Why international startups sell cheap in the U.S.?

Recently a conversation with one international startup founder left me feeling puzzled. He’s been running his business for almost seven years, raised investment of around $10 million, and hired the best of the best in sales and development. Now the founder wants to sell his brainchild for just $1 million. Why? He doesn’t know what to do with it any more.

Selling your startup is like dating: give yourself away too early, and you sell cheap or don’t sell at all. Wait too long, and nobody would want you any more, because you’ve been looking for ages and they suspect there’s something wrong with you.

It’s even more difficult for the international startups in the U.S. The founder I’ve been talking to, with R&D in one European country and a head office in another one, did everything right. Unfortunately, his profits haven’t been large enough to attract tech giants. But many early stage international startups, especially the ones coming from Eastern Europe, sell cheap.

In December, Teleport, an AI-based app that helps you change hair color in selfies was sold to Snap for $8 million. The acquisition turned out to be acqui-hiring, a fancy way to say the buyer is taking a team and technology without showing any interest in the company’s products. Some experts believe Teleport should have been sold for $50 million: the startup’s founders claimed their processing image technology is “the best in the world”.

To get a fair price, many foreign startups incorporate themselves as a U.S. entity. However, at an early stage companies coming from abroad are undervalued by American standards. A $2 million startup in New York or Silicon Valley will have an idea and perhaps a great team, but a company of the same valuation in Eastern Europe will already have a working prototype and first clients.

But, most importantly, the U.S. tech giants, such as Google or Amazon, sometimes don’t see value in business coming from abroad and are attracted only by brains and technology. You have to let them know what you are doing, and not just once at the Zoom meeting, during the into call.

A common mistake is to delay publicity: PR and content marketing are necessary for getting your business out there and explaining yourself to investors. Waiting too long won’t hurt your reputation but constantly being on a radar would improve your prospects.

By Victoria Zavyalova, co-founder, V Startup Agency