Sifted - Black is back

Good morning there,

UK fintechs are on a roll; yesterday, London-based digital bank Revolut became the latest UK neobank to report profitability in its last financial year, following on the heels of peers Monzo, Atom Bank and Starling.

It got me wondering which other European scaleups will reach that hallowed status soon — and counting up how many have already. More on that below and, if you’ve got a strong view on which other big players could announce that they’ve gone into the black this year, hit reply. We love tips.

Elsewhere today:

• How AI could power the next generation of fintech unicorns
• European VCs outperform US VCs over 10 and 15 year horizons
• How the UK can become a global software leader

— Amy Lewin, editor

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Black is back

Two years ago, the US stock market tanked, growth-at-all-costs went out the window and get-to-profitability-ASAP came in. 

Startups scrambled to follow the new VC mantra. More than 140k tech workers were laid off around the world in 2022; expansion plans were put on ice and markets were shut; and getting into the black became priority number one for founders.

Now, after an undeniably tough few years for our industry, more and more scaleups are announcing profitability.

Yesterday, Revolut announced record profits for 2023 — months ahead of its filing deadline. The London-based digital bank made a pre-tax profit of £438m in 2023, up from losses of £25m the year before. Revenues nearly doubled to £1.8bn, from £923m in 2022.

It’s the latest in a spree of UK digital banks tooting the profitability horn.

In just the last two months, Monzo reported a pre-tax profit of £15.4m for the 2023 financial year, with revenues more than doubling on year to £880m, while Atom Bank posted a pre-tax profit of £27m for 2023, up from £4m the year before. Starling Bank reported its third year of profitability in June, posting a pre-tax profit of £301.1m and revenues of £682.2m for the year ending March 2023. 

Outside the UK, Lithuanian second-hand marketplace Vinted has also hit profitability this year. It posted a net profit of €17.8m in 2023, on revenues of €596.3m. Swedish healthtech Kry also told Sifted it’s now profitable in all of its markets, while buy now, pay later giant Klarna also reported an adjusted profit of $21.6m for the first quarter of 2024.

Several of Europe’s other best-known scaleups have told Sifted they could be profitable — but are choosing to invest in growth instead. Personio founder Hanno Renner told Sifted the HR tech unicorn is profitable in its home market, Germany, and is growing at a "high double digit rate" — but is focused more on capturing further market share than getting into the black. “We can be profitable at the stage where we are now… but we want to make sure we continue to execute on the market opportunity,” he said in an interview in June. 

French digital bank for businesses Qonto is another company focused on conquering markets, rather than announcing profitability. It’s bought at least one company so far this year — and is on the hunt for more. “We’ve already significantly improved our margins in the last two years,” CEO and cofounder Alexandre Prot told Sifted in February this year. “Looking at our plans for 2025, we’re pretty confident that our costs will increase a little bit, our revenues will increase a lot and we will reach profitability.”

Estonian mobility unicorn Bolt, British payments scaleups GoCardless and Checkout.com and French payments app Lydia have all said they plan to reach profitability this year or next.

It’s broadly good news for investors — and employees, patiently clinging on to their stock options; profitable scaleups are likely to have much more luck on the public markets. It’s also good news for founders; a profitable company is one that is much less reliant on investors.

We’ve decided all this positive news calls for a new database to track Europe’s biggest profitable private tech companies. This is a work in progress. We’ve included companies that have raised £100m+ and/or made profits of £10m+. 

Are we missing your company? Let me know.

— Amy Lewin, editor

🇬🇧 UK fintech Revolut posted record profits in 2023 with the neobank benefiting from higher interest rates and a customer acquisition spree that saw it add millions of new accounts last year.

• It added 12m new customers last year, taking its total to more than 45m. Interest income grew to £500m over the same period; that’s against £83m last year, and £1.7m in 2021.

🇸🇪 More trouble at Northvolt? The Swedish gigafactory — Europe’s best funded climate tech – has had a tricky time lately. In June, shareholder BMW cancelled a €2bn battery cell order, citing delays, and the company said plans for one of its factories in Sweden could be on the rocks. 

• Yesterday, the FT reported that the company's board will meet in September and hinted that factories in Germany and Canada could also be delayed.

