Sifted - What’s a stake in Revolut worth?

Good morning there,

In just a few short hours, weeks and months of speculation and rumour will be put to bed as UK finance minister Rachel Reeves announces her Budget — detailing tax changes and spending plans as the government looks to plug a £22bn black hole in its finances. It’s not an event many in UK tech have been looking forward to.

Reports that founders could see tax breaks scrapped, alongside increases in other taxes that affect them, have been met with very loud opposition from many in the startup sector. 

But some say the concerns are overblown. I dig into that below. 

P.S. I’ll be writing about the reaction of the UK’s startup sector to the Budget in the immediate aftermath later today. If you have thoughts to share, drop me a line.

Elsewhere:

• Top investors including Index, Seedcamp and Balderton bought into Revolut in 2016. Here’s how much their stakes could be worth now
• Dilution, dissatisfaction and de-risking: Why healthtech unicorn Kry has changed its capital structure
• Investing in AI hardware — the Budget is a make or break moment for the UK

— Kai Nicol-Schwarz, reporter

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💰 Two former executives of UK crowdfunding platform Crowdcube have raised $10m for their new secondaries fund, with a final close target of $25m. 

• Flywheel Capital hit its first close in September and $10m has been raised across its fund and special purpose vehicles (SPVs). Allocator One, a platform for first-time venture capital funds, is an anchor investor in Flywheel, the fund’s founder Sam Lawson tells Sifted in an interview; its LP base also includes a range of family offices and founders. 
• Lawson left Crowdcube — where he was VP of capital markets — in 2022, and founded Flywheel last year. Darren Westlake, cofounder and former CEO of CrowdCube, joins him as partner and chair of the fund.

🚲 A London-based user of UK-based shared mobility startup Forest is considering legal action against the company, after she says an accident on one of the company’s e-bikes in April 2024 left her requiring multiple medical procedures, including surgery and dental work for missing teeth. She says the accident was caused when she was thrown off a Forest bike which suddenly sped up unexpectedly, causing her to fall on her face and lose consciousness. 

• Harley, 25 years old, posted a TikTok about her experience, prompting others to share their accounts of faulty Forest bikes. One user comments “the motor cut out completely when I was in the middle of the huge junction by Vauxhall station, nearly got flattened by a truck”; another says “I once used a Forest bike with a dangerously faulty motor. I reported it, they were very dismissive and they kept it [the bike] active on their system.”
• In response to these accounts, a Forest spokesperson tells Sifted: “Rider safety is our number one priority. We take user reports incredibly seriously and implement rigorous maintenance and service programmes to upkeep our high safety standards. While we cannot comment on the specifics of this ongoing case, Forest will always support any investigation by providing the bike itself if needed, as well as its service and maintenance history, to the authorities.”

Do UK tech folk need to stop being ‘whiny’?

In recent weeks, one topic has been making all the headlines in UK startupland: the Budget — and how it’ll impact the country’s tech sector. TLDR; most tech folk are feeling pretty gloomy.

The government is reportedly considering scrapping Business Asset Disposal Relief (BADR) — which limits tax to 10% on exit takings of up to £1m — and raising capital gains tax (CGT) on the sale of shares, as well as employers national insurance contributions (a payroll tax).

It’s led to a chorus of discontent from hundreds of entrepreneurs, founders scrambling to rush through sales and tax experts fielding “unprecedented” enquiries from startups mulling overseas relocation. You don’t have to look far on social media to find tech folk criticising the government and warning of the impact of tax changes on the future of UK tech.

But some in the sector paint a slightly different picture. 

Richard Robinson, founder and CEO of legaltech Robin AI, tells me some of the negative reaction from the startup community to the Budget is overblown.

“There’s definitely some point at which taxes are so high that it will dissuade people from taking a risk — but I think that threshold is quite high,” he says.

“When I started Robin AI, I didn’t think about tax even once. There are a thousand things that could kill a small business and thinking about the tax I would pay on an exit just isn’t where my head was.”

It’s a lack of entrepreneurial culture — not tax — that’s holding back UK tech, said Patrick Ryan, cofounder of micro-investing platform Odin.

“I agree with everyone complaining about the CGT changes — but I also think we need to stop being whiny little bitches and just build elite companies in the UK anyway,” Ryan said in a LinkedIn post. “The main thing that needs to change is our culture & mindset, not our taxation system. We need to think big, and aim higher.”

Monzo founder Tom Blomfield also pointed out on X that a founder in California pays a higher rate of capital gains tax on the sale of business shares than the UK, adding that it “hasn’t stopped people there”. 

Despite all that, many in the tech sector tell me they’re bracing themselves — and many say they’re already considering drastic measures should taxes rise.

A recent survey from lobby group Startup Coalition of 524 founders found that 89% would consider moving themselves or their business abroad and 72% have already explored this. 94% said they’d consider starting a future company abroad if CGT on the sale of business shares was raised. 

While that’s looking likely right now — by how much remains to be seen. After weeks of rumour and speculation though, in just a few short hours we’ll know for sure.

Readers — I want to hear from you. If you’ve got thoughts to share when UK finance minister Rachel Reeves announces her Budget at 12.30 UK time later today, get in touch and let me know. I’m all ears.

— Kai Nicol-Schwarz, reporter

💸 Neobank Revolut has seen its share price soar from just $2.17 per share in its 2016 Series A, according to PitchBook data, to a reported $865.42 a pop in its August secondaries round. Investors who got in early during its Series A have seen their shares skyrocket in value, too — at least on paper. Here’s how much investors like Balderton Capital, Point Nine and Index Ventures could be sitting on. 

