Looking beyond venture capital to fund overseas expansion

Software companies that want to expand their businesses overseas need to look beyond the venture capital (VC) model, says Kevin Phillips of idu Software.

January 17, 2012

Software companies that want to expand their businesses overseas need to look beyond the venture capital (VC) model, says Kevin Phillips of idu Software.

“A lot of companies focus on getting VC funding so they can move overseas and open an office in London or New York or San Francisco,” says Phillips. “But it’s extremely expensive, you surrender a large stake in your business and there is a strong risk that something about the new environment is going to deliver a nasty surprise, no matter how much homework you’ve done.”

Finding an experienced local partner in the territory they want to expand to is an option that not enough companies consider, says Phillips. “It doesn’t deliver rapid growth overnight, but it has enabled idu to build a solid presence in Australia, New Zealand and the UK, as well as in several other African countries.”

The secret, says Phillips, is to invest some capital and time in finding a trustworthy partner who already has a strong foothold in your target country. “Typically our partners would provide financial systems consulting services. Our budgeting and reporting software suits the needs of many of their clients, and consequently we can build strong and mutually beneficial relationships.

“Using local partner’s means you have to provide a fair amount of upfront support while they are getting used to your product, but once they have some experience in sales and implementation they can operate fairly independently,” says Phillips. “We don’t own the partner company – but we do still have some control and our costs are limited.”

Franchising is too risky an alternative, says Phillips. “It seems tempting because someone else takes on all the direct costs and the time investment is minimal – but it can seriously backfire. Once you have sold franchise rights to someone in another country you have very little control over what they do; they could do serious damage to your brand and reputation.”

The partnership model, says Phillips, “gives the ideal balance of maintaining some control over your business while also keeping the costs of expansion low. If someone knocked on my door tomorrow offering me a choice between money to set up a new operation in a country I’m not familiar with, or an introduction to one established partner with a dedicated client base that needs my product in that country, I’d choose the introduction every time, without hesitation.”