The document discusses the U.S. market entry strategies for fast-growing startups, highlighting the importance of venture capital and cross-border opportunities. It reviews 2020 VC market dynamics, including deal activity, IPOs, and investment trends, while outlining the formation processes for startups in the U.S. and the types of corporate structures recommended for non-U.S. investors seeking access to American markets.

1. U S M A R K E T E N T R Y
FOR FAST-GROWING STARTUPS
N O V E M B E R 2 0 T H , 2 0 2 0
D R A K E T A L K S

2. PA R T N E R
D R A K E S TA R
Vitaly M. Golomb
F O U N D E R
L 2 C O U N S E L
Louis Lehot
Your Hosts
2

3. Large Tech
Focused M&A
Advisory Firm
27 senior partners
100+ team focused on TMC
Over 370+ transactions
Leaders
#1 in TMC cross-border midcap
#2 in TMC global midcap
11 Awards 2018-2020
Global Presence
9 of
fi
ces in 6 countries
Plus partnerships in:
Dubai, Israel, Japan, and Singapore
70% of deals cross-border
Mobility &
New Energy
20+ Focused on
Mobility & New Energy
Senior Advisory Board
Deep Relationships
with Leaders and investors
3

4. 200+ Companies
Represented
> 80 billion raised
> 20 VC and private equity
fi
rm relationships
From Garage
to Global
Representing clients at all
stages of growth and throughout
their life span
Outside
General Counsel
For emerging private
growth companies
in the innovation economy
Company
Side Counsel
4
Investor counsel in angel,
seed and venture capital
fi
nancings and M&A sales

5. C E O
D R A G O N B O AT. I O
Becky Flint
PA R T N E R
O N E WAY V E N T U R E S
Eugene Malobrodsky
M A N A G I N G PA R T N E R
M I G H T Y C A P I TA L
SC Moatti
Your Panelists
5

6. Agenda
VC Market 2020 and 2021 Trajectory
Entering the US Market
Panel Q&A
Slides and Video will be available after the webinar
6

7. VC Market 2020
7

8. 2020 US Deal Activity Remains Surprisingly Strong
VC deal activity by quarter
Source: PitchBook-NVCA Venture Monitor as of Sept 30, 2020 8

9. 2020 US Deal Activity Remains Surprisingly Strong
Mega-deals approach 2019
fi
gures
US VC mega-deal activity
Large deals growing
US VC (#) by size
Source: PitchBook-NVCA Venture Monitor as of Sept 30, 2020 9

10. A Reopening of the IPO Window
VC exit activity by quarter
Source: PitchBook-NVCA Venture Monitor as of Sept 30, 2020 10

11. Early Stage VC
2020 Early-stage VC unlikely to match 2019
Source: PitchBook-NVCA Venture Monitor as of Sept 30, 2020 11

12. Early Stage VC
Q3 deal activity shows notable rebound
Source: PitchBook-NVCA Venture Monitor as of Sept 30, 2020 12

13. Late-Stage VC
US late-stage VC deal activity
Source: PitchBook-NVCA Venture Monitor as of Sept 30, 2020 13

14. Late-Stage VC
US late-stage VC deal activity
Source: PitchBook-NVCA Venture Monitor as of Sept 30, 2020 14

15. Silicon Valley is Dead, Long Live Silicon Valley
US VC deals by region
Source: PitchBook-NVCA Venture Monitor as of Sept 30, 2020 15

16. Global Venture Trends
Source: Venture Pulse, Q2’20. Global Analysis of Venture Funding, KPMG Private Enterprise. 16

17. Global Median Pre-Money Valuation
Source: Venture Pulse, Q2’20. Global Analysis of Venture Funding, KPMG Private Enterprise. 17

18. Global Median Pre-Money Valuation
Source: Venture Pulse, Q2’20. Global Analysis of Venture Funding, KPMG Private Enterprise. 18

19. Looking Ahead to 2021
19

20. Change in Investment Activity since COVID-19
Source: 500 Startups - The Impact of COVID-19 on the Early-Stage Investment Climate: Q3 2020 20

