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An increasing number of African startups are incorporating their companies in the US — to make it easier to scale globally, and in some instances to raise funding from international investors.
One such startup is Ghanaian company Syncommerce. Founded in 2014 by CEO Christian Osei-Bonsu, Joel Funu, and Albert Fiati-Kumasenu, the startup’s centralised dashboard allows online merchants to sell, track and manage inventory across multiple sales channels, simultaneously.
From day one the company has drawn the bulk of its clients from the US. Currently the figure stands at 70% of its merchants.
Syncommerce has been able to access markets in Canada, UK and the rest of Europe by incorporating in the US
“One of the biggest challenges we had at the time was how to receive payments for our solution, to continue to build, and grow our business. We could find no option that would work from here in Ghana. We were at a crossroads,” Osei-Bonsu (pictured above) told Ventureburn in an email earlier this month.
Based on a recommendation from the Meltwater Incubator, which the startup was part of, and on further research consultation Osei-Bonsu then decided to incorporate in the US.
He said it was through Stripe, a payments startup, that he was able to incorporate there. Stripe has a service called Atlas which helps founders set up Delaware-based limited liability as well as C-Corp companies (Read more on these company types here).
By incorporating in the US, the startup was able to access markets in Canada, the UK, and the rest of Europe, as well as Asia.
“We are currently serving actively the North American and European markets. Our plans for the next five years would be to expand actively to Asia and Africa,” he explained.
Osei-Bonsu, whose startup has raised $50 000 in funding since launch, said the company is now in the process of raising Series-A funding. He believes Stripe has helped grow his business to a point where investors would find it “attractive and viable to invest in”.
“Of course, the fact that we were able to incorporate it the US also makes it all the more easier for investors, based on our research. We are working towards it, and hope that next investment will be soon,” he added.
US incorporation essential to expansion
Speaking in an interview with Ventureburn last month in Cape Town ahead of a presentation on incorporating overseas, Stripe head of entrepreneurship Sarah Heck pointed out the advantage of setting up a company in the US.
“Access to funding resources obviously are aggregated in Silicon Valley and New York — and a few other places around the world, — but mostly there,” she said.
It means to tap venture capital funding and access the US or the global market, a startup needs to incorporate in the US and get a bank account there.
She explained that incorporating as a Delaware C-Corp or LLC has become the “gold standard” of every fast growing Silicon Valley company.
Heck claims that 75% of the platform’s users intend to raise VC funding within the next 12 months, while 86% trade internationally.
US-seed accelerator Y Combinator (YC) states that it only invests in US corporations. The accelerator assists founders of companies it selects to join its programme to create a US company which the accelerator will then invest in.
‘Stripe has assisted hundreds’
Heck said Stripe’s platform has helped “hundreds” of companies across Africa to incorporate in the US, obtain a US bank account, tax ID number, and receive payments from anywhere in the world. In addition, the platform provides users with access to tax and legal experts at PwC and global law firm Orrick.
“They (Truth Coffee) were a micro-multinational, they had this really incredible brand here, and they were building their presence, but they realised that they can export and tap the US and European markets
“But they didn’t have the business infrastructure to do that, Atlas filled that gap for them, so they are able to sell in the US,” she said.
She explained that startups who had decided to register their businesses through the platform were doing so by either incorporating as a parent company or as subsidiaries of their local company.
Last year, Cairo-based bakery and breakfast delivery startup Breadfast raised closed a seed funding round led by 500 Startups and Averroes Ventures. Stripe claims their Atlas platform enabled them to raise the round.
Ventureburn attempted to contact Breadfast’s founders to corroborate this claim, but there was no response from the company at the time of publication.
If incorporating in the US has proved beneficial for startups looking to raise VC funding, as well as those looking to scale in one of the world’s largest markets, should more African startups take on this strategy?
Featured image: Osei-Bonsu Christian via Facebook
Editor’s note (20 August 2018): Breadfast CEO and co-founder Mostafa Amin subsequently told Ventureburn that it took him a week to register Breadfast in the US and to open a bank account in the country through Stripe’s service.
Amin, who said he was in a hurry to raise money, explained that at the time the US investors behind the startup’s seed funding round required that the startup be registered in the US in order to transfer the funding. He added that were the startup to follow the traditional way of registering the company, it would have taken “a couple of months” to complete the process.