🇬🇧 The UK could be at risk of losing its crown as the leading country in European tech and innovation, if it doesn’t invest seriously in AI-ready supercomputers. That’s the view of Dawn Capital general partner Haakon Overli and Dr Jussi Westergren, founder of quantum startup Algorithmiq and an early investor in DeepMind.

• Writing in Sifted, they make the case that investing in high-performance compute hardware will generate solid returns and UK finance minister Rachel Reeves must direct her £50bn infrastructure budget into the technology.
• They add that it’s an opportunity to get industry and government working closer together, by creating public-private partnerships to build world-leading supercomputers.

🤝 Healthtech unicorn Kry (which goes by Livi in the UK and France) has simplified its capital structure, which resulted in a dilution of 78% of its common shares. The proposal was approved by a 99.3% majority vote of participating shareholders — including Accel, Creandum, Index Ventures and Canadian pension fund OTTP — at a general meeting.

• As part of the restructuring, convertible notes have been converted into shares and many preferred shares are now common shares. While the number of different share classes has dropped from 13 to eight, total shares have increased from 4.6m, including 1.4m common shares, to 21m. This has reduced prior common shares’ ownership from 29% to 6.4% — a 78% dilution.
• Kry’s complex capital structure — made up mainly of preference shares and convertible notes — was its “biggest problem”, according to cofounder and CEO Johannes Schildt, who says other companies will have to make similar adjustments to their capital structures. Sifted sat down with Schildt to discuss why a change was needed, and how the company did it.

Founders are up against it when it comes to raising funds, finding customers and making money, according to new data published today by tech event Slush.

In its Startup Struggle survey of more than 1,000 founders (and more than 250 investors), 63% of startups said fundraising was among their top three challenges; 49.6% said customer acquisition was up there; 38.1% mentioned scaling and growth; and 36.8% pointed to revenue growth.

Elsewhere in the data:

• Founders ranked growing the team, compliance and keeping users happy lower down their list of concerns; only 12.2% highlighted hiring as a top three challenge, with regulation (8.6%) and customer retention (6.9%) also receiving relatively little emphasis.
• Similarly, just 3% cited talent retention as a top three challenge, suggesting founders seem to be confident in their ability to keep staff engaged.
• Investors, however, are more concerned about regulation, particularly financial regulation and intellectual property protection. They’re also wary of compliance risks — such as data protection – that can dent a startup’s bottom line if they’re not followed properly, and rising compliance costs. They also gave more weight to making money as a challenge than founders did, ranking it on par with raising capital.

Dig into the full data here.

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🇩🇪 Berlin. Newsletter editor Tom Nugent is at spinout conference Stage Two today and tomorrow. If you're also there, drop him a line.

🇬🇧 London. Startup Life reporter Anisah Osman Britton will be at the first UK event hosted by Businettes — the largest community for female entrepreneurs in France and Germany — on November 13.

🇪🇸 Barcelona. As part of Norrsken's Impact Week, Sifted is co-hosting an intimate breakfast meetup on November 7. Join senior reporter Freya Pratty, Alejandro Marti, founder of climate risk platform Mitiga, and speakers from Kompas VC and Asabys, as they discuss which areas of impact tech Spain can excel at. Sign up here.

Barcelona, Spain-based Inbrain Technologies, a neurotech company developing "brain-computer interface" therapeutics, raised $50m in Series B funding. Imec.xpand led the round and was joined by the EIC Fund, Asabys Partners and Aliath Bioventures.

Berlin-based Aignostics, which uses AI to transform complex health data into insights to aid drug discovery, raised $34m in Series B funding. Athos led the round and was joined by Mayo Clinic, High-Tech Gründerfonds, Wellington Partners, Boehringer Ingelheim Venture Fund, Carma Fund and VC Fonds Technologie. 

Halden, Norway-based eSmart Systems, which develops AI-powered solutions for inspecting and maintaining critical infrastructure, raised €30m in funding. Tilt Capital led the round and was joined by Quanta Services. 

Stockholm- and London-based EvoluteIQ, an AI-powered intelligent business automation platform, raised $20m in equity and debt funding. Round2Capital led the round and was joined by Nordea Growth Fund, Dcap Select and PH Ventures.

Porto, Portugal-based Infraspeak, which develops tools to help with facilities management, raised €18m in Series B funding. Endeit Capital led the round. 

Berlin-based Vara, which has developed an AI system for early breast cancer detection, raised $8.9m in funding. IBB Ventures, Smart Family Office and FJH co-led the round. 

Cologne, Germany-based Vamo, which helps customers switch from oil and gas to a modern heat pump system, raised €7m in seed extension funding. Extantia Capital and Get Fund led the round and were joined by Caesae, Neosfer and Realyze.

Oxford, UK-based Diffblue, which has created an AI-powered tool to automate code, raised $6.3m in funding. IP Group, Parkwalk Advisors and AlbionVC co-led the round and were joined by Oxford University, Oxford Technology and Innovations EIS Fund and Citi.  

London- and New York-based Auquan, which uses AI to automate workflows in the financial services sector, raised $4.5m in funding. Peak XV led the round and was joined by Neotribe Ventures. 

Berlin-based GlassFlow, which has developed a tool for Python devs to help speed up their work, raised €4.43m in funding. Upfront Ventures led the round and was joined by High-Tech Gründerfonds, Robin Capital and TinyVC.

Munich, Germany-based Emidat, which has created a tool to help construction companies automate environmental reporting, raised €4m in seed funding. General Catalyst led the round.

Warsaw-based Foodsi, an app connecting users with restaurants, convenience stores, bakeries and cafes that have surplus food, raised €1.2m in seed extension funding from investors including AIP Seed, Satus Starter and AC/VC Impact Fund. 

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