Good morning there,

Today we’re looking at the story of Improbable, one of the OG UK tech startups that — 12 years after launching in 2012 — has hit profitability. But the journey hasn’t been a smooth one. We talk you through the company’s multiple pivots and some of its unrealised ambitions.

Plus… earlier this year we ran a ranking of the top startup hubs in Europe together with the Financial Times. Now, applications for next year’s ranking are officially open. Startup incubators and accelerators, if you think you should be on there, you can apply here. Hurry, the deadline is August 2.

Elsewhere today:

• How 'Gandalf' helped Atomico-backed AI security startup Lakera raise $20m

• How green is Octopus Energy?

— Tim Smith, news editor

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🇬🇧 A16z crypto’s chief operating officer Anthony Albanese has relocated to the UK to take over from Sriram Krishnan, who previously spearheaded the VC firm’s London office. Krishnan will remain in London to work on the firm’s international strategy, while Albanese will head up a16z crypto’s UK policy efforts. 

• It’s the latest addition to a16z’s first overseas office, which the Silicon Valley VC giant opened in the UK capital last June. Sifted previously reported that the fund quietly moved two other partners — Jay Drain and Liz Harkavy — to London as well.

🧙‍♂️ Zurich-based startup Lakera, which specialises in making generative AI more secure for businesses, has raised $20m in a Series A funding round led by Atomico.  

• Lakera’s viral hacking videogame “Gandalf” provides insight into how people attempt to tamper with AI systems — and has helped the three-year-old startup win customers and big-name investors. 

🙌 London-based metaverse startup Improbable made a pre-tax profit of £13m in 2023, which follows losses of £150m in 2021 and £19m in 2022, according to its latest financial results shared with Sifted ahead of wider publication. While revenues fell from £78m in 2022 to £66m in 2023, the company ended the year in the black thanks to the sale of two of its subsidiaries.

Improbable pivots to profitability

If you were to pick a European startup that’s taken a long and winding road in its quest to build a profitable business, you’d be hard-pressed to find a better example than UK-based Improbable. The company, which now styles itself as a “metaverse technology company”, yesterday announced it was finally in the black, 12 years and multiple pivots after launching.

Improbable was a member of the first crop of the UK’s new tech movement,  founded in 2012 (a year before Deliveroo); by 2017 it had reached a $1bn valuation and had raised capital from backers like SoftBank, Horizons Ventures and Andreessen Horowitz.

That year, Wired magazine ran a big splash spotlighting the company’s “insanely ambitious” plans to build a Matrix-like simulation that could help public institutions predict things like citizen behaviour and the spread of infectious disease, or let the US army run battle simulations.

In 2019, Improbable pivoted into gaming, acquiring two development studios which it then sold three years later after struggling to deliver a hit title; the company’s losses rose to £150m in 2021. 

Then, in 2023, the company sold its Skyral battlefield simulation technology arm for an undisclosed sum, as it focused on becoming a metaverse company and building the tech for other businesses and brands to develop their own experiences in virtual worlds.

Today, the company is — once again — a very different-looking beast. It’s still working on building metaverse technology via its M2 platform, but cofounder and CEO Herman Narula tells Sifted that overall revenue will likely be “dwarfed” by its new focus: venture building.

The reason for this prioritisation seems pretty plain: Improbable achieved profitability in 2023 thanks to offloading its defence business, as well as the sale of its multiplayer games services subsidiary The Multiplayer Group.

The company says it’ll invest in, or launch, up to “four to five” businesses a year, and that it won’t be shy to sell them for a profit when it can. “We’re quite happy to take profit from asset sales when companies have matured,” says Narula.

That said, he also expects this approach will see the company’s balance sheet swing between red and black in the coming years. “It’s going to look a bit spiky,” he tells Sifted. “It can be unpredictable when you see the right opportunity to realise profit or value from an asset.”

For now, the company is celebrating posting its first profit, even if it’s got there in a very different way to how its cofounders first imagined.

— Tim Smith, news editor & Kai Nicol-Schwarz, reporter

🐙 How green is Octopus Energy?

💪 Europe's profitable startups. 

😯 US warns tech startups on security threats from foreign investors. (FT)

🤔 Revive Oxford-Cambridge high-tech growth plan, urge business and university leaders. (FT)

🦾 How AI compute is changing the economics of company building. (Sponsored by Northern Data Group)

German companies across all funding stages have the highest proportion of preferred stock on their cap tables, when compared to peers in France, the Netherlands, Switzerland, the UK and the US, according to a new report from equity management platform Ledgy which takes stock of equity data across European tech during H1. Across most markets, between 15-30% of the cap table being taken up by preferred stock appears to be the norm. In Germany it’s almost 50%.

The report also found:

• Companies granting equity options at the 75th and 90th percentile of the market have reduced their equity allocations; while companies granting options at the 25th and 50th percentile of the market have upped theirs.
• Refresher grants — where employees are given their equity a bump up — for junior and mid-level staff are roughly 50% as large as the initial grant they were given.
• On a proportional basis, the seed-to-Series A option pool increase is bigger than at any other funding stage. While the average seed-stage employee option pool is 7.8% of fully diluted share capital, this increases to an average of 13% after Series A, a two-thirds increase.

Barcelona-based Exoticca, a travel services platform for multi-day tour packages, raised €60m in Series D funding. Quadrille Capital led the round and was joined by investors including All Iron, ICF, 14W, Mangrove, Bonsai Partners, Sabadell and Aldea.

Barcelona-based Payflow, a salary management platform, raised €6m in funding. Seaya Ventures, Cathay Innovation, 6 Degrees Capital and Wayra led the round and were joined by investors including Thomson Reuters Ventures and Conexo Ventures.

Wageningen, Netherlands-based NoPalm Ingredients, which produces yeast oils, raised €5m in seed funding. Rubio Impact Ventures led the round and was joined by investors including Fairtree Elevant Ventures, Oost NL, Willow Capital Investments and the Netherlands Enterprise Agency.

Copenhagen-based Agrobiomics, which develops a biological solution to increase the climate resilience of plants, raised €4m in funding from NOON Ventures. 

Lyon, France-based PK MED, which is developing injectable smart implants for drug delivery and release, raised €1.5m in funding from Bpifrance.

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