🤖 Sifted’s Tim Smith and Tom Matsuda have been digging into how fintechs are experimenting with GenAI to stay ahead of their competitors. Among the use cases, startups are using powerful new AI models — and an approach called “synthetic data” — to spot novel fraudulent techniques “before they're even developed by the bad guys,” Kevin Levitt, head of financial services at US chip making giant NVIDIA, tells them.

• Fintechs are also starting to develop GenAI-powered products to try and make customer ID verification smoother, by using the reasoning power of models to anticipate when a user will need to confirm who they are (to create a bank account, for example), and pre-fill some of the details for them.

This story first appeared in our Tuesday fintech newsletter. Not a reader yet? Sign up (for free) here.

🇬🇧 Phill Robinson, the CEO and cofounder at Boardwave, a network of European software leaders, has outlined five quick policy wins for the next UK government to implement to turn the country into a global software leader. And he’s not the only member of tech land to give their two cents this week. 

• Lobby group Startup Coalition released a “manifesto” yesterday — endorsed by 100 tech leaders including the likes of Wise’s Taavet Hinrikus and Multiverse’s Euan Blair — also outlining a series of policy reforms for the next UK government. It calls for reform of the visa system, streamlining tax relief and encouraging pension funds into backing more early-stage businesses.

📣 Readers, we want to hear from you. What’s the best thing on European tech you’ve read recently? Drop us a line.

Pat yourselves on the back, VC readers. European VC returns are better than North American VC returns over 10 and 15 year horizons, finds a new report from industry body Invest Europe, based on data from investment firm Cambridge Associates.

European VC yielded 20.77% net IRR (internal rate of return) over 10 years, compared to North American VC’s 18.18%. Over a 15 year period too, European VC has better returns: 16.57% IRR to North American VC’s 16.09% IRR.

The report also looks at: 

• Performance of European VC vintages 
• Time to liquidity of European vs North American funds 
• How new fund managers’ returns compare to established fund managers’ returns 
• Outlier funds in Europe 

Find the full write up here. 

Rising 100: The ultimate B2B SaaS startup list

Searching for Europe’s next unicorn? Then look no further than our definitive list of 100 B2B SaaS startups changing the game. We also check in on how last year’s cohorts are faring in today’s ecosystem. 

Today | Online. French tech reporter Daphné Leprince-Ringuet will be moderating an upcoming Sifted Talks with experts from Depop and Kry to find out how tech leaders can effectively harness the power of AI and machine learning for better business results. There's still time to RSVP!

July 9 | London. Join us for a live panel discussion on the impact of AI on work hosted by Startup Life’s Anisah Osman Britton. We'll be discussing things like what's possible with AI right now, how you take advantage of new technology as you scale and whether AI really can replace humans at work. There’ll also be networking and (free) canapés and drinks. Spaces are limited — RSVP now to secure your place.

July 31 | Online. International workforces are a highly beneficial and often necessary part of scaling a startup. But they also pose unique challenges when founders look at exiting via acquisition. So what are the issues, and how do you approach them amid the bustle of a potential buy/sell? Sign up to our next Sifted Talks on July 31 to find out. RSVP.

Alkmaar, Netherlands-based SCW Systems, which converts organic waste streams such as sewage sludge and agricultural biomass into green raw materials for the energy and chemical industry, raised €25m in funding. Pensioenfonds Zorg en Welzijn led the round.

Tallinn-based eAgronom, a crop farming business management and planning software tool for farmers, raised €10m in Series A funding. Swedbank led the round and was joined by investors including Icos Capital, Soulmates Ventures and SmartCap Green Fund.

Pärnu, Estonia-based Patchstack, a cybersecruity startup offering firewall protection and virtual patches for security vulnerabilities, raised $5m in Series A funding. Karma Ventures led the round and was joined by investors including G+D Ventures, the German TrustTech fund and Emilia Capital.

Helsinki-based Cluby, a platform for restaurants and venues to help manage memberships, loyalty programmes and marketing campaigns, raised €2.9m in seed funding. Vendep Capital led the round and was joined by Elias Aalto.

London-based ObraLink, which automates manual processes and tasks for construction projects, raised €1.8m in funding. Cemex Ventures led the round.

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