Sifted - Young AI startups are funding magnets

Good morning there,

Today we’re bringing you one story of big European ambitions and another that outlines some considerable worries in the continent’s biggest tech hub.

Startup tax advisors in the UK tell our reporter Kai Nicol-Schwarz that they’re seeing a big uptick in enquiries about founders thinking about leaving the country, ahead of reported business tax increases. Meanwhile, in Germany, a former army officer tells our deeptech reporter Anne Sraders about his plans to build the next big company serving European governments and militaries, as he develops autonomous land robots for the battlefield.

Elsewhere:

• Young AI startups raising one in every two euros invested by VCs

— Tim Smith, news editor

🇬🇧 Startup tax advisors tell Sifted they are being flooded with “massive” increases in the number of enquiries ahead of the UK Budget tomorrow — as founders mull overseas relocation. 

• It comes amid reports of wide-ranging tax changes — including scrapping business asset disposal relief, and hiking capital gains tax on the sale of shares and employers' national insurance contributions — as UK finance minister Rachel Reeves looks to close a £40bn funding gap.
• “The volume of activity over the last couple of months and particularly the last few weeks has been off the scale — unprecedented,” says Alan Smith, founder of wealth management company Capital Partners, which advises entrepreneurs on matters like tax around business sales.

🚛 Truck company Scania plans to completely shift to Northvolt for its EV batteries. Scania, based in Sweden, has Volkswagen as its parent company and the move to name Northvolt as its sole cell supplier sends a signal of how important Northvolt is to the German car manufacturer, Bloomberg reports.

🧾 Kristo Käärmann, one of the founders of money transfer fintech Wise, has been fined £350k by the UK’s financial regulator. The Financial Conduct Authority (FCA) said yesterday that Käärmann did not notify the watchdog of his “significant tax issues”.

❌ An attempt by US VC firm Hof Capital to gain a stake in UK fintech Revolut has been thwarted by the FCA, according to a report from the Times on Sunday. Jamba Europe — an entity owned by the New York-based Hof Capital — attempted to buy the shares from investors in Revolut on crowdfunding platform Republic (previously called Seedrs). The UK watchdog, however, ruled that this transaction was at risk of being regarded as “financial promotion” and said it would need specific FCA approval. 

💰 Swedish payment giant Klarna has had its valuation increased by shareholder Chrysalis Investments Ltd. The investor increased the value of its stake to £120.6m, up from £100.3m in the second quarter, according to company filings reported by Bloomberg.

• According to analysts at Deutsche Bank, this gives Klarna an implied valuation of around $14.6bn. 
• Klarna was valued at $45bn in 2021, but saw its valuation drop by 85% to $6.7bn in the summer of 2022. The company has been looking to IPO in New York at a $20bn valuation as soon as next year.

🤖 Defence tech startups have grown hot with investors lately, and one Munich-based company building unmanned ground robots for the battlefield is in talks to raise its Series A — just months after announcing its seed round. ARX Robotics builds unmanned ground vehicles to do everything from supplying and rescuing troops on the front lines to deceiving the enemy with imitation gunshot noises, lasers and other distractions. 

• Following a €9m seed round announced this summer, ARX’s cofounder Marc Wietfeld tells Sifted the startup is in talks to raise its Series A — with big ambitions and M&A in mind. Read the interview here.

Young startups — those launched in or after 2023 — have raised €3.1bn across 687 deals in 2024, and more than half of that is going to companies that use AI as their core tech, according to Sifted data. 

Megarounds ($100m+) for Mistral (€468m between Series B and debt), Poolside ($500m Series B) and H (formerly Holistic AI, $220m seed round) have driven a lot of that. But even excluding disproportionately large rounds, AI still leads in both deal count and total funding. 

That’s also shifting the continent’s long-standing geographical hierarchy. While most deals for young startups happen in the UK, France is Europe’s leading tech hub, absorbing 52% of capital secured by those companies, ahead of Switzerland, Germany and Sweden.

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London-based Zilch, a buy now, pay later company, raised £50m in a debt facility from investors including Deutsche Bank.

Avignon, France-based Hubcycle, which converts waste during agri-food processing into ingredients, raised €15m in Series A funding from investors including ETF Partners, Raise Ventures, Techmind, Daphni, Citizen Capital and Bleu Capital.

London-based Semble, which develops clinical management software for medical practitioners, raised $15m in Series B funding. Mercia Ventures led the round and was joined by investors including Octopus Ventures, Smedvig Ventures and Triple Point.

Berlin-based UnitPlus, a capital management platform for SMEs, raised €4.7m in seed funding. Pact led the round and was joined by investors including Seed X, Material Ventures, Nextblue, Robin Capital and Exxeta Venture. 

Glasgow, Scotland-based Novosound, which develops wearables for blood pressure monitoring, raised £2m in funding. Par Equity led the round and was joined by investors including Kelvin Capital, University of the West of Scotland and Scottish Enterprise.

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