Sifted - UK Budget divides tech sector

Good morning there,

It’s the morning after the day before, and the dust is settling on one of the most hotly — and anxiously — anticipated announcements in recent memory for UK tech.

Yesterday, UK finance minister Rachel Reeves revealed plans to make up a £40bn funding gap in the public purse. Leading up to the announcement, many founders worried as reports emerged Reeves was planning on raising capital gains tax paid on the sale of shares, increasing employers’ national insurance contributions and scrapping tax relief on exit earnings. 

In the end, she did two of those things and — sort of — didn’t do another. I dig into how the UK Budget could impact startups and what tech folk are saying about the tax changes, below. What have you made of the latest Budget announcement? Drop me a line with your thoughts.

Also, we know what else you need: a tech ranking that isn’t dominated by AI and the usual startup names.

So instead, dip into our fifth Sifted Leaderboard of 2024, which ranks the 30 fastest-growing startups in eastern Europe and the Baltics. You’re bound to discover a few under-explored picks — and the big reveal is, it’s not an Estonian company leading the pack. Read below for more.

Elsewhere:

• More layoffs at gut health startup Zoe as company restructures teams
• AI assistant Sana raises $55m in a round led by NEA

— Kai Nicol-Schwarz, reporter

/A message from our sponsor Citi Private Bank

🇬🇧 Startup founders have been hit by tax rises and changes to a relief scheme on exit earnings up to £1m, as UK finance minister Rachel Reeves announced her first Budget will raise £40bn in taxes. 

• Yesterday, Reeves confirmed speculation that capital gains tax on the sale of business shares will be rising. So too will employers' national insurance (NI) contributions. 
• The rumoured total scrapping of Business Asset Disposal Relief (BADR) — which limits tax on exit takings of up to £1m to 10% — did not happen, but the amount of tax entrepreneurs pay on an exit will increase in the coming years.
• The UK tech sector’s reaction has been mixed. While some say the government’s plans could damage the country’s standing as an attractive place to start a business — others tell Sifted the UK Budget avoided a worst-case scenario for startups.

😬 Zoe, one of Europe’s best-funded direct-to-consumer healthtechs, is making its second round of layoffs in six months as it restructures its teams, the company confirmed to Sifted.

• This latest round of layoffs, first reported by the Sun newspaper, will largely affect employees in the startup’s marketing team and its nutrition coaching team — which offers advice to users via the app, one source tells Sifted.
• UK-based Zoe confirmed to Sifted that it is “restructuring” its teams, but declined to comment on how many employees would be impacted by layoffs. It added that "information shared at this point is not fully accurate, as it is an ongoing and live process".

💰 Swedish-based AI startup Sana has raised $55m in a round led by US-giant NEA, reaching a valuation of $500m. Menlo Ventures and other investors also participated in the round. 

• Founded in 2016, the company has raised a total of $130m. Sana develops enterprise software it calls a “knowledge assistant”, which indexes company information, making it searchable and accessible to employees through AI.

💼 An entity linked to CogX, one of the UK’s leading tech events, has been hit by a winding up petition — a mechanism used by creditors to force an entity into liquidation if they are unable to pay debts they’re owed. 

• The entity, CognitionX Ltd, is one of a number used by the company. After Covid hit the business, the entity was previously put into a Company Voluntary Arrangement (CVA), which planned repayments over an agreed period.  
• “Despite making every effort, CognitionX has unfortunately not been able to achieve the targeted licence revenues, and as a result, the supervisor had no choice but to petition to wind up the business,” a CogX spokesperson told Sifted, adding that there’s a “small chance” the situation changes before a hearing. 
• The spokesperson added that they do not expect the petition to affect CogX’s business or fundraising plans. “These plans are progressing well,” the spokesperson said.
• CogX Ltd, another entity linked to the event, was also issued a winding up petition earlier this month.

