Inbound Flip Transactions Preparing Your Foreign Entity for US Venture Funding October 2012
The Inbound Flip Scenario Forco, a foreign startup, has filled a market need and has accelerating year-over-year growth. Without proper funding, Forco remains highly vulnerable to emerging, funded competitors. Forco has identified Investor, a USbased angel investor or venture capital firm interested in investing. However, Investor has expressed discomfort with Forco s foreign entity structure and foreign governing law. As a condition to funding, Investor requires Forco to reincorporate in the US.
Venture Capital Funding in the US Global Venture Capital and Private Equity Country Attractiveness Index ranks the US as the venture capital leader overall and in the following five categories: Size of the Economy Gross Domestic Product, 2011: $15.1 trillion Size of the Stock Market Stock market cap, 2011: $15.6 trillion Stock Market Liquidity Daily trading volume, 10/11/2012: $4.7 billion IPO Market Activity Number of IPOs, 2012 first half 71 M&A Market Activity Number of M&A deals, 2012 first half: 3,159 Sources: Overall Rankings: The Global Venture Capital and Private Equity Country Attractiveness Index 2012, Alexander Groh, Heinrich Liechtenstein and Karsten Lieser, http://blog.iese.edu/vcpeindex/unitedstates/; Size of the Economy : http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx; Size of the Stock Market : http://data.worldbank.org/indicator/cm.mkt.lcap.cd; Stock Market Liquidity : http://online.wsj.com/mdc/page/marketsdata.html; IPO Market Activity : http://www.pwc.com/us/en/press-releases/2012/q2-ipo-watch-press-release.jhtml; M&A Market Activity : http://www.marketwatch.com/story/ernst-young-us-ma-activity-falling- 2012-07-02.
Global Venture Capital Hub: Silicon Valley 2011 Venture Capital Totals: Global: $48.7 billion United States of America: 67% of Global Venture Capital Silicon Valley: 41% of US Venture Capital Source: Statistics: Ernst & Young, Globalizing Venture Capital: Global venture and insights and trends report, https://www.pwcmoneytree.com/mtpublic/ns/nav.jsp?page=historical.
The Inbound Flip Transaction Shareholders Stock in Forco Stock in Domco Domco Shareholders Forco (Foreign) Investor Domco Investor Forco (Foreign) Forco s shareholders create a new US entity ( Domco ), and exchange their Forco stock for Domco stock. After the exchange, the shareholders will own Domco, and Domco will own Forco. Investor invests into Domco.
When Should Forco Flip? Forco usually should not flip until it secures US venture capital: The flip eventually subjects the worldwide operation to US tax because Domco is taxed on its worldwide income. As with Forco and US investors, Domco would prevent some foreign VCs from investing in the operation. Shareholders Domco Forco (Foreign) Investor
Silicon Valley Flip Experts: Royse Law Firm Royse Law Firm has been performing inbound flip transactions since 2006. Inbound flips are typically achieved tax-free. Inbound flips can generally be completed within 3 4 weeks. Shareholders Domco Forco (Foreign) Investor
Consider a Move: Exposure to Silicon Valley Acquirors, Workforce, Customers Adobe Systems AMD Apple Cisco ebay Facebook Google HP Intel Intuit Nvidia Oracle Sun Microsys. Yahoo! YouTube Source: Statistics: https://www.pwcmoneytree.com/mtpublic/ns/nav.jsp?page=historical; Graphics: http://en.wikipedia.org/wiki/silicon_valley.
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