probably selling to reasonably tech savvy people who bought SAS software before, at least initially for the first several years. And so first of all, you may well get away with selling even in English for the first few years. That’s even a change from 10 or 15 years ago. And if you start selling in the UK for selling into the Scandinavian markets, who all speak perfect, fluent English as a second language, Netherlands as well. You’ve got fairly big market straightaway. You can just sell to an English Not a lot of German, German buyers these days sell English, or can convey through English. And then you have across all of Europe, you have this kind of Pan European segment of savvy tech savvy, sort of tech savvy, English speaking buyers from Israel to Spain, to Denmark to Norway, who who can buy in actually very similar ways to the US. So I think eventually, if you want to be a truly blockbuster bit enormous business, you know, many years down the line multibillion dollars in revenue, then you start to really need to tackle the cultural problems that come with coming big in every single country in Europe. But for the first few years, you can actually get it, you can actually get away with quite a lot with just smaller adjustments to the to the US to the US model.

Nick Moran 30:53
It’s great insight, you know, something else I’ve been considering. So we have a portfolio company, an immigrant from Bulgaria, and his last company was very successful. He’s built out a whole engineering center, right in in Europe, and I’m seeing this more and more, whether it be Europe or you know, other other regions, but more of, you know, engineering expansion for US companies, as opposed to just sales, you know, is, how do you think about that, in the timing of that, and if that’s the right decision, you know, for companies that you’re working with,

Stephen McIntyre 31:26
what if you’ve spotted that trend, you’re, you’re, you’re bang on? It’s, it’s that is something that came out of our research recently. And it surprised me. So I had some inkling that because of the talent bottleneck in the Bay Area, especially recently that I kind of knew companies were already opening up engineering offices and other places in the US, or Canada or elsewhere. And I thought that was probably happening in Europe, too. It turns out, it’s much more prevalent than, than I suspected. Something like 40% of expansions over the last 10 years, our product and engineering lead just meaning that they’re the they’re the majority of the of the initial hires when the post office gets to scale. And, and that is, that’s just going to rise. And you know, for that, because the talent shortage reason, but I think also the impacts of COVID. The remote working impacts likely to be long lasting, I think if the more comfortable companies become with distributed workers, the more they’re likely to figure out their internal systems for having engineers and product managers in far flung locations. And I think that will that will end up resulting in more more of those kinds of expansions into Europe. However, the majority of expansions is still sales and customer led, and, and even for the product engineering expansions, while they may have been the first functions to go, sales, and sales and customer success and support usually aren’t that far behind. So for for any bigger company, they’ll always end up with a sales presence just because the markets too big to not have that what are

Nick Moran 33:16
the most common countries for these product lead and engineering expansion?

Stephen McIntyre 33:23
Well, across across the 175 companies that we looked at the most common initial office locations were London, number one, Dublin, number two, Amsterdam, number three, and then after that, it was a sort of a smattering of other other cities. And you might be surprised at that. I think don’t have anyone surprised that London will be number one. But doesn’t the Amsterdam are clearly not the number two number three cities in terms of size or anything else in Europe, but places like Berlin or Paris, don’t have some of the advantages that that those are the three cities have when it comes to a predominantly English speaking environment. There are some employment law challenges in places like France, that US companies usually don’t want to have to deal with. So there are not a lot of reasons why those other three places London, Dublin and Amsterdam become particularly kind of successful. If you were only hiring engineers, I think Berlin would shoot shoot up your priority list. If you look at the the sort of the biggest indigenous tech centers in Europe, it’s it’s London, Berlin and Paris by a lot of measures in terms of number of developers VC dollars into local companies, number unicorns, things like that. The reason why Berlin doesn’t tend to do as well in Paris, certainly not. For US companies moving over is just all of these other things, trying to trying to hire senior sales leadership that has experienced running large companies. It’s definitely a lot harder in Berlin. It isn’t in some of the other places. And then you have some employment law issues as well. It’s just complicate things, but engineering only and that they could be great places. Steven,

