5 questions every US tech startup founder needs to ask before taking money from a foreign investor
- From Japan's SoftBank to the Australian sovereign wealth fund, foreign money is pouring into Silicon Valley startups.
- While it may be tempting for founders to take large checks from generous investors, attorney Doreen Edelman said that US companies need to consider the risks they take when accepting foreign investments.
- Companies in industries like artificial intelligence, the Internet of Things, and robotics may see their foreign investments rejected by the US government on the grounds of national security.
- While it's possible to get some investments through, Edelman said, the more access and control an investor has, the more time, paperwork and money it will take to get approved.
- Read more on the Business Insider homepage.
Uber took a $3.5 billion investment from the Saudi Public Investment Fund in 2016, and gave a board seat to its managing director.
Databricks took $33.24 million in 2015 in a round with participation from Future Fund, the Australian sovereign wealth fund.
And Zumper took $45.65 million in a 2018 round led by Axel Springer, the German publishing giant (which also happens to own Business Insider).
Yes, the early days of Silicon Valley were so geographically constricted that many of the most high-profile investments were made by people who worked near each other on the legendary Sand Hill Road. But today, the startup investment ecosystem is global, with large checks being written by foreign allies and adversaries alike.
While investors are eager to open their wallets, taking a foreign investment isn't as simple as cashing a check, said Doreen Edelman, head of Lowenstein Sandler's Global Trade & Policy Group.
As US startup founders consider to whom they want to sell equity, they must also consider a host of legal issues that could come up with foreign investors, she said.
Depending on the circumstances, investments from foreign investors could create delays, extra paperwork, and result in costly fees. In the most extreme cases, the investment may be blocked entirely. Even if the investment has been completed, though, the US government may force a divestiture afterwards.
Sanctions and tariffs can also create problems for companies down the road.
Before any of that happens, these are the five questions Edelman says every tech founder needs to ask themselves when considering a foreign investment.
What's the industry?
Could that change in the future?
Who is the investor?
Will they have access to the "secret sauce?"
Will they have a board seat?
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