An Ideas-Based Online Magazine of the Global Network for Advanced Management

The Challenges Facing Entrepreneurs in the US

Location decisions for early stage startups are typically more complex for capital intensive, venture-backed firms. The United States has many of the conditions needed to launch new ventures: stable capital markets, a large venture capital sector, federal support for research, and development, well-established infrastructure, access to human capital, including world-class scientists and skilled manufacturing labor, proximity to a set of end users with a willingness and ability to pay for goods and services, and, a strong rule of law.

However, there are several factors that might cause the United States to become less competitive in the battle to attract new founders in the future. Capital is becoming borderless, making it easier for startups to access funds regardless of their location decisions. Increasingly strict visa policies in the United States could have a negative impact on a company’s ability to attract the most qualified candidates, particularly for high-wage, technology-related jobs that require specialization. Although the United States is seeing a manufacturing resurgence in some industries, relatively high manufacturing wages can still make it difficult for CEO’s to justify locating manufacturing operations in the US for many high tech companies. Comparatively high corporate tax rates reduce overall potential profitability if headquarters are located in the United States. Global access to mobile devices and the web, along with improved shipping capabilities, have made it easier to reach and serve customers around the world, making it less of an imperative to locate close to end customers. Investment in infrastructure in the United States is lagging behind other countries and, although there is significant private funding ready to be deployed, the current political environment makes it difficult to predict when we will see the Federal Government committing the funds needed to ensure that we remain competitive.

With these changes, you will likely see more examples of truly multinational startups emerging. Saphlux, which recently launched in Connecticut, is one such startup. The company was co-founded by Professor Jung Han of the Yale School of Engineering and Applied Sciences, and Dr. Chen Chen, a Yale School of Management graduate. Early stage R&D at the company was conducted in Yale University labs under the supervision of Professor Han. As the company has grown, the founders have developed partnerships with Chinese multinational corporations and the Chinese government. They have manufacturing facilities in the United States and China. They have received investment from US- and China-based venture capitalists and corporate venture arms, as well as government support from the United States and China. The core R&D for the firm is in Connecticut, due to the proximity to the primary scientific staff, while the manufacturing operations that will enable the company to produce product at scale are being developed in China. As it becomes easier for corporations to operate across country lines, it is likely that we will see more ventures pursuing a similar path.