Sifted - Building a startup in Brexit Britain

Good morning there,

How difficult is it for a non-British citizen to build a startup in the UK? Following Brexit, new immigration laws and recent far-right anti-immigration riots, it certainly hasn't become easier, as I explore in this issue.

Elsewhere today:

• Aria’s Ilan Gur on backing the big breakthroughs barely anyone thinks are possible 
• 11 medtech startups to watch, according to VCs
• Arm cofounder Hermann Hauser on building billion-dollar tech companies in Europe

— Zosia Wanat, senior reporter

/A message from our sponsor Malta Enterprise

🇩🇪 German AI company Aleph Alpha announced two long-awaited new open-source foundational models yesterday. The 'Pharia' models are aimed at helping enterprises and public sector customers integrate AI and are designed to deliver answers in multiple languages. 

• Aleph Alpha is one of Europe’s best funded AI startups, and last raised a $500m Series B in November. However Manager Magazin reported in July that questions were being raised about the effectiveness of its models and its ability to keep up with competitors like OpenAI.

📱 The Russian-born founder of messaging app Telegram, Pavel Durov, was arrested in Paris over the weekend via a warrant from the French agency tasked with preventing violence against minors, according to Reuters, AFP and local news. Durov’s detention is related to a preliminary investigation into the alleged lack of moderation and crimes committed over the app. It’s sparked an uproar online over concerns around free speech and platform moderation — with the likes of X owner Elon Musk chipping in in support of Durov.

• In a statement, Telegram said “CEO Pavel Durov has nothing to hide and travels frequently in Europe. It is absurd to claim that a platform or its owner are responsible for abuse of that platform.” 

Anti-immigrant sentiment felt in the UK tech ecosystem

The UK economy and its tech sector have benefitted for years from an inflow of talented immigrants: the founders of household UK startup names like Revolut, Checkout.com and Deliveroo were all born abroad. 

But in recent years Brexit, along with government plans to curb migration to the country, have contributed to the UK feeling like a much less welcoming place for non-native founders to build. The anti-immigrant, far-right riots that broke out in the country at the end of July heightened that.

“For a founder specifically, we’re already under so much stress and typically don’t have the time to process all of this,” says Sonia Kaurah, the founder of Tala Thrive, a mental health platform. Kaurah is Australian with South Asian heritage and says the riots mostly affected people of colour, who make up the bulk of her team. “I’ve had to not only deal with this on a very personal level, but also have had to make sure that my team are okay, and check in on their mental state and that they feel safe coming into the office,” she tells me. 

International founders in the UK are also up against it when it comes to behaviour in the tech ecosystem. Nearly one in five say that conservative attitudes are a barrier to running and fundraising for their startup, according to a new survey shared with Sifted by London-based Blue Lake VC, which backs diaspora founders. The survey polled more than 300 founders from 72 countries and 66 UK investors.

Almost half of the non-British founders surveyed also said that a lack of networking possibilities stood in the way of fundraising; others said that they face anti-immigrant bias.

Lyubov Guk, a founding partner at Blue Lake, says that she’s heard LPs, VCs and other ecosystem players ask questions like, ‘Is investing in immigrant founders a charity?’ and ‘Are you investing in immigrants — those coming to the UK on boats?’ 

“I’ve learned to prove them wrong, but I wonder what drives these questions,” she says. “Why do well-educated people — some of whom are immigrants themselves — make such lazy assumptions? To me the answer lies in politics and media, where easy yet provocative narratives are used to attract attention. 

“For me, immigrants are a unique breed of founders  — well-educated, experienced individuals often without a plan B and a drive to build,” says Guk. “The problem is, not everyone sees it this way.” 

It’s often difficult for founders from underrepresented groups to raise funding in Europe. Between 2010 and 2020 under 1% of venture capital investment in the UK went to Black entrepreneurs, according to a report by Extend Ventures. Across Europe, only 1.3% of VC funding in Europe went to founding teams solely made up of ethnic minorities, according to Atomico’s 2021 State of European Tech report. 

“The most significant hurdle I encountered was pitching our product to this predominantly homogeneous group of investors who initially struggled to comprehend the necessity of our offering,” Kaurah says. She adds that while she pitched to more than 50 potential investors, ultimately she pivoted into a crowdfunding campaign  — which “empirically demonstrated the market demand for the product”. 

Jose Puga, cofounder of Imaginario AI, an AI-enhanced video curation platform, came to the UK from Peru to study. He doesn’t believe that anti-immigrant sentiment is “a major factor” while fundraising. But he sees other challenges: for example the need for a good network and the endorsement of a top accelerator or a trusted investor — connections that newcomers often lack. 

“You’ll need to demonstrate exponentially more traction, whether in revenue or usage, compared to someone who has the right connections, credentials or comes from the same circles as the investor,” he says. He adds that where you went to university also usually helps. 

“Some schools offer a distinct competitive advantage when it comes to fundraising in this country. They open doors to the most influential networks that are harder to access for graduates of other institutions,” he adds. Puga is a graduate from business school INSEAD. 

One other challenge he sees is not being a native English speaker. “This can make the fundraising process much more difficult. Humans are naturally inclined to trust more those who share their cultural or social background and language. Unfortunately, if your English isn’t perfect, it may unconsciously trigger biases in potential investors, leading them to hesitate.” 

Readers, I want to know what you think: is the UK a good place for immigrants to start their business? Have you personally experienced challenges as an immigrant founder, in the UK or elsewhere? Are you a VC backing immigrant founders: what have been your experiences? I’d love to hear your views. 

— Zosia Wanat, senior reporter

🩺 11 medtech startups to watch, according to VCs.

💪 Arm cofounder Hermann Hauser on building billion-dollar tech companies in Europe.

👀 Aria’s Ilan Gur on backing the big breakthroughs barely anyone thinks are possible. 

• The UK’s Advanced Research and Invention Agency — Aria — is not your typical government agency. Launched in 2023, the research funding agency aims to unlock scientific and technological breakthroughs which could generate big social and economic returns — but might, without Aria's intervention, otherwise never happen.
• Its CEO, Ilan Gur, joined Startup Europe — the Sifted Podcast this month to explain how the magic works — and how entrepreneurs can get involved with its programmes, ranging from neurotechnologies to robot dexterity, safeguarded AI to scaling compute. Read the lightly-edited highlights of the conversation here.

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