Why You Might Want to Start Your Business Overseas

By the time he was a senior at the University of Wisconsin in 2009, Nathan Lustig’s startup had customers, revenue and national press. But the company, a digital estate-planning service called Entrustet, lacked a scalable business model and had yet to turn a profit.

That’s when Lustig and his co-founder, Jesse Davis, made a bold move. Presented with an opportunity to join Start-Up Chile, a program the Chilean government launched in 2010 to attract entrepreneurs to the country, they leapt at the chance. Under the program, Lustig received $40,000 in equity-free capital, a one-year work visa, office space in Santiago and a steady stream of introductions to the country’s business elite, including potential investors and partners.

“We probably couldn’t have gotten $40,000 of free money in the U.S.,” says Lustig, who raised $125,000 in equity funds from friends, family and angels in the U.S. before moving to Chile.

Lustig sold Entrustet to a European competitor but remains in Santiago, where he co-founded Magma Partners, a $5 million seed-investment fund and accelerator for local and expat entrepreneurs doing business in Chile. And he is not alone: An increasing number of financing opportunities exist for U.S. businesspeople willing to move overseas, courtesy of governments, private companies, seed funds, accelerators and incubators seeking savvy startups.

A capital idea

“Around the world, people look up to entrepreneurs in the U.S. as being on the cutting edgeof technology and innovation,” says Nancy Yamaguchi, a partner at international law firm Withers Bergman LLP. This reputational advantage can open doors to foreign VCs, strategic investors and other financiers, says Yamaguchi, who works with tech companies raising capital overseas.

Besides competing with fewer startups for dough, another benefit of looking abroad is that overhead may be significantly cheaper—as much as 50 percent less than in the U.S., according to Jeremy Hand, principal of Emerge Global Advisory in Medellín, Colombia, which helps expats secure financing in Latin America and navigate the local business culture.

Evan Tann, a native Californian who spent half of 2014 at Wayra, a London-based accelerator run by $100 billion Spanish telecom giant Telefónica, agrees. “Even in London, where living costs are significantly more expensive than the U.S., engineers charge a small fraction of their San Francisco counterparts,” says Tann, CEO of Cloudwear, an online and cloud security company that nabbed a six-figure investment from Telefónica.

New worlds, new networks

Making the connections needed to raise angel or VC funds overseas can take time. Californian Kevin Yu, founder of the mobile cooking app SideChef, spent a year raising a $1 million seed round in Shanghai. Even though he spoke Mandarin, Yu understood the business culture and the importance of having a local friend make introductions.

Aligning oneself with an overseas accelerator or incubator that offers capital—such as London’s Innovate Finance, Milan’s M31 or Shenzhen’s Haxlr8r—is more expedient, according to Yamaguchi. “I like the incubators because they are a clearinghouse for local VC resources,” the attorney says, adding that international programs provide more access to investors than their U.S. counterparts. Tann concurs, saying that at Wayra, “there was a constant stream of investors through the office.”

But don’t just follow the money blindly, Lustig warns. Those willing to take the plunge to move overseas should carefully weigh the potential markets, where they can afford to set up shop and—most important—where they want to live. “If you’re going to go abroad,” he says, “it should be for a reason, not just for the cash.”