Ask HN: Startup outside the US
Hello,
I'm in the process of starting a startup, but I'm outside the US. Does it make sense to go through ycombinator.com or should I choose some other entity? I'm not sure if I want to be incorporated in the US. You need to decide for yourself if the hassle in incorporating in the US is worth it and also if there are other reasons for doing so. Like you, I am based outside of the US. I'm currently in the UK and yet, I am incorporating in the US. The five reasons for this are :- 1) 99% of my customers are there. 2) 100% of my vendors are there. 3) Potential investors are there. 4) 99% of my financial transactions are in dollars. 5) My Bank is in the US and no currency conversions eroding profits. Of course, some will say why don't I go to London and seek out investment? I have looked into this: 1) The mindset of a UK investor is vastly different than that of a US investor. 2) They sum of monies for potential investment is greater for a US investor and so is the level of risk. The sum of equity is greater for the UK investor. 3) The US investor has many more connections than the UK investor. 4) The US investor has made many more bets than the UK investor and therefore has much better advice going forward. I could go on... But there is 0% chance that I will be starting up in the UK. Here's what I have found so far: US | YC - $120k in return for 7% of the company's equity. London | Bethnal Green Ventures - £15,000 in exchange for 6%. London | Founders Factory - £30k for around 7%. London | IGNITE 100 - £17,000 in return for 8%. London | Oxygen Accelerator - £20,000 for 8%. There's probably more, but I doubt you'll get to YC levels of funding and influence in London. If someone knows where I could get a better deal on funding, equity and terms. I'd love to know! What I am doing, is bootstrapping until I'm ready to onboard an investor. I can't really offer you advise, as I don't know your full situation. But hopefully what I have found offers some insight! >If someone knows where I could get a better deal on funding, equity and terms. I'd love to know! Not sure what equity they typically take but two other options are http://www.forwardpartners.com/ and http://www.ec1capital.com/ Edit: there's also http://seedcamp.com/ (€75K for 7%) Edit 2: if you have some UK based Angels in your network you're thinking of approaching for investment, SEIS might help get them involved (which you'd lose if you incorporated in the US). Nice summary. As a German running a company in the UK, I'm also thinking about a US based corp using Atlas from Stripe. May I ask in which sector you're working, goods or services? How do you feel about the hassle that comes with an US based corp compared to the ease of a UK one? > I'm also thinking about a US based corp using Atlas from Stripe. I was thinking of Stripe as well, but unfortunately they don't support LLCs as yet. Which means I'll be doing all the leg-work myself. I will be noting down all my steps and will one day blog about my whole startup experience. That said, since stripe now works with US based companies. I may apply when they do roll-out LLC support so then I can get some of the benefits. That is of course, if they'll have me! > May I ask in which sector you're working, goods or services? I'm launching a SaaS very very soon. It's actually ready now, but I'm still not happy with certain aspects. > How do you feel about the hassle that comes with an US based corp compared to the ease of a UK one? I have held LTDs in the UK in the past. It was trivial to incorporate with a 3rd party service and then retain the services of an accountant to deal with HMRC. I have this same view for the LLC. The only issue I have so far, is dealing with long distance calls. Some vendors are happy to talk on Skype which is great. But the majority always want you to call them. In addition, I have dealt with lawyers, accountants, opened and closed businesses and bank accounts before, all in different countries, the US, UK and EU. I am not too worried about whatever the process will throw at me. My mindset is, if something happens. Just deal with it and move on. No point worrying about it. Thanks for the in-depth reply! > That is of course, if they'll have me! Go ahead and apply. You don't have to actually purchase the company, just because you applied. We already got accepted and can now go ahead, if we want to, at any point. Also, I don't think they are too picky. We got accepted within 2 business days. > I have this same view for the LLC. The only issue I have so far, is dealing with long distance calls. Some vendors are happy to talk on Skype which is great. But the majority always want you to call them. Yeah makes sense since most of your customers are US based. Good point, didn't think about that. My first concerns were more towards dealing with lawyers, accountants and potential lawsuits as well as taxes in the US. Lawsuits are way more common their and taxes are quite complex due to federal/state/city laws, compared to the kindergarden-level flat tax in the UK... But yeah, I guess that's why people have accountants. > My mindset is, if something happens. Just deal with it and move on. No point worrying about it. That sounds quite british :) Good luck then! Do you have a blog already, so I can subscribe or something, to see the post once you release it? > Yeah makes sense since most of your customers are US based. Good point, didn't think about that. Skype allows to buy US phone number and will receive incoming calls to it. Nit pick:Bethnal Green Ventures is £20,000. You have taken the tax breaks for EIS and Entrepreneurs Relief into account? Will HMRC even let you direct a US company from the UK? Yes. Why wouldn't they? Depends if they see it as a vehicle for tax avoidance. > Depends if they see it as a vehicle for tax avoidance. I don't want to be rude. But unless you are an accountant or really looked into this. You don't know what you are talking about. There are a lot of UKers on HN and a many are looking at Stripe Atlas. Things like this will undoubtably freak them out. You are insinuating that HMRC views those setting up companies outside of the UK in order to avoid tax. This is not the case. I've spoken to some US investors and the general consensus is that having a UK company is not seen in a positive light. It is preferable to have either an LLC or C-Corp. Further more. From the article [1]: "HMRC argued that the profits