Is a US Tech Exodus about to start?

With recent political events many US tech founders are exploring relocation to more democratic countries for a better lifestyle and none of the angst. So where is the best place to found a startup?

Free speech, democracy and the rule of law in the US has recently started to evaporate in front of our very eyes. An immediate consequence of our new isolationist policies has been a strict tightening of border control at every airport, seaport and road crossing. Draconian screening measures including racial profiling and social media searches are now frequently being used to determine permission to enter our country. More and more innocent tourists are being sent back to their place of origin, or held for unduly long periods in detention, for simply sharing a few anti-Trump posts on Facebook or X. Such intrusions into personal data violates our first amendment rights to free speech - a right that we obviously do not extend to tourists or even immigrants living in the US on a work visa. This tightfisted approach to immigration procedures has caused an immediate downturn in tourism by as much as 10% to 20% depending on the country. Moreover, every US resident or immigrant here on a legal work visa is now too apprehensive or afraid to leave the country - in case they have serious trouble getting back in. As often happens with autocratic movements, losing freedom of movement soon follows the loss of free speech.

The chaotic US political, social and business environment has become a serious concern for many including the majority of tech startup founders and workers who are typically ambitious, highly educated and politically progressive people. Of course many were originally born in a foreign country and immigrated to the US on a work visa - visas that are looking increasingly suspect for permanent conversion into a green card and ultimately US citizenship. For decades aspiring entrepreneurs have come to the US to follow their dreams to build the next unicorn such as Google, Facebook, Apple or Tesla. However after 100 long days of Trump and his anti-democratic and anti-immigrant “reforms” things have changed dramatically. This transformative period has significantly hurt the aspirations, psyche and confidence of many in the US tech community. Some are now asking themselves if they really want to commit to another 4 years of hard slog on the American treadmill of success as a world of social and political chaos envelopes all around them. Many are asking themselves what other options are open to them elsewhere in the world ? And the answer not surprisingly is “many and varied”.

While easy access to startup capital, a huge consumer market, an entrepreneurial culture and a business-friendly tax regime are all still massive advantages for American based businesses, many budding entrepreneurs are now re-evaluating their location plans for founding their next startup. In addition to the negative social and psychological aspects of running a company in Trumps new America, the tariffs on Chinese components are effectively an enormous tax on any US integrated, assembled or built product. Many hardware businesses are simply not viable in the US anymore, and some form of factory relocation, company restructure and business model adjustment is now required to succeed.

Ironically some businesses can now become more profitable if headquartered or managed from an overseas locale simply because of global-supply-chain costs for intermediate stage products and technology system integrators. For these lucky entrepreneurs who identify the opportunity to compete unfairly from overseas against US based competitors, there exists the real possibility of increasing potential profit margins by several orders of magnitude. The current trade war will certainly hurt all US tech businesses in some way. However migration of US businesses to other regional markets can offer amazing opportunities for new market growth and the ability to compete against US competitors with an unfair price advantage. When chaos appears there exists an increased probability for both massive profits and devastating losses.

Until now the best place to do a tech startup has always been in America. However the globalized world is not what it once was …. and new AI technologies are making it easier than ever to live and work remotely with minimal support staff. We are now entering a multi-polar economic and trading world where focusing on high value regional markets often makes more sense than selling products globally to everyone in the world. Hence Europe and Asia are becoming increasingly attractive options for the US tech community to migrate to in an effort to find the ideal work-life-politics balance.

As an American tech founder who has spent half the last decade living abroad, I have recently been inundated with questions from friends and colleagues about the ideal country to launch their next unicorn idea. In total 7 of my US friends and business contacts have approached me for advice on this matter in just the last 2 weeks! Something in the tech ether appears to have suddenly changed. Americans are starting to look outwards and they seem to like what they see. Hence I have found myself involved in a plethora of diverse conversations with fellow founders about building and managing startups outside the US. This article is intended to summarize the various issues we have discussed to date, and to identify the pros and cons of the leading contender nations for founding a tech startup outside America. Hopefully it will save me further conversational effort by allowing me to share a simple link with my friends …. instead of me repeating my humble advice for an 8th laborious time.