Nick Moran 35:08
you mentioned remote work and COVID. And, you know, the transition there, I was fortunate, I was catching up with a friend of mine set the heart. He’s an expat in Amsterdam, and former head of growth at framer and, you know, works with a number of large venture firms. But I mentioned, you know, you and I were going to chat and he gave me some thoughts and some questions, but one of his questions was, you know, how do you see the future of, and the potential for building fully functioning sales forces in a remote environment, you know, from the ground up, because I think, you know, most of his experiences, you know, you get a lot of teams together, and there’s a lot of collaboration, and that helps in sort of onboarding, and training and building the culture of, of selling. So anyway, that was one of the questions that he brought up that I figured I’d ask you now.

Stephen McIntyre 36:00
Yeah. Inside Sales teams have tended to develop in hub offices in, in the US, it could be in somewhere like, Denver, if it’s not in one of the, you know, the big tech locations in Europe tends to be in places like Dublin, or Amsterdam, and, and then enterprise sales, in Europe usually is done out of field offices, either in a London office, if that’s not the number one officer and you know, the Hamburg or Madrid or Paris or wherever, I think with COVID, although it’s probably too soon to tell for sure, there’s likely to be a kind of merging of the best of both of those sales models, where as long as customers become more willing to buy remotely, and it’s seems inevitable, for all sorts of reasons that that will be the case, then there will develop some sort of kind of remote enterprise sales model where you you are selling remotely, but you’re probably not just hiring grads, straight out of college, you’ve never done sales before to sell remotely, you’re probably hiring experienced enterprise salespeople, but they’re just not necessarily getting on a plane for for every deal. And they still have to work from somewhere, though. So that kind of and they have to be on boarded and trained and motivated and all that kind of thing. So I’m not sure if I have an answer to that. The second part of that question, yes, but I think hub offices will remain important for the next few years. And and there are a few reasons for that. One of which is maybe unique to Europe, as opposed to the US, which is just the tax issue. If you if you really tried to hire salespeople in far flung locations all around Europe without ever having local entities in place, you you immediately have all sorts of sort of issues, that these people need to be employed by a local entity, and then you need to pay tax somewhere. And I think most growth stage US companies don’t want to deal with the headaches of figuring that out first. So for the next few years, I think you may have people working from home partly, but they’ll be in the UK or there’ll be in Ireland or there’ll be in the Netherlands initially.

Nick Moran 38:36
You think net net, you know, COVID is a tailwind or a headwind for expansion into Europe. For US companies.

Stephen McIntyre 38:49
Ice that’s got to be a bit of a headwind, really, you know, just first of all, companies that previously had international expansion, top of their agenda have just had to delay it because they’re in either cash preservation mode, or they’re, they’re in some sort of triage situation. So I would expect a lot of there’s probably a bit of a backlog now of international expansions that would have happened earlier in 2020. That will just happen in q4, early early next year. But I think anything that adds all of this additional complexity into any business, got to be considered a bit of a bit of a headwind and the thought that there you know, there, there will be some sort of a global recession. It’s it’s got to be a headwind. Where I think once we get past a 2020 2021, we’re could end up being more of a tailwind is if you move to this greater acceptance of remote sales. Yep. That’s just that’s just sort of good for everybody. It’s, it’s, the economics of it are so much better. It gives you so much more flexibility in terms of the way that you expand internationally. You can imagine partially running European businesses without having to invest so many resources so that I think there are all sorts of tailwinds once we get out beyond this initial sort of painful period. But yeah, the next year is probably going to be tough. Yeah, it’s interesting.

Nick Moran 40:12
We had Tom Tong who’s on the program early in the pandemic, and we were talking about this enterprise sales, remote model. And he said, Yeah, he was working with a company where that the highest bar for anything sold remote over zoom was like, 5000, right, 5000, Mr or something. And then somebody got to 10. And within a week, you know, a whole bunch of people were at 10. And then somebody did $100,000 deal. And then as soon as the bar was up there, then other people realized, you know, they could, they could close $100,000 deals. And so it’s more of like a mental barrier than a realistic one.