21. What Stage Do You Plan to Focus on in 2021?
Source: 500 Startups - The Impact of COVID-19 on the Early-Stage Investment Climate: Q3 2020 21

22. What Sectors Do You Plan to Focus on in 2021?
Source: 500 Startups - The Impact of COVID-19 on the Early-Stage Investment Climate: Q3 2020 22

23. Private Equity Will Continue to Play in VC
Source: PitchBook
Growth equity deals ($) by sector
23

24. So When Should You Come To US?
Further reading:
Golomb.net/foreignfounder/
24

25. Strategies and Tactics
25

26. Setting Up in the US
What are my choices?
• Go direct
• Branch
• Subsidiary
• “Flip” – creating US Holding Company

27. Setting Up in the US: Fundraising
Fundraising: Accessing US Venture Capital
• Will US VC invest directly in foreign company?
• Are you ready for VC
fi
nancing?
• VC
fi
nancings

28. Setting Up in the US: Subsidiary
• Objective: Established foreign company (“TechCo”) needs US subsidiary for local presence
and contracting, hiring, bene
fi
ts, limited liability, IP/tax structuring
• Key Steps:
• Delaware corporation
• One Shareholder
• One Director (or more)
• Of
fi
cers: President, Chief Financial Of
fi
cer, Secretary
• Common Stock (ordinary share equivalent)
• Timing: as fast as 1 day
• “Qualify” in California or other States where operate
• Consider operations and need for intercompany IP agreement
• Consider tax optimization and intercompany services agreement and transfer pricing

29. “Flips” – Setting Up a New US Parent
• Objective: TechCo needs access to US venture capital and focus operations in US
• Process: “Flip” the business from abroad to the U.S. by inserting a new US “Parent” company
above TechCo
• Key Steps:
• Incorporate a new Delaware company (“US Newco”)
• Existing shareholders of TechCo contribute their TechCo shares to Newco in exchange for US
Newco shares
• NewCo seeks US venture
fi
nancing – using $ to fund operations in the US and for TechCo
• Business conducted in US by US Newco; certain foreign activities continue through TechCo or
other subsidiaries, as needed
• CEO and sales staff typically US based
• R&D; technical, development and support staff abroad

30. “Flips” – Setting Up a New US Parent
“Flips”to US seen from: Western Europe, Israel, Australia, Canada
• Tax issues/valuation of TechCo – tax rollover/deferral
• Tax considerations going forward
• IP – Keep IP in TechCo or migrate to US
• US Newco management and capital structure
• Consents/approvals of TechCo and viability of
fl
ip
• Compel exchange of TechCo shares for US Newco shares?
• Effect
fl
ip sooner rather than later, prior to creation of signi
fi
cant ‘value’ in TechCo
• Required legal and accounting team in place for transaction
• Time/expenses to effect
fl
ip

31. “Flips” – Setting Up a New US Parent
P R E - R E S T R U C T U R I N G P O S T- R E S T R U C T U R I N G
Non-US Corp
Shareholder 2Shareholder 1
US NewCo
Shareholder 1 Shareholder 2
Non-US Corp
Intercompany
Relationship
New Investors

32. Intercompany Agreements – Five Compensation Methods
Option 1: US is a service provider
• US of
fi
ce provides sales and marketing services and/or R&D services and earns a cost
plus return
• Home country parent bills customers and retains other activities
Home Co. Customers
US Office
Sales, marketing, R&D servicesPayments for services

33. Intercompany Agreements – Five Compensation Methods
Option 2: US is a distributor
• US of
fi
ce can be compensated as a distributor earning a targeted operating margin
• US of
fi
ce with the US offi ce billing customers
Home Co.
Customers
US Office
Distribution rights, goodsEarnings minus operating margin
Distribution

34. Intercompany Agreements – Five Compensation Methods
Option 3: US licenses IP from home country parent
• US is an entrepreneur licensing IP from home country parent and paying a royalty to
the home country parent
• US of
fi
ce engaging in high end activities and billing customers
Home Co.
Customers
US Office
RoyaltyIP license

