Foreign Funding for Startups

By Viktor De Maio, 3L —

For many businesses, access to capital is still one of the biggest barriers to growth. According to the 2019 “Failure Startup Failure Rate Report”, 90% of new startups fail during their first year of operation. Money is the bloodline of any business. There have been an increasing number of startups and SMBs (small and medium size businesses) coming up every year, making it difficult for new businesses to get investment from regular sources. Therefore, one of the options for new businesses that want to grow despite the challenges is to find foreign investors. However, before startups can utilize any strategies for attracting foreign funding, they must first get their basics right. By focusing on some key points, a startup is more likely to attract potential foreign investors and get the necessary funding.

Business values: Define your business values by asking questions like: Is there a market need for my product? Who is the target audience? What idea am I selling?

Business Plan: Make sure to have a solid business plan where you calculate the net worth of the business by identifying the investment, the probable risks, and forecasting a potential income.

Compliance: Foreign investors want to make sure that the business complies with the current laws and regulations, including taxation, SEC regulations, employment, and benefit laws.  As a matter of fact, foreign investors are often not aware of the local regulations, therefore they rely on the founders’ knowledge and experience to be in compliance. Also, the organizational structure, whether an LLC or a Corporation, must also comply with current law.

Fees and Charges: One option for finding investors abroad is to use a finder, or a specialized company. These companies make it easier to secure funding. However, they can come with high fees and expenses.

Networking opportunities: In today’s market, who you know is more important than what you know. Networking with potential international investors, attending international conferences, or becoming a member in business associations or international chambers of commerce are just a few of the recommendations.

Investor EB-5 visa program: Another option is to take advantage of the benefits of programs that are tied to foreign investor visas. The   most popular visa is the EB-5. The EB-5 investor visa program enables foreigners who make an investment between $500.00 and $1 million in a U.S. business to obtain a green card and become lawful permanent residents, with the opportunity to eventually become US citizens. This is an excellent opportunity for new businesses to get access to foreign funds. This is a win-win scenario for both parties.

So, what is my advice to a startup looking to raise foreign capital? Make sure to have a sellable idea, comply with regulations, and take advantage of the EB-5 visa program. Good luck!

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