Co-founder of the service “33 Elephant” Sergey Ponomarenko said vc.ru on how his team opened a real estate company BuyTheWhale in USA. The author gave step-by-step recommendation on how to start a business in America where to find the Bank and partners and how to find a niche in a huge market. In Russia our company “33 Elephant” for two years solves the problems of homeowners, and recently the first in the country began to carry out an electronic transaction using blockchain technology. In the U.S. we are just starting to change the real estate segment and I must say, the rules are much different from Russian. In Russia, we initially relied on the technology of the blockchain.
In the early summer of 2016, met with President of the International Association for the blockchain in real estate. It turned out that our company is one of the few in the world who is already using the blockchain for commercial transactions in real estate. Then we were invited in the US international conference for exchange of experience. It became clear that in comparison with competitors to achieve turned out much. All were only prototypes, while our technologies have already accomplished the first deal, involving realtors, real estate agencies and banks.
We realized that we have something to offer, and we can fairly quickly enter the US market. During one of his trips to Silicon valley we met with a future partner — he is a practicing lawyer with a license realtor who helped us navigate the market and understand what its niche is the most promising. First you need to determine the form of ownership. Possible options. Partnership (partnership), Limited Liability Company (limited liability company), Corporation (Corporation).
Corporations are of two types. C Corporation extends (C-Corp) S Corporation (S-Corp), which differ in the specifics of taxation. Income S-Corp is taxed at owner level, but to choose this way, if a legal entity owned by non-residents. Therefore, in practice, more than 90% of startups choose C-Corp. Any Corporation is a separate legal entity can conclude contracts in their name, plus the owners of corporations have limited financial liability of the company and its creditors.
To register a company in USA through the Internet through one of the online services. At the start there is a temptation to save on the services of a lawyer, but it is better to hire expert who will correctly execute all corporate securities. Are these services from $1 thousand to $10 thousand — it all depends on the specific tasks and size of business. But if you start to make a mistake in the paperwork, then at the next round of investment with the passage of the Due Diligence is can be very expensive. For example, if it is not properly drafted and signed, the Shareholder Agreement, the next round of investment may not take place.
We decided to contact a licensed attorney who deals in corporate law. He took care of all issues on incorporation. But you need to understand that even the presence of a lawyer assistant shall not relieve you from responsibility for the result. Better to err and to learn at least the basic aspects of local legislation, not to mention the language. Another important point is the domicile of the company.
Favorite state of all startups — the Delaware, where income taxes of the state is equal to zero, and Internet companies use it. The number of registered businesses exceeds the number of living people. Same Google Inc. It is registered in Delaware. But we should not forget that if you are in business in another state, you need to be there to pay tax.
We are geographically in California, and operations are there. The Federal tax has not been canceled, and it will have to pay. But the income taxes of the state of Delaware is actually there. But again, only for those corporations that are physically in Delaware are not present. Historically, in this state, the smallest in the United States, formed a special offshore zone, where more than 90% of all corporations in the country.
Delaware also is notable for the thorough study of all the norms of corporate law, therefore, venture capital funds and lawyers prefer to work here. Registering a legal entity and getting a tax number, you can open an account with the company and make an initial Deposit. It can be even $100. In our case, it turned out that the selected Bank refused to open an account, referring to a changed internal rules, and we literally crossed the road and went to a different Department — the new Manager there were no questions.
Typically opening an account is a simple process. The main condition of success — the presence of the founder of a startup in the United States at the time of account opening. Banks in the U.S. are many, and in them the rules differ from Bank to Bank and from branch to branch. You can always find a Bank that will open an account.
If bureaucratic hurdles can be overcome independently or by hiring a consultant, with a difference in the business communication is more complicated. By this it is difficult to prepare. In Russia, for example, when it comes to partners or investors, very quickly get feedback. You just say that your project is bad if it is bad. In the United States for any meeting you will say that you have the coolest project.
