SeedBlink Blog

Tech Investors Academy, powered by SeedBlink, is an English-only hybrid learning program designed for all investors registered on the SeedBlink platform who want to enhance their venture capital knowledge.

The third learning module of Tech Investors Academy by SeedBlink focused on Cross-border Investment strategies. We discussed what this means for investors, how to build cross-border networks, the main benefits, and more.

This session was led by Robbin Hoogstraten, the Regional Director for Benelux at SeedBlink and founder of Symbid. Robbin was joined by Willem Hulsink, a lecturer and researcher at the Rotterdam School of Management, specializing in international entrepreneurship and entrepreneurial finance.

What you need to know about cross-border investments

From their discussion, we have unpacked the most important things you should know to learn about different round types and the legal conditions each of them has.

Cross-border investments refer to investments made by individuals or companies across national borders. This type of investment is important for several reasons:

• Portfolio diversification: Investors can diversify their portfolios and reduce their overall risk by investing in different countries. Economic conditions and market trends can vary significantly across regions, and investing across borders can help mitigate the impact of local market fluctuations.
• Access to new opportunities: Cross-border investments allow investors to access a wider range of opportunities that may not be available in their domestic market. These include emerging markets, innovative technologies, or more developed industries in other countries.
• Global growth: As the world becomes more interconnected, cross-border investments can expose investors to the growth and development of the global economy. By investing in companies or assets in different countries, investors can potentially benefit from the economic growth and expansion of these markets.

When considering cross-border investments, start by evaluating the company and its founders. Are they already active internationally and looking to expand further?

If so, they may need a special investor from the target country who can provide strategic insights and capitalize on local opportunities.

mentioned Willem Hulsink, a lecturer and researcher at the Rotterdam School of Management

A company with some international investor support may offer a more promising potential for high returns and fewer risks than one seeking its first foreign backer. In contrast, a new company seeking additional finances might be in survival mode, with limited opportunities and a high burn rate.

One factor influencing this is the experience and knowledge of founding or management teams in internationalizing companies. Lacking specialists and comprehensive research, these startups are not yet multinationals, and often, the founders handle the internationalization process while juggling other responsibilities.

Companies that have already worked with foreign venture capitalists and have a presence in foreign markets present a different scenario. Investors, in such cases, can be more relaxed and strategic, asking detailed questions and expecting the company to hire specialists to go international.

Additionally, a startup or scale-ups maturity level significantly impacts cross-border investments, as these companies operate within frameworks different from those of domestic pre-seed or seed-round companies.

In countries like the Netherlands, investors might set up a stock entity to combine multiple investors into one, but different countries have different frameworks that can affect investment opportunities.

mentioned Robbin Hoogstraten, the Regional Director for Benelux at SeedBlink

Cross-border investments in 2024

Cross-border connections with startups in cities like Berlin, Paris, and London are becoming more accessible, and venture capitalists are increasingly investing in these cities.

Different European initiatives are facilitating this trend despite setbacks like Brexit, which has introduced export and legal barriers, particularly affecting SMEs in sectors like horticulture.

The current landscape shows increased connectivity and investment activity within Europe, driven by ongoing integration efforts. Entrepreneurs and investors benefit from these developments, enabling smoother cross-border operations and investments.

Familiarity with different frameworks and cultures is growing, fostering a more collaborative and integrated European market.

mentioned Willem Hulsink, a lecturer and researcher at the Rotterdam School of Management

The US sees rapid internationalization with startups like Airbnb and Uber, termed "blitz scalers." These companies quickly achieve global reach, often with initial backing from US investors and later support from other regions like the Middle East.

However, European integration continues to strengthen, allowing entrepreneurs and investors to move more freely and become familiar with each other’s cultural and regulatory frameworks. __

Understand current macroeconomic challenges

Startups face several macroeconomic challenges that can significantly impact the companies and the investors involved.

Government programs, such as grants for incubators and accelerators, and European fundraising support have contributed significantly in the past years to developing the venture ecosystem. However, recent cuts across different countries and even at the European level can influence the growth of startups or investors raising new funds.

Additionally, fluctuating interest rates influence investment exits and sales, affecting the overall investment strategy. Policies on intellectual property rights and technology transfers, along with corporate governance structures, are other elements with a possible strong influence.

These factors create a complex environment that requires startups and investors to adapt to constant changes and navigate new regulatory landscapes.

"There are always incidents at universities or excessive bureaucracy to contend with.

Corporate governance is also a key issue—whether the board is one-tier or two-tier and how easily you can hire or fire personnel. These aren't easy topics to navigate, often requiring consultation with lawyers, experts, or consultants, or seeking help from your embassy to connect with specialists."

mentioned Willem Hulsink, a lecturer and researcher at the Rotterdam School of Management __

Adapt your due diligence process

Another aspect that startups and investors must consider in the cross-border fundraising process is due diligence, which involves more than just evaluating a startup's viability.

When considering cross-border investment strategies, Willem mentioned two key concepts:

• the "liability of foreigners."
• the "liability of outsiders."

Cross-border investments include understanding regulatory requirements, cultural differences, and personal compatibility among stakeholders. Startups entering new markets must recognize the challenges of being outsiders, including language barriers, legal differences, and cultural nuances.

Investors, in turn, need to assess whether startups are prepared for international markets and have the necessary support systems. This thorough evaluation helps mitigate risks associated with international expansion and ensures a smoother transition into new markets.

“We call this liability of foreigners. From the startup's perspective, entering a new country and meeting a new investor brings the risk of failure in internationalizing.

As an outsider trying to become an insider, you might need to collaborate with a partner, investor, supplier, or distributor. Both investors and startups must create a network of supporters or companies to back them.”

mentioned Willem Hulsink, a lecturer and researcher at the Rotterdam School of Management __

The role of communities, hubs, and clusters

Strategic hubs are crucial for startups seeking investors, especially those engaging in cross-border investment strategies.

Notable clusters like Cambridge, Stockholm, Helsinki, Amsterdam, Berlin, and Paris have established themselves as centers of entrepreneurial activity, attracting investors due to their track records of success. A clustering effect means successful hubs continue attracting more investment, while regions without such networks may lag.

Clusters need specialization.

Successful clusters often rely on strong universities with excellent technology transfer and commercialization policies, which can generate a steady flow of new technologies and spin-offs. Large companies in these clusters can also support the ecosystem by creating opportunities for former employees or partnering with startups.

“Certain regions may focus on sectors like FinTech, semiconductors, or software. For example, the semiconductor industry in Saxony attracts investments from companies like Intel due to its strong specialization.”

mentioned Willem Hulsink, a lecturer and researcher at the Rotterdam School of Management

However, there is a risk of over-specialization, which can lead to lock-in. These clusters must remain dynamic by attracting young entrepreneurs and new investors abroad. They are expanded by the presence of universities that develop the right talent, especially for tech-heavy industries.

Investors with expertise in specific verticals often focus on clusters where their knowledge can be effectively utilized, ensuring they add value beyond just capital. __

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