The failure of Silicon Valley Bank in March is among factors that have created a more uncertain environment for startups in the U.S. causing entrepreneurs to consider other markets.
The U.S. may be a hot spot offering a massive market for startups, but for entrepreneurs who want to launch a new business here, there are a lot of headline-making risks.
Lately, it’s been necessary to consider the debt ceiling, the dollar-reserve currency crisis, and the failure of Silicon Valley Bank and their potential effects on the entrepreneurial ecosystem.
The bank failure, especially, had entrepreneurs considering worst-case scenarios—up to the wholesale loss of deposits or the complete undermining of confidence in U.S. banking. Though neither came to pass, “that doesn’t mean, however, that we have an absence of uncertainty,” says Christopher Opie, Washington D.C.-based managing director and co-head of global families at Bernstein Private Wealth Management (BPWM). “We hear frequently from business owners and investors that confidence and certainty are key.”
This uncertainty takes on added dimensions when considering the rise in alternative markets with friendly environments for startups.
Shelly Meerovitch, global families co-head at BPWM, suggests that it’s not a decline in American startup culture, but a sharing of the wealth as more countries try to take part in the success the U.S. has experienced. “There is more diversity in jurisdictions that are viable alternatives,” she says. These have especially popped up in the last five years, creating corporate and personal incentives for companies and entrepreneurs to invest abroad.
While neither Meerovitch nor Opie say they have encountered entrepreneurs who leave the U.S. entirely for elsewhere, both say the present era is one where wealthy entrepreneurs, both domestic and foreign, may consider attractive expansion opportunities elsewhere that offer personal tax savings or more compelling chances for growth.
An Israeli entrepreneur with a high-tech product might consider Europe or Singapore as its headquarters instead of jumping straight into the U.S. market, for example, Opie says.
Meerovitch and Opie recently spoke with Penta about the increase in new startup markets and why entrepreneurs might choose to build startups and move their lives abroad instead of defaulting to the U.S.
Growth in Other Markets
Opie says since 2008, American startups have been part of “Boomtown USA” thanks to low interest rates, tons of venture capital and other investing funds. Supporting legislation that reduced regulations for entrepreneurs “snowballed in the best possible way,” he adds.
“Now we’re just looking at a different stage where that same accelerating growth is probably less apparent, and part of that can be explained by the rise of other locations,” he says. There are attempts to build robust regulatory environments that allow entrepreneurs to take risks and are like the entrepreneurial environment in the U.S. but in new locations.
This includes Dubai’s government-led marketing push to become a global blockchain, cryptocurrency, and Web3 center of choice, which includes capital provision aspects. Last month cryptocurrency exchange Coinbase opened a non-U.S. exchange in Bermuda. This follows a state-led initiative to relocate non-insurance businesses to the island nation.
One bellwether of the recent shift toward this broader growth in startup ecosystems, Opie says, is the international expansion of tech incubator firm Techstars, for which he acts as a mentor. The company once had accelerators only in the U.S. and now counts locations across Asia, Europe, and the Middle East.
Golden Perks
Company-based incentives aren’t the only thing driving entrepreneurs to decide about where to launch their business, says Meerovitch. Personal incentives like golden visas, which offer residency or citizenship options for making real estate or other investments in the nation, also factor in. These visas encourage executives and other wealthy investors and their families to move to countries like Bermuda, Italy, Portugal, and the United Arab Emirates, where they can take advantage of such programs.
“When you couple that with favorable business-side legislation, you really create a great environment for people to consider a move,” she says. Many of these centers offer a very-low or non-existent tax environment. Bermuda, for example, is essentially tax-neutral, she notes.
This incentive is slightly more complicated for U.S. citizens given that they are taxed on worldwide income, even if they move to low-tax jurisdictions.
“While naturally, the first incentive is to grow the business, the second is to maximize the outcome financially speaking for those who own it, including the founders,” Opie adds. “And if you are able to—especially if not a U.S. citizen—play a jurisdictional game and improve the outcome, then you’ll be really tempted to.”
The Post-Peak Startup U.S.
The size of the U.S. market, depth of its talent pool, and the availability of investment capital will remain strong pull factors for global entrepreneurs, despite concerns, Opie says.
U.S. industrial policies are also creating new incentives for American innovators to remain in the country, and encourage foreign innovators to relocate here. He offers, as example, the August 2022 Inflation Reduction Act, which creates funding and tax credits around low-carbon technologies. The legislation could lure entrepreneurs who previously focused attention on France, Germany, and Nordic countries.
“A coordinated national policy for attracting and encouraging entrepreneurs, especially in key sectors, would close the gap with other global entrepreneurship centers,” he adds.
