N26 Group

Sifted Take

Raisin

Pitch

Inkitt

Comtravo

Coachhub

INFARM

GetYourGuide

AUTO1 Group

Omio

Blinkist

SellerX

Planetly

Gorillas

Urban Sports Club

Sennder 

Flink

Plantix

Back

Choco

Bryter

Forto

Sharpist

Vivid Money

Penta

Moonfare

Grover

Billie

MEDWING

Startups such as GetYourGuide, N26 and Raisin are at the forefront of the continent’s new economy.

So far this year Berlin startups have raised a record €5.1bn from VC funds, more than the €2.2bn in all of 2020. 

But which are the most exciting startups and scaleups? Which are the ones to watch in 2021?

Our team of experts at Sifted have chosen a list of exciting companies we think you need to know about, with an added ‘Sifted take’ on some to provide an extra layer of insight.

It’s a mixture of the big and the small, the well known and the under the radar. But all are making waves. Keep reading below and stay informed about Europe’s new economy!

(P.S The data is from [European Startups](https://europeanstartups.co/), with valuation estimates from [Dealroom](https://app.dealroom.co/). If there is anyone missing from this list, or anything is wrong, please let us know by email at [rankings@sifted.eu](mailto:rankings@sifted.eu)).

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The Berlin startups startups and scaleups to watch in 2021

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When we started Lago, my cofounder and I built the product we’d have loved to use ourselves. This is often the path recommended to founders — including by Y Combinator where we got a coveted spot last summer. 

But after hundreds of user feedback calls and product iterations — and even getting our first paying customers — we came to a realisation. We had built the data tool we had wanted years earlier as a growth team at fintech unicorn Qonto. But there weren’t a lot of growth teams out there looking for a tool as technical and data-driven as the one we had wanted. 

It was time to pivot. 
<h3>Where is the support in Europe for pivots?</h3>
Throughout the six weeks it took to choose a new idea and the three weeks it took to reship a product, we unfortunately found very little support in the European ecosystem. It seems in Europe the passion for unicorns is just as real as the stigma attached to pivoting.

This needs to stop. Given all the companies that raised “because they could” without a product, and even less, product-market fit, we need to be prepared for a wave of pivots. And that’s fine; that’s been the typical early-stage path in the US. 
<blockquote class="twitter-tweet">
A lot of venture-backed companies should pivot. Founders keep raising because they can, but they don't have PMF. It's going to end poorly. It's insanely hard to pivot. It takes setting aside your ego. It takes a top 1% founder. Notably, some of the best cos came from pivots.
— Julia Lipton (@JuliaLipton) <a href="https://twitter.com/JuliaLipton/status/1519360377091465219?ref_src=twsrc%5Etfw">April 27, 2022</a></blockquote>
<script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>

If we continue stigmatising pivots, and not supporting founding teams during this delicate phase, that can only lead to two outcomes: either these teams stick to the initial idea until the money runs out, or they decide to shut down prematurely. This is also likely to burn out a generation of founders, who could be brilliant repeat entrepreneurs afterwards. 

This is why we want to share our own experiences of what worked and what we would have done differently a second time. 
<h3>Managing our own energy… and sanity</h3>
Pivoting hits the team’s morale, and unsurprisingly the founders have to carry an extra mental load. The general sentiment of having disappointed everyone — from the team to the investors and the clients who trusted us early on — adds to the immense pressure to find a new direction fast. 

But you can’t force finding a new idea. Why? Because pivoting requires recommitting two precious resources: the team’s energy and runway. Another setback can fatally damage both. 

My cofounder and I threw ourselves into evaluating dozens of ideas. We packed our diary with user interviews and crunched a ridiculously vast amount of market research until 3am for a few weeks. But we were soon so mentally exhausted that we couldn’t get excited about any idea. It was like swiping too many Tinder profiles and becoming sick of dating. 

We got our inspiration back by going to the countryside and switching off for a few hours. We hadn’t wanted to disconnect before because we (counterproductively) thought we didn’t deserve to take a break. But the change of scenery was exactly the reset we needed to continue.  

The idea we ended up selecting (Lago is an open-source Stripe billing alternative) ticked all the boxes we had defined as criteria for choosing a new business model, and even one we added in the process: resilience to market downturns. As we honed our selection framework, we also ruled out ideas that were too exposed to interest rate risks (anything linked to credit, for example), to a trend (like Web3 applications) and/or an undifferentiated market where high acquisition costs required lots of capital (10-min delivery businesses).

If we had to do it again, there are a few things we would do differently:
<ul>
 	<li style="font-weight: 400;" aria-level="1">We would change our negative perspective on “pivots”. Pre-seed companies are funded to conduct R&amp;D, iