Sifted - The crypto con scamming founders

Good morning there,

Being a new founder can be tough. You might not have a huge network of tech and investor connections yet and in the tricky fundraising environment, getting cheques to make your dream business a reality may be especially challenging. Unfortunately, some see these “green” founders as targets for more predatory behaviour — or downright scams. My colleague Stephanie Bailey digs into one such scam which, using crypto, cost some founders hundreds of thousands of dollars. Read on for that. 

Elsewhere today, we explore how founders can prevent burnout in this tough fundraising environment; go inside the London founder house full of 20-somethings that “don’t want a work-life balance”; and look at the most data-driven VCs in Europe. 

—Anne Sraders, senior reporter

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The crypto con scamming founders

There are many ways to take advantage of a founder — from VCs using predatory term sheets to accelerators which promise the world but deliver little. Also, as I’ve been investigating over the past few months, there are outright scams. At best, they waste a founder’s time but at worst can cost budding startups hundreds of thousands of dollars.

This story starts seven months ago, at Sifted Summit, where larger-than-life sextech founder Cindy Gallop mentioned onstage she had almost lost $500k in a rogue crypto scam that had lured her to Amsterdam and Barcelona. It piqued my interest: How did this happen? Why had Gallop been persuaded to fly across Europe to meet these people? Where did crypto intersect with sextech?

So, I interviewed Gallop and asked her about her story. We spoke for almost an hour, chronicling the ordeal from the start — a cold email from a consultancy — to the end, a call with a financial crime investigator. She had been lucky, but said other founders had been targeted. “I was told there were founders who took out loans to do this and then lost that money,” she said. 

I set out to find them, first using a couple of contacts Gallop had given me and scouring the internet for similar mentions. In the months that followed, I spoke to six other victims — two of whom had lost money — and three financial crime experts. The more people I spoke to, the more people with almost identical tales they connected me with.  

The scams all took place between 2021 and the end of 2023. However, one expert mentioned they’d been contacted by a near victim at the start of 2024 — and they follow the same pattern. Someone reaches out to the founder saying they represent an investor who’s interested in their company. Calls and messages are exchanged until an in-person meeting is set up in a foreign European city; it sounds like they might be their next big funder. 

Then, typically at a fancy lunch or dinner, they ask for a commission in crypto, some percentage of the total investment. More often than not, they say this is for tax reasons and all they need to see is proof of funds in a crypto wallet. Some stop there, others continue, but almost as soon as funds are transferred into a crypto wallet, they are gone forever.

“The scam itself is a sickening ordeal to go through,” one founder, who chose to remain anonymous, tells me. “Looking back, we were just naive to it all, a bit blinded by the opportunity really.”

It’s likely that there are many more victims out there, too embarrassed to speak out, worried it may hurt their future fundraising. 

“These guys can continue this scam, as long as founders are too embarrassed to speak up,” said Gallop, urging other eager founders not to fall — or almost fall — for the same trick.

If a similar scam has targeted you — or you are a victim of any wrongdoing in the startup world — and you want to talk to me, or another reporter at Sifted, you can get in touch with us confidentially via Proton Mail or Signal.

— Steph Bailey, head of content

Applications close tomorrow for our Central Europe Leaderboard

We're looking for startups across central Europe that are on a high-growth trajectory to feature on our next leaderboard. Could your startup be one of the fastest-growing companies in the region?

🦾 ETH Zurich spinoff Mimic raised $2.5m for an AI-powered robotic arm and hand. The company is developing human-like robotics hands that can do a variety of tasks — such as recycling, sorting or machine tending — and can be used across industries. Mimic uses large language models (LLMs) — trained on recordings of humans performing manual labour tasks — to teach its robots to understand and mimic human behaviour. 

• An increasing number of companies in Europe are building humanoid robots, using AI to help them “see”, learn how to walk and manipulate objects. In January this year, Norwegian AI startup 1X raised $100m for its two-legged robot butler and ETH spinoff ANYbotics raised $50m in May 2023 for its four-legged autonomous robots for use in industrial applications.

🤯 “The people here don’t want a work-life balance”: inside London’s founder mansion. In Silicon Valley, founders have been shacking up together for years, sharing equipment, ideas and dreams of startup success. Now, the phenomenon has made its way to London: five young founders have moved into a three-storey, £8k-a-month flat together, where they can truly live and breathe their businesses. 

• It’s an intense lifestyle, with most of the flatmates working a lot more than a 40-hour week. But they knew what they were signing up for. Haz Hubble, who set up the house and is working on several others across London, says “We’re here to build something big. In the early days of Facebook or Nvidia, did the founders have balance? No.” Fellow flatmate Leander Maerkisch is happy with the arrangement: “I don’t want boundaries.”
• But as well as being a space for resident (and non-resident) founders to hang out, it’s also somewhere to feel understood. “It’s a very lonely process, being a founder,” says Moises Barbera Ramos. “It’s important to have a community around me… I’m no longer alone.” 

🤔 How many of the UK’s best-funded scaleups are profitable? Four out of ten. 

🙅‍♂️ Fundraising is shit. Here’s how to prevent it completely burning you out.

Which are the most ‘data-driven’ VCs in Europe?

It’s in vogue to be a ‘data-driven’ VC: proponents say firms that make smart use of data are more efficient, see more deals, screen startups more effectively and make better and less biased investment decisions. 

What’s more, the rise of LLMs makes it easier than ever to use data tools to source deals — perhaps at the expense of an analyst or two’s jobs. 

A new report published this week lists the 190 most data-driven VCs in the world. They all have at least one engineer on their team, and have developed at least one piece of internal tooling. Many are in Europe and one — Moonfire — has more engineers than investors on its team. 

VENTURE

Basel, Switzerland-based Allegria Therapeutics, which plans to develop treatments for allergy and mast cell-mediated inflammatory diseases, raised $3.5m in seed funding from Forty51 Ventures.

DEBT

London-based Abound, a fintech loan provider that uses AI and open banking to determine creditworthiness, raised £800m in equity and debt funding. Citi provided the debt and GSR Ventures led the equity funding. 

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