35. Intercompany Agreements – Five Compensation Methods
Option 4: US buys IP from home country parent
• Migration of IP to US with US becoming the parent and the residual pro
fi
t claimant
Home Co.
Customers
US Office
Migration of IP to US with
US becoming the Parent

36. Intercompany Agreements – Five Compensation Methods
Option 5: US and home country parent cost share IP development with each
retaining the rights speci
fi
c to their territory
• US pays for the rights to use the IP in its territory and then co-develops the IP with
the home country parent
Home Co. Home Customers
US Office US Customers
Co-develop IPRight to use IP

37. U.S. Startup Formation Basics: Type of Entity
C corporation vs. S corporation or LLC
• Primary Distinction for Domestic Investors
• Double taxation v. single layer of tax
A. C Corporations are subject to “double taxation” — tax on both (a) pro
fi
ts of US subsidiary and (b)
distributions to home country parent
B. “Pass-through entities” (LLC, Branch Of
fi
ce) are not themselves subject to US income tax; all pro
fi
ts
and losses are passed through to parent
• This distinction is less relevant for non-US investors as they are not afforded
the bene
fi
t of a single layer of tax

38. U.S. Startup Formation Basics: Type of Entity
We typically recommend using a C Corporation
for the following reasons
• Limited liability for parent company for acts of US of
fi
ce
• Protects the parent’s books and records from investigation by US tax
authorities or US litigants
• More certainty as to revenue and expenses attributable to US
• Incentive stock options are easier to administer through a C Corporation

39. U.S. Startup Formation Basics: Type of Entity
We recommend incorporating in Delaware
• Broader ability to limit monetary liability of directors for breaches of the duty
of care
• Broader ability to indemnify of
fi
cers and directors
• Greater
fl
exibility to adopt measures to protect against hostile takeovers
• General reputation of Delaware law as more favorable to management,
combined with the greater predictability of Delaware case law.
• Section 2115 of the California Corporations Code applies to Delaware
corporations which have signi
fi
cant operations in the State of California and
more than 50% of their outstanding voting securities held by California
residents.

40. • A foreign entity can engage employees to do business in the U.S.
• Employment contracts are not required and if used do not require speci
fi
c
terms.
• Independent contractors must be truly independent and not be closely
directed by the principal.
U.S. Startup Formation Basics: Employment

41. Venture Capital Financing
Convertible Debt vs. Equity – the “Form” of the security
Convertible Debt:
• Now a stand alone
fi
nancing (typically up to $1.5M)
• Investment converts into next equity round on same terms at a discount
• Faster
• Often no diligence (or limited)
• Investors are individuals, angel groups, VCs
• Simple documents (document generator)
• Fast (1-2 weeks)
• Lower transaction expenses
• Company often leads (solicitation package)

42. Venture Capital Financing
Convertible Debt vs. Equity – the “Form” of the security
Equity:
• Preferred equity
• Typical venture model terms (see NVCA model documents)
• Rights and preferences and higher valuation than common stock
• Contemplated to be successive rounds of
fi
nancing at increasing valuation as
the company progresses
• Takes more time than convertible debt
fi
nancing (3-5 weeks)
• Due diligence and negotiation of terms and multiple investment agreements
• Higher transaction expenses and company reimburses investor counsel
• Investor leads

43. Venture Capital Financing
General considerations
• “Best in sector” standard
• Partnership for the future
• Decisions now (structure; valuation; terms; vetos) impact the future
• Company capitalization table needs to be dynamic
• No common stock
fi
nancings!
• Have your house in order
• Be prepared for due diligence
• Expect a process and the need to build relationships
• Sell business
fi
rst then address jurisdiction/structure issues with your
proposed new partner

44. C E O
D R A G O N B O AT. I O
Becky Flint
PA R T N E R
O N E WAY V E N T U R E S
Eugene Malobrodsky
M A N A G I N G PA R T N E R
M I G H T Y C A P I TA L
SC Moatti
Q&A
XX

45. Thank You
vitaly.golomb@drakestar.com
Vitaly M. Golomb
louis.lehot@l2counsel.com
Louis Lehot