Australian tech founders should be forgiven for booking a one-way ticket to the United States if they haven’t already after losing that physical connection with the US market.
However, a word of caution.
Founders should have America’s intellectual property and evolving privacy requirements front-of-mind as borders reopen if they want to avoid problems with capital raises and exits down the track.
Borders between Australia and the US were firmly closed from early 2020. Major Aussie tech companies including Atlassian and Wisetech complained of hiring bottlenecks, while globally minded Australian founders were unable to physically access the US market. This is critical for scale as well as talent and connections.
It’s with long-awaited relief that we see borders beginning to come down here in Australia.
For many tech founders with global teams, we’ve seen flights booked and bags packed to reconnect one on one with their team. And while perhaps there’s been a reset on quite how much can be achieved remotely, undoubtedly there is no replacement for physical connection, once in a while.
We’ve seen the benefits that those tangible connections to the US, sewn before COVID-19, delivered for Australian startups while borders were shut.
One of our clients, Zip Co, expanded to the US via its acquisition of QuadPay in 2020.
Everyone saw how the buy-now-pay-later industry stormed through the pandemic almost uninterrupted and Zip was unquestionably one of the leaders.
Another local client of ours, artificial intelligence startup Faethm, has operations in the US and London.
Faethm was acquired by publishing and education multinational Pearson. While advising Faethm on the transaction process, it was obvious how much technology founders that have been trapped in Australia would be chomping at the bit to build out their footprint in the US.
That’s not to say our industry has been sitting idly by during COVID-19. Just last week, in the space of 24 hours, news broke of an $80 million Series-B raise from e-bike company Zoomo and a $25 million raise from gaming juggernaut Playside (ASX). Both said they will deploy a significant amount of capital to the US.
As this potent combination of pent-up founder ambition and strong capital is unleashed on the US market, two big legal areas of concern that should be a priority are IP and privacy.
During corporate transactions, Australian companies can find themselves in difficult due diligence and remediation processes if they haven’t treated American IP laws, in particular, seriously enough.
Strong IP protections
Strong IP protections are one of the reasons the US remains the best place to scale a startup globally and why Australian tech companies prioritise it. In the annual Global Innovation Index conducted by the World Intellectual Property Organisation, the United States came in third, behind only Switzerland and Sweden, and ranked first on intellectual property receipts as a percentage of total trade.
There’s an enormous amount of complexity. We have seen companies who have done what seems like relatively innocuous things with their structure in the US that end up having deleterious effects up the chain in Australia.
Then there are companies who have accomplished ‘flip up’ or other transactions to re-domicile in the US who have created either actual tax problems or tricky uncertainties. These frequently end up being major points of diligence and remediation efforts in future funding or acquisition transactions.
And as intellectual property is certainly key to tech companies, whether patent or copyright and trademark, it will be crucial to ensure proper documentation both so that the company’s rights in that IP are secure, but also so it knows ‘where’ that intangible property is held. Again, to make sure it’s getting the best, or at least the anticipated, tax outcomes.
Meanwhile, privacy is both a complex and shifting landscape in the US. If you are shooting for the ‘minimum’ restrictions in every jurisdiction, it can be complicated. On the other hand, if you are taking the more conservative approach and treating every jurisdiction as if it’s subject to something akin to the European General Data Protection Regulation (GDPR), you may be missing out on some opportunities in the margin.
There are no states that can be avoided, really, as the laws typically apply to the personal data of their residents. This means even if a company only has an office in Texas, it still has to be compliant with California, New York, and Virginia privacy and data protection law if it’s interacting with residents of those states.
The tech companies that are impacted most negatively are those that have invested the most in the status quo – building significant parts of their business model around the free exploitation of personal data, for example.
Those that have little to do with personal data in the first place will obviously have the least to worry about. Additionally, those who innovate and develop new ways to ensure personal data is available for their purposes while complying with data protection law will be able to turn that challenge into their own market opportunity, as some of our clients have done.
This is all very easy to forget when you haven’t been able to fly to San Francisco for approaching two years and your number one priority is to do deals and grow your business before your competitors do.
But a sober approach to IP and privacy will help insure savvy founders against roadblocks when it comes time to do a deal that makes this whole waiting process worthwhile.
- Anthony Bekker is Founder and Managing Director, APAC, of Australian-US technology legal advisory firm BizTech Lawyers
- Chris Spillman is Managing Director, Americas, at BizTech Lawyers