Latvia’s moment in the sun 

It’s rare for a Latvian startup to top a ranking — a tech minnow, the country does not threaten many league tables. But Riga-based Jeff App, a company that builds alternative credit scores for “underbanked” people in emerging economies, has beaten the odds by placing first on our new leaderboard, which ranks the 30 fastest-growing startups in eastern Europe and the Baltics by revenue growth. 

Jeff’s been on a journey. 

“We went out fundraising in 2022 and it took us two years to close,” says Jeff's cofounder Toms Niparts, adding that negotiations with some VCs were drawn-out, and it wasn't all pleasant. "One tried to strong-arm us," he adds. The company finally closed a $2m round in July this year, led by Prague's Presto Ventures.

Hard-fought battles are common in this part of Europe, where VC attention is generally harder to secure. An exception might be Estonia, which punches way above its weight in Europe — and dominates our leaderboard with 14 companies. Much ink has been spilled over the nation’s success; there have also been plenty of wistful glances its way and perhaps even some hair-pulling over how to replicate its success elsewhere. 

At its core, the Estonia story — which most agree started with internet call company Skype — is about how a bunch of successful people with easy access to each other leads to more successful outcomes, says Taavi Tuisk, cofounder of the third-placed startup on our ranking, Tallinn-based Ringy, a marketplace for refurbished electronics (a niche that’s doing very well in Europe). “You can get advice from anyone,” he says. “They’ve made all the mistakes already and can tell you how to avoid them.”

Something a lot harder to avoid in the Baltics, and painful to discuss, is the rising Russian threat. Few European countries since World War II have experienced the level of devastation seen in Ukraine over the past two years. “You can feel the geopolitical threat,” says Lukas Kaminskis, CEO of the leaderboard’s second fastest-growing startup, Vilnius-based Turing College, which offers online courses in data analytics and web development. The 27-year-old founder says the war has directly shaped his business. “Personally, it pushed us to diversify revenues and scale faster outside our home market.” 

Mostly he’s staying calm — “you get used to a new reality, you cannot live in distress all the time” — and he feels very confident about Lithuania’s future. “Estonia had this really huge sprint but we’re doing even better now in terms of growth,” Kaminskis says. He’s excited by the recent €340m share sale by secondhand marketplace and Lithuania tech jewel Vinted, a deal that will allow some of the company’s employees and early investors to cash out some of their shares. 

Could it set off the prayed-for Skype effect in Lithuania? “It’s potentially a big cash boost,” Kaminskis says. 

For lots more tales of founders and investors in Europe’s east, read our new report — and check out the leaderboard. 

— Éanna Kelly, contributing editor

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Barcelona, Spain-based BusUp, a corporate transportation service provider that uses tech to optimise route-planning, raised €13m in funding from investors including Finaves, Sabadell VC and Liil Ventures, Proeza Ventures, Autotec and Finaccess.

London-based iGent AI, which uses in-context learning and interference-time reasoning to solve engineering problems, raised £6.3m in seed funding. HV Capital led the round and was joined by investors including XTX Ventures, TwinPath, 10x Founders and Dhyan.

Lille, France-based Vaxinano, which develops prophylactic and therapeutic nasal vaccines, raised €6m in funding. TCD Capital led the round and was joined by investors including  Captech Santé, Nord France Amorçage (NFA), Wiseed and Bpifrance.

Eindhoven, Netherlands-based Antennex, which specialises in antenna measurement solutions, raised €1.5m in seed funding from Value Creation Capital and Brabantse Ontwikkelings Maatschappij.

Turin, Italy-based Tau Group, which produces sustainable solvent-free magnet wires for the electrification of transport, raised €1.5m in funding from MITO Tech Ventures.

Antwerp, Belgium-based Wobby, which uses AI tools to make data access and insights easier for knowledge workers, raised €1.1m in seed funding from investors including Shaping Impact Group, V-Ventures and Imec.istart.

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