How VC firms help their portfolio companies expand and operate globally

Top VC firms provide firsthand information and advice, and also help their portfolio companies by directing them to other experts, including channel partners, third-party service providers and indeed other portfolio companies. Startups of all stages need guidance, often in relation to expanding and operating internationally, which is complex and fraught with compliance and other risks.

This interview features three leaders in the venture capital industry. They discuss the most important elements of international expansion and operations for startups and other high-growth companies.

Priya Saiprasad is co-founder and general partner at Touring Capital, which focuses on early growth and cutting-edge software companies. Ronan Kennedy is B Capital’s vice president of capital advisory and corporate development, and partners with portfolio company leadership to advise on financing and transactional needs. Vignesh Ravikumar, a partner at Sierra Ventures, focuses on investments in enterprise SaaS, vertical SaaS, and digital health and healthcare IT.

How active are VC firms in terms of providing strategic, operational and other guidance to their portfolio companies?

Vignesh: A big part of being involved with portfolio companies is helping them. Money is one thing, but if you can't help them, I’m not sure they would take our money, considering there's a lot of money out there. I do think the way we deliver advice around global expansion and other areas has changed over the years. Now, our firm may provide advice directly, but we also connect our companies with experts who can provide the advice they need.

Ronan: At B Capital we think today’s companies should be global companies. We live in a global economy, we have global investors and talent is global. So why isolate yourself when you have the entire blue planet available? Our firm’s first value-add lever is around global expansion, along with product, sales and go-to-market strategies. The first question we ask is: How do we help businesses become global, both on the cost side and the revenue side?

Priya: We [Touring Capital] invest in US companies that end up expanding outside the US, but we also invest in companies in Australia and Europe that start there, but then want to expand into the US. So for us, international expansion goes both ways. And our guidance is a very important, core part of the value proposition we offer. We ask: What are the repeatable, proven playbooks to leverage when you're expanding into the US? These include how to build a go-to-market engine catered to a specific international market.

What’s an important lesson you’ve learned about growing across borders that you pass along to your portfolio companies?

Priya: Our team for the most part is based in the Bay Area [in Northern California], so we end up traveling a lot internationally to identify entrepreneurs solving material problems. And the biggest advice we provide both portfolio companies and prospective companies about international expansion is to be very thoughtful about when you expand and how you prepare for it. You really only get one shot per market, especially with large enterprise logos. So how you launch matters a lot. We usually recommend expansion at the series B and beyond stages.

Ronan: That’s a good point about the importance of stages. There are different skill sets for different phases in a startup’s journey. We take global expansion as one of the skill sets we bring to the relationship with our portfolio companies. For the companies that want to have that conversation, we’re set up and equipped to not only have the conversation, but to help execute to it.

Vignesh: We often have the reverse problem, where a company will already have people sitting internationally and they may not be managing compliance properly. As Priya mentioned, it can be such a headache if you don’t expand the correct way the first time. I think the cleanup of poorly executed expansion ends up being more of a pressing problem when we first make an investment.

So, for companies that haven’t expanded, you want to guide them to experts who can make sure they do it right the first time. You guys [Vistra] helped a few of our portfolio companies, for example. Our experience with implementation partners, channel partners and other portfolio companies enables us to help our companies establish footholds in new markets.

How do you determine what countries to expand into?

Vignesh: We typically rely on our portfolio companies to tell us where they’re seeing demand, because you don't want to dictate where they should go sell unless you feel strongly about it. A company will usually tell us something like, “We're starting to feel pull from this segment,” or, “I'm starting to see really good talent emerging in this market.” Our goal then is to share our knowledge or connect them with people who have done something similar so they can learn from somebody else's experiences.

But in terms of go-to-market, that's something we definitely try to push as it relates to international expansion and how to think about it. We've encouraged a couple of companies to go into Japan, for example, because we know there's a lot of demand there for data products.

Priya: I find that the best management teams usually have a fleshed-out strategy and an idea of what they want to do in terms of international expansion. So, a lot of what they look to us as board members for is either to validate or invalidate their assumptions. We provide guidance with testing the TAM [total addressable market] to see if it's actually the best option. What is the consumer sentiment in that particular geography? What's the buying appetite and capacity, and how similar or dissimilar is a sales cycle and process to what the company is used to?

A lot of my help is in providing the founders with the ability to strategize around the business and commercial sides of international expansion. For the compliance elements, we usually refer them to their legal teams for advice.

Many tech and other high-growth companies want to expand into a new market quickly, which can be difficult using a traditional model of establishing a local legal entity, bank account and payroll. As a result, many portfolio companies are using employers of record, or EORs, to expand. Using an EOR is increasingly common, though it is not intended to be a permanent solution. What do you tell your portfolio companies about the benefits and risks of using EORs when expanding?

