Sifted - Instability AI

Good morning there,

It's already a big week for people moves. Just days after losing its head of audio, Stability AI has seen two more top execs jump ship, taking the total number of execs to have left the company this year to more than a dozen.

Elsewhere today, we unpack the "biggest reform in the history of the German startup scene", sit down with the founder and CEO of Estonian mobility giant Bolt and bring you the scoop on a new €100m venture fund.

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Germany moves to compete in the startup talent war

Nabbing that key hire, particularly if they’re an AI or machine learning expert, is a battle for startups right now. But one way early-stage companies have traditionally tried to pull in talent — and out-compete the big bucks offered by Big Tech — is through employee stock options, which give them ownership in a young startup, and the chance to win big should that company see a big exit.

But in Germany, one of Europe’s biggest tech hubs, burdensome tax rules have made it effectively impossible for startups to offer traditional employee stock ownership programmes, or ESOPs. For years, the country has ranked among the worst in Europe for stock options.

That’s all set to change. On Friday, the Bundestag — Germany’s national parliament — passed a new bill, dubbed the Future Financing Act, that includes reforms to the ESOP tax laws.

The long and short of it (and believe me, it’s long, as I discovered in my research) is that the new reforms would defer taxation on stock options until they’re sold, versus the current setup where they would be taxed right away as a form of income, for a large portion of startups.

The law still needs to go to the Bundesrat, Germany’s federal council, which is set to meet later this week, but based on the VC conversations I’ve had, it’s a big deal.

“It's the biggest reform in the history of the German startup scene,” Christian Miele, general partner at VC firm Headline and chair of the German Startups Association, told me last week.

There are other changes, including increasing the size of companies eligible for the tax deferral benefit, that I’ll let you dig into here. But the timing of all this is really key: competition is incredibly fierce for top talent right now, especially for AI and machine learning experts who are getting huge salary offers.

While some VCs have told me they don't like the narrative around Germany vs France, it is becoming a hot debate: Paris is vying to be the AI hub in Europe, boasting buzzy new startups like Mistral and Poolside; Germany, meanwhile, is pitching its flag, thanks to companies like Aleph Alpha, which just raised one of the largest AI funding rounds in Europe, and a new AI startup campus in Heilbronn backed by the Dieter Schwarz Foundation, founded by the billionaire former CEO of Lidl.

With reforms like the Future Financing Act, which is set to go into effect in January, Germany might finally be able to better compete for talent with other top tech hubs.

“It will help us to draw international talent, it will help us to keep talent within Germany,” says Katharina Wilhelm, a Berlin-based partner at Index Ventures.

— Anne Sraders, senior reporter

➡️ Two more execs leave Stability AI.

💰 Berlin-based AI venture studio Merantix is raising a €100m fund to co-invest in more startups, Sifted has learned. The fund would be the firm’s largest to date and will focus on more traditional VC investing in external startups, as well as fresh funds for its incubated companies.

It will be split €25m for co-investing in external startups; €25m for investing in incubated startups; and €50m for supporting existing investments in those buckets.

🔬 UK government to announce scheme to train next generation of science and tech VCs. The £3m fellowship programme will offer up to 20 places for VC hopefuls as the UK looks to boost growth in areas like vaccines, robotics and AI.

UK chancellor Jeremy Hunt is expected to announce the scheme officially in his Autumn budget speech on Wednesday.
It’s based on the US’s Kauffman Foundation — which has trained more than 800 investors, representing funds managing more than $1tn.

🍁 Decision on Germany’s Cannabis Act (CanG) delayed until March. The long-awaited law to legalise cannabis for recreational use was expected to pass in November this year and come into force in early 2024. Now, startup founders — eager to capitalise on the opportunities of a growing medical cannabis market as a result of the legislation — are expected to have to wait until at least March next year for the bill to go through.

🚗 "So far, we've never met the company that we would actually want to acquire." Markus Villig, founder and CEO of ride-hailing giant Bolt, sits down with Sifted to discuss his acquisition strategy and a potential 2025 IPO.

🗞 How to cope if your startup is making headlines for the wrong reasons — Miika Mäkitalo, founder of HappyOrNot, gives his tips for dealing with a media crisis, after his company was incorrectly identified in a "less-than-flattering" article in the British press.

🇮🇪 The Irish startups that could be the country's next unicorns.

🤝

Gaming conglomerate Aonic has acquired UK-based VR game developer NDreams for an estimated $110m.

🔥

France-based Malou, which allows restaurant owners to manage their online presence, has raised €10m. Dutch VC henQ led the round, and was joined by New York’s Bleu Capital and Bertrand Jelensperger, the founder of TheFork.

Finland-based Solar Foods, which has developed a microbe that munches on carbon dioxide and hydrogen to create a high-protein food called Solein, has raised an €8m Series B.

Turkey-based Salus, a mental health platform, has raised $4.7m in seed funding. The round was led by Northzone, with participation from 500 Emerging Europe, Pitchdrive and the CVC arm of İşbank.

UK-based Swytch Technology, which has built a conversion kit that transforms any bike into an e-bike, has raised £3.4m.

If you’d like to submit a deal, get in touch.

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