Motivations to leave the US can include improved personal lifestyle, growth of overseas markets, lower living costs, lower staff and operational costs, improved supply-chain positioning and optimizing business model viability. However most tech startup scenarios can be broadly classified into two main business types - either software or hardware. Software companies have been using remote workers outside the US for over 3 decades now - so moving the company HQ and founders overseas is a relatively simple exercise. In many cases it might even prove beneficial when the founders are moving closer to existing remote staff. Hence software projects tend to have greater flexibility with a larger range of relocation options available to them.

Hardware companies on the other hand have been thrown into a brave new world of supply-chain chaos with many critical components now only affordable if purchased from outside America. Therefore the choice of business location is typically more restrictive for hardware than for software companies as it depends on regional tariffs and also local engineering expertise. Identifying the ideal location for hardware manufacturing and assembly is inherently more critical to the companies overall business viability due to shipping costs, component import tariffs, distribution costs and quality of available local manufacturing staff. Of course each country has its own unique advantages and disadvantages for each specific industry compared with the US. However regardless of location, market and type of business, several key adjustments to traditional American business strategies are required to successfully build a non-US startup.

Aspiring “remote founders” are asking themselves what is the best country to relocate myself and my business ? And to build a new team ? This is rarely a simple question and involves addressing some additional questions relating to each founders own global domination aspirations and their unique business idea. These include;

1. Will US investors and VCs still fund me ? Or are there local funding options ?

2. Can I really build and scale the same size company from outside the US ? What are the advantages and disadvantages of migrating my HQ to a new country?

3. Will I lose US customers if I’m based outside the US ? And if so can I acquire as many new non-US customers in my new region of business ?

4. Can I use Europe or Asia to build my initial customer base, and then expand to the US market later ? Or should I approach all global markets simultaneously?

5. Can I build a hi-class tech team with locals - or manage a remote team easily ?

6. How do I manage language barriers and how much of a disadvantage is English ?

7. Should I create a non-US entity as a subsidiary of my existing US company ? Or just move my entire business overseas to leverage local government benefits ?

8. What are the corporate, personal and capital gains tax rates available to me ?

The answer to the first very important question of transferable US investor interest is “probably yes”. Equity investment funding is like software and can easily migrate across borders without too much friction. US tech investors such as angels, family offices and venture capitalists are increasingly looking to expand their regional diversity and are now more prepared than ever to invest in companies outside the US. This is important as European, Asian and Australian investors are typically very conservative and risk averse, making them poor business partners that are time-consuming to work with and very slow to execute on deals. Moreover, they can rarely bring you the networks that American venture capitalists can.

My advice has been to maintain and grow existing US investor networks while largely ignoring local investors to focus more on local government funding programs instead. While non-US companies cannot apply for US government funding from programs such as SBIR grants, most foreign governments now offer similar technology funding programs with varying degrees of funding size and market focus. Moreover, many countries have business incentive programs that offer residency, citizenship, local business networks, incubator memberships, access to infrastructure and specialized tax benefits.

The answers to the remaining 7 questions above are wide and varied. They are highly dependent on each country, the specific type of business, the product, the market focus, the regional market size, cultural issues and the founders individual preference for a new lifestyle. I will now try to summarize the pros and cons of some hot spots that tech founders are currently looking at migrating to.

Europe:

European countries offer numerous advantages to found a tech startup including free access to the large single EU market, numerous cultural and lifestyle benefits, universal healthcare, easy company formation, high education levels and large pools of available tech workers. Not to be ignored are the very convenient time zones for communicating with both US and Asian colleagues. Europe now also represents a massive opportunity for defense related startups with most countries looking to dramatically increase military expenditure and gain independence from US defense contractors. However disadvantages for many European countries include having to learn the local language, higher tax rates and infrastructure costs than the US, and dealing with complex government bureaucracies.

• United Kingdom: London is a global center for financial services and hence is a popular choice for Fintech startups. Having a broad, diverse tech worker base has turned the UK into the second largest hub for startups after the US. Advantages include the language (of course), a 19% corporate tax rate that is lower than Americas 21% tax rate, a strong defense sector, numerous government funding programs and an investor community that is not as risk-averse as the rest of Europe. Disadvantages include the English weather, the relatively high cost of living, and not being an EU member anymore after Brexit.
  

• Ireland: The major benefit of founding an Irish company is the very low 12.5% corporate tax rate. This policy has attracted some of the largest tech companies in the world such as Google, Meta and Apple. This migration of tech headquarters has brought with it a significant pool of highly skilled tech workers. Advantages include being an English speaking country (almost), strong government support for technology, and friendly locals who like to drink alcohol. Disadvantages include the weather and friendly locals who like to drink alcohol.
  