Ronan: We think about global expansion in phases one through three. I’ll give you a hypothetical example. Let’s say you as a portfolio company win UBS as a customer, but the contract’s coming out of Switzerland. How do you service that account, including collecting receipts? At the start, maybe you just do collections and receipts out of the US, and you get Vistra to do that for you. That’s phase one.

But let’s say the contract gets bigger, and because you have that UBS label you get more Switzerland-based customers out of it. Now, maybe you want some boots on the ground in Zurich, so you hire a local coverage person and an accounts role. How do you cover that account-ownership person?

Well, it's a lot of work to establish an entity and understand and follow local employment rules, so you go with an EOR, which is phase two.

Then there’s phase three. Let's say you pick up Rolex as a customer, and then it makes sense to have your own dedicated legal entity in Switzerland. So you establish the entity and set up a local payroll through the entity, transferring your workers from the EOR to the new payroll.

So, we definitely think about phasing in and trying not to solve for phase three when we’re still thinking about phase one.

More than ever, regulators and the public are demanding corporate transparency and accountability. What advice do you give your portfolio companies about developing sound corporate governance?

Priya: International expansion is one element that falls under corporate governance, of course, but there's so much under that umbrella. We’re involved with corporate governance, but we haven't come across a particularly controversial international expansion strategy from a portfolio company. Of course, we’re experiencing significant geopolitical political tensions, and there may be situations — such as a controversial NGO [nongovernmental organisation] — where we would have to discuss governance at the board level to ensure we account for related risks.

Vignesh: We help primarily early-stage companies, so we push on governance to make sure they've covered their backs.

For example, recently we’re pushing in the health-tech world and in other enterprise-software areas where they have sensitive company data. Data security is becoming a really important topic, where one breach can be a huge impediment to the growth of a company. That’s a compliance area we're bringing up more often in board meetings.

Again, a lot of these things are stage dependent. You're not going to tell a seed-stage company to focus all their resources on data security when they're still trying to figure out a bunch of other things related to their core business. But for companies that have gotten some scale and are growing quickly, you have to manage those peripheral concerns to make sure they don't hit any hurdles.

What are some best practices for achieving and maintaining compliance with regulations in all countries of operation?

Ronan: You don't want to be operating in a company or a country illegally. That's a great way to get shut down. If you expand and don't know that local laws around labour, immigration, taxation and equity sharing don’t work the same as they do in the US, you’re at risk. Once you become noncompliant, the rest of the business has to basically shut down and freeze while you work your way out. So, achieving and maintaining compliance is a common thread through everything we speak about.

Vignesh: We make sure our companies hire good people who have been at large-scale companies and really understand compliance best practices. Oftentimes founders are running a million miles an hour and compliance is simply not top of mind. Even if they understand its importance, they’re dealing with a lot of issues. The board is important in those cases, and that goes back to the earlier question of how you encourage good governance and internal company controls.

So, the executive team is really the most important initial consideration. In terms of how we help our companies or what we tell them, we don’t purport to be experts in everything related to compliance, but we do want to send them to people in our network who have solved these problems before.

Priya: In the 2021 to 2022 global economy, the volatile markets revealed a lot of cracks in company infrastructure, in part because growth had been prioritized over almost everything. Many companies assumed high levels of compliance risk while focusing on top-line growth. They ignored building solid foundations.

The place where I saw a lot of cracks was on the HR side. Many companies hadn’t built the right HR infrastructure, and neglected to implement strong policies related to hiring, firing, promotion and retention. Many also neglected whistleblower policies. A lot of these companies that were raising mega series A and mega series B rounds were completely reinvesting that capital in go-to-market and growing the company versus HR infrastructure and compliance.

Policies for employee retention can be critical for a growing company, particularly in countries with burgeoning labour markets such as India, many Latin American countries, Poland, Vietnam and Pakistan.

Have you encouraged your portfolio companies to consolidate vendors to create efficiencies, for example by using a single global payroll provider in all countries of operation?

Ronan: Startups can’t do it all by themselves, and they shouldn’t. I think most boards would say you need to partner with a trusted service provider, because when you hire the wrong person or take the wrong step and get into compliance trouble, you introduce more risk into the business. Risk management comes first for us, and it often makes sense to consolidate services with a trusted provider.

Vignesh: Ultimately, you ask: What are we trying to solve for? How do we try to make sure that it gets done right and the burden is off the CEO, especially with our early-stage portfolio companies? To the extent that we find good providers that can help our company solve their problems, we of course will send them in that direction.