OLNS#7 – Flip it Right: U.S. Holding Structures for German Start-ups

German version 

We are often asked by founders and investors of German start-ups whether they should have a US holding company for their start-up, be it by flipping an existing German GmbH or setting up a US/German structure from scratch.

As we will see, this structure comes with a variety of benefits, most notably an arguably better access to early-stage financing opportunities in the richer U.S. funding ecosystem. Other advantages include improved exit opportunities as well as the opportunity to offer a "Silicon Valley" style equity-based employee participation program to suitable talent. However, doing the flip is a major corporate undertaking that includes a variety of potential drawbacks and requires close cooperation between founders and existing investors as well as advise from legal, accounting and tax experts with experience on both sides of the pond.

Nevertheless, we think that it makes sense for German start-ups to consider a U.S./German two-tier structure early on in their lifecycle as a later stage flip usually becomes more complex and tax expensive. To help German start-ups with this exercise, we published OLNS#7.

OLNS#7 shares our experiences from 75+ flip engagements with German tech companies and is filled with practical guidance on matters like:

• When does a flip make sense?
• How to get into a two-tier structure – the flip and the set-up from scratch.
• What are the main tax issues and how can they be mitigated?
• Duties and liability risks for founders who become directors and officers of the US entity.
• What are SAFEs and how can they be best used in early-stage financings?
• How to set-up and implement a US ESOP and when and how a German VSOP can be used.

In preparing OLNS#7, our international and cross-functional Orrick team again drew on experience representing more than 4,000 venture-backed companies and 100+ unicorns as well as the most active funds, corporate venture investors and public tech companies worldwide. Founded in the Bay Area, Orrick is one of the world’s leading technology law firms and advises on more venture transactions in Europe than any other law firm for more than eight years (PitchBook, Q1 2024).