taxed in the US were the profits of the LLC, whereas the profits taxed in the UK were the distributions made by the LLC to its member." With respect to profits of the LLC: The first part is very important. HMRC themselves are stating that if profits of the LLC are repeatedly put back into the company and NO distributions to UK residents are committed. There is no tax liability. With respect to profits on the dilutions [1]: "The Court concluded that the profit by reference to which Anson’s UK tax liability was computed was the profit arising as a result of the business being carried on by the LLC – this was undeniably the same profit on which Anson was taxed in the US and therefore double tax relief should be available." So now there is NO question on any tax avoidance. Finally, HMRC does have rules[2] which may affect Stripe UKers for as long as they reside in the UK. I do strongly urge anyone reading this to confirm my research with an accountant, which I will be doing myself. But please, do not believe random posts on HN! [1]: http://www.williamfry.com/newsandinsights/news-article/2016/... [2]: https://www.gov.uk/government/publications/issue-briefing-ta... Yeah 'dependent agent' in HMRC's guidelines would cover a group of UK based founders launching an LLC from the UK. So you can certainly open an LLC from the UK but you'll be liable for UK Corporation Tax so I'm not 100% wrong. I should clarify my previous statement. You can, of course, incorporate anywhere you like from the UK but HMRC will just ignore the fact you have incorporated abroad and tax you as if you were a UK corporation. Apply first. You don't have a decision to make until you've been accepted. I disagree. I think you should be sure to want it, if you apply. Otherwise it is half-hearted. Your chances of getting an interview or acceptance are so slim, you have nothing to lose by applying and thinking through the application process could help clarify parts of your business. Think of YC as a customer, as all investors are. You're selling them the investment. We are outside the US, but incorporated in Delaware, without even going to the US. We did that to keep our options open in case of raising, but we are slowly becoming more and more against raising. Anyways, it was cheap enough (~$700) and now with Stripe Atlas its even easier/cheaper. It really depends on your idea, where your customers are and the way you want to execute. In our case we were lucky enough to have had some government grants from various countries, gone through some accelerators and now we are trying to organically grow. Good luck! SV is undesirable for visas, general overheads, regulation in some sectors, and segments like hardware. Basically YC seems to be optimized for software-focused startups within 3 months of market seeking SV, US or at least English speaking investors, usually with a US initial market. For hardware startups I can strongly recommend considering HK/Shenzhen, as I can personally attest that sourcing, consulting, manufacturing, and capital are readily and cost-effectively available. There are a number of good programmes in many countries, from the usual suspects (London, Stockholm etc), to places that could surprise you (take a look at Bulgaria, for example). If you can be selected to YC, it almost definitely makes sense. The important question is, will you be able to go through it whether than it makes sense or not. Why do you want to start a startup? What will a startup do for you? Are you working on something besides starting a startup? Without these answers I'm affraid we can't really provide any valuable insights for you. Growing a business takes money. Silicon Valley is (for now) where the most money is. It makes sense from that perspective. Good luck with your venture:) Although if he is bootstrapping the MVP, maybe he can bootstrap it all. 100% beats the investor treadmill in some ways. Related question: How do taxes work for companies which are incorporated in US and operate in a second country ? Can you clarify the meaning of "operate?" Do you mean operate or is being managed? If you mean "operate," then there isn't really much to add. If you are performing some sort of SaaS (like Netflix), the US company will pay tax on worldwide profits. The other jurisdiction may assess a withholding tax, but in practice it is difficult to collect it from consumers. If you have people selling things in another country and concluding contracts, you may have a permanent establishment in that other country and be required to file branch financial statements and pay tax thereon. If you mean "managed from a second country," things get more complex. If the "mind and management" of the company is in another country, that country will probably take a position that the US company is subject to the local tax laws. For example, if you are a Canadian that owns a US company or corporation and you control it from Canada, then Canada will deem that company or corporation to be a tax resident and you must file a Canadian corporate tax return in addition to all your US filings. You will need to look at the US-Canada Tax Treaty carefully to see how this plays out. In particular, the tie-breaker rules and anti-avoidance rules. I'm a tax practitioner. I shudder when I see how many people are opening US companies without looking at their home country rules. Before you consider opening a US company, ask yourself: (1) What is my foreign affiliate disclosure requirements? (2) Will my US company be liable for tax in my home country? Will my US company be a tax resident in my home country? (3) What are the residency rules and tie-breakers under my country's tax treaty with the United States? (If you don't have a treaty, it should light up as a red flag.) (4) Do I have a budget to pay for local tax advice and compliance, and US tax advice and compliance, each year? Tax is not simple! > Can you clarify the meaning of "operate?" Thank you soloadvnturer I had in mind YC companies. They are required as a matter of procedure to incorporate in the US before funding is released. I always had a nagging suspicion it is a more complex issue than meets the eye. In many cases these companies (operating in markets outside the US)also frequently incorporate in their home countries (which host their target markets) eg India, South-Africa, Nigeria as the case may be Have you gotten any feedback from anyone who has honestly met their definition of successful?