Stephen McIntyre 40:49
It is, it can be a mental barrier within companies. And then and then it can be a real barrier when you get to the customer side. But But once they overcome that barrier, too, then then you know, all bets are off, and you have a lot more flexibility. I remember, even 10 years ago or more when I was at Google, the mid market sales team, which was entirely inside sales lead was the most profitable sales team at Google. It was doing million dollar deals, 10 years ago, direct response advertising to you know, tech savvy Israeli advertisers and stuff like that guys who never wanted to be met by a salesperson to have lunch. The worst thing they can imagine in their lives was having lunch with the salesperson. All he wanted to do was talk to somebody on the other side of the of the phone line, it was they weren’t video conference calls, who could answer their technical questions who could move fast on implementation once they’ve made a decision? They were great customers to have the economics were fantastic. And it was Win win on both sides. Just it’s taken time for all customers to kind of to get to that level of savviness. But I think we’ll get there.

Nick Moran 41:59
Steven, what do you know, you need to get better at

Stephen McIntyre 42:03
it. When I was an operator, I was always surrounded by people all the time. And like my job was leading people, I would say I’m a mild introvert by nature. And so when I was surrounded by people all the time, and my job was with people, that sort of mild introversion it was it was a nice sort of compliment. It was a sort of balanced out. I found VC is more of an individual contributor type job, even though it’s very externally focused. It’s an individual contributor type job. And, and so I think sometimes I’ll have a tendency to do things myself when I shouldn’t be bringing others in. And that happened very naturally in the operating world. And it doesn’t happen so naturally in the VC world. So I kind of have to push myself to crowdsource sometimes. That’s interesting.

Nick Moran 42:47
Steven, what resource have you found most valuable since beginning your venture career?

Stephen McIntyre 42:52
In the first in the first couple of years, and even before I made the move? It was probably the same resources as an awful lot of people like Brad Feld and Fred Wilson, were just two of the clearest communicators for people coming into VC from the outside, and that they spoke without jargon. And with a lot of sort of common sense. These these days, I suppose. I’ll always read anything by Bill Gurley. I did just just fine. I didn’t write all that much anymore. But I find him fascinating. I still think Ben Thompson is kind of the benchmark in terms of in terms of strategy, strategic theory. So it’s not, there’s no different to sources that other people use. And then Twitter is I’ve been an active Twitter user for for a long time. And that’s still my source. Although VC Twitter at times can become a little bit self obsessed. I actually need a little bit of a break sometimes. From VC, Twitter, but other but otherwise, still, Twitter is my primary source. Really,

Nick Moran 43:55
any final thoughts or advice for founders, you know, that are considering cross border expansion?

Stephen McIntyre 44:02
Don’t delegate it. It’s actually your job. It’s not the VP of sales job. It’s not the CFOs job. It’s not the more experienced COO, who you recently hired from a big companies job, like it’s your job. And if you want to truly fulfill the potential of your company, you’ve got to make it a global company. And that starts with you.

Nick Moran 44:27
Very good. And finally, what’s the best way for listeners to connect with you?

Stephen McIntyre 44:32
Twitter, Steven paddock Yeah, and our website is frontline.vc. So you can you can download the report the global ambition report that we published there, you can check out the team and we have some other resources but yeah, Twitter and Frontline VC are the

Nick Moran 44:47
days when you’re not taking a break from Twitter. You can find them on Twitter. The man is Stephen McIntyre. The report is great. I’m really glad that we you know, found a way to link up and get you featured here on the show. Everyone in the audience, I would encourage you to read the report. We’ll link to it in the show notes. But Steven, this is a real pleasure.

Stephen McIntyre 45:05
Thanks so much, Isilon Nick

Nick Moran 45:12
that will wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us