And you will not understand why you do not give money. To avoid this situation, you need to learn to ask the right, specific questions. Specificity States that the people there love to give advice. We talked with the funds and asked their opinion, received the recommendation. Arriving in the United States, you lay time for networking, socializing, meeting the right people.
What exactly should not do is to ask for money directly is a red flag for investors. The driving force for the Foundation becomes the fear of losing the best an interesting project. If the Fund will not have the feeling that you will invest their competitors, the decision may be taken indefinitely. But in General, the main advice to those who are thinking about opening a company in USA simple. Just move there for at least three months and run the project.
Because from Russia to make it not work. Need to dive into the specifics, acquiring contacts, ideally to find a partner who works on location and will help quick start your company. There are a number of mistakes that startups just starting to work in the United States. Usually the most serious errors are related to taxes. It happens that the founders originally incorrectly issue the issue of shares and in a few years, fall under a huge Federal taxes.
Or do not think that it is better to make multiple classes of shares — voting and non-voting, to the ability to make decisions was only the co-founders and key investors. Well, the most important. Do not give investors too much stake in the company in the US is extremely difficult to hold a round of investment companies where the founders have minority stakes. Large venture funds believe that the founders would not have motivation to develop the project further.
The US real estate market is huge. Every year on the secondary market are sold 5.5 million homes. The average home price $250 thousand, and the Agency Commission is 4-6%. That is, the annual volume only agent market according to the most conservative estimates is $55 billion. The real estate markets of the USA and Russia are very different, especially in the area of regulation.
The U.S. market is very structured. If we have anyone can become a realtor in the United States each specialist engaged in the sale of real estate, must have license, insurance, which covers risks of the clients should be trained. In the USA about two million agents with licenses. The transaction itself, unlike the Russian situation, too formalized. When the object is exposed on sale, are assigned a so-called open house — a designated time when anyone can come and see the house.
If we like the house and the buyer decides on the purchase, he must make a formal offer to purchase. This is a legal document on multiple pages, which will include all the important data. The amount for which the buyer wants to buy a house, the period when a Deposit is made and other conditions on buying and selling a home. The seller collects all the proposals and chooses or makes a counter-offer, which also is registered as a legal document. Once the conditions finally negotiated, the contract is signed and issued so-called calendar of the transaction.
With approximately 80% of all documents are issued online. Then the seller chooses the escrow company that guarantees the fulfillment of transactions all the rules (it placed the money, and if all parties have fulfilled their obligations, the money is transferred to the seller). The rules, in fact, very much, and they can differ from state to state. For example, in California, where we work, the seller must disclose to the buyer information about the condition of the house and surrounding area, if the house is located in a seismic zone or if the area of hurricanes or tornadoes. All this must know the agent who has to understand all by yourself by means of meetings, correspondence, telephone calls and so on.
It is the complexity and multi-layered market inspired us to create a new product — it became clear that the system can simplify and automate. We came up with a service where you can conduct a transaction for the sale of real estate online. The platform generates the necessary documents, automatically creates a calendar of the transaction, and are easy to follow. This is important because the deal could not happen if deadlines are violated at one stage. For all operations we use the blockchain technology.
When all the participants in the transaction — buyers and sellers, agents, appraisers, banks, escrow companies — are parts of a blockchain-chain, guarantees the fairness and transparency of the transaction. In the summer of 2016 we have assembled a team, developed the methodology of the transaction and developed a prototype. All this took us about 1-1,5 months. In August I went to USA to meet with investors, partners, and contractors to obtain feedback on the spot. By the end of September we made the final product.
At the same time all development is done in Moscow is cheaper and more convenient than hiring local team. At the moment the company managed to raise $250 thousand. Enough money in order to get the first real deal. As long as they are in test mode. We study the work of the platform, eliminate roughness.
While we are working in California is the largest state in terms of real estate transactions. We start the promotion of the product, and next year our objective will be to increase the number of transactions in the state. Geographical scaling is postponed to 2018. Send columns, corresponding to the requirements of the editorial Board, [email protected]