• Portugal: Since the pandemic Lisbon has become one of Europe’s biggest tech hubs with a large diverse tech community focused on AI, crypto and Web3. There are also numerous tech events and conferences, a large pool of tech workers from all around Europe and most of the locals speak English well. Additional benefits include the same 21% tax rate as the US, a special low tax zone in Madeira, the wonderfully warm weather and the low cost of living compared to the rest of Europe. Food and wine is the equal of Italy and France but half the price. There are not many disadvantages to Lisbon and it feels like a city about to pop.
  

• Estonia: Estonia is a very small country but the government is very technology forward leaning and even offer digital e-residencies using blockchain technology. Moreover it has become a hub for AI and cyber-security technologies with NATOs cyber headquarters located in Tallinn. Advantages include a low 20% corporate tax rate, a high level of English from the locals, highly educated tech workers and the relatively low cost of living. Disadvantages include the very cold weather and close proximity to Russia (will they be invaded later this decade ?).
  

• Poland: Warsaw and Krakow are the new kids on the tech block with a rapidly growing technology sector in the areas of AI, fintech, crypto and gaming. Advantages include a low 19% corporate tax rate, strong government support, industry grants and a very low cost but highly skilled engineering workforce. Disadvantages include language barriers with half the country non-English speaking, and again the weather.

Asia & Australia:

Asian countries offer numerous advantages for startups including low cost workforces, “easier” access to the Chinese market, and highly aspirational societies that can offer uniquely Asian business growth opportunities. Disadvantages include major language and cultural barriers, highly fractured regional markets, and inconvenient time zones for communicating with colleagues in both the US and Europe. Australia as an option generally offers a much higher quality of living, a more European lifestyle and a 100% English speaking environment - but still has the same time zone problems !

• Singapore: The small island nation of Singapore is a global financial center and has long been the Asian hub for fintech, crypto and Web3 technologies. There is strong government support for technology, it has the highest standard of living in Asia, education standards are excellent and most locals speak English well (as a former British colony). Disadvantages are a non-democratic single party government, a high cost of living and severe draconian laws for drug use. Singapore is also hot and humid like Miami - so not ideal for those after a dryer, milder Mediterranean climate.
  

• United Arab Emirates: Dubai has recently become a technology hub for crypto, fintech and IoT technologies - largely due to the creation of tax free zones and numerous government incentives for tech startups. Other advantages include a relatively low cost of living, a vibrant investment community, access to significant infrastructure and its central strategic location between Europe and SE Asia. Disadvantages include a non-democratic government, strict Muslim rules outside foreigner zones and a plethora of Russian “entrepreneurs” everywhere.
  

• Australia: Sydney and Melbourne are becoming technology centers that support Australia’s large financial services, agriculture and resources industries. The advantages of Australia include a very stable well functioning democracy, the high quality of life, a large pool of highly educated tech workers, easy access to Asian markets and a very comfortable Mediterranean climate. While culturally similar to the US, Australia has several disadvantages for aspiring tech founders. These include a high cost of living, high labor costs, a corporate tax rate of 25%, a conservative investment environment and a total lack of government funding and support for startups. The only incentive from the Australian government is a 150% tax deduction for R&D expenses. However this cannot help fund a startup as it only benefits profitable medium sized companies that are at least 5-6 years old (ie: too little, too late). When also considering Australia’s remoteness to the US and Europe, it’s a challenging environment for any small startup. Nonetheless Australia is a viable option to scale an already successful business.

There are several other popular relocation options for US tech founders to consider including Canada, Israel, Switzerland, France and Sweden. However, for one reason or another, these countries were not considered appealing by any of my 7 friends who I have had this relocation discussion with. I hope that my opinions have been at least useful to some ….. and now I think I may soon pack my bags for sunny Lisbon.

My final bit of advice when moving overseas is to borrow a tip from the Russians - who almost always now say they are Ukrainians to avoid potential angst from the locals. Many Europeans now view Americans with the same distrust and disdain as they do the Russians. Hence Americans should introduce themselves as Canadians ….. and hope that nobody notices the difference.

Bon voyage and good luck in this crazy new world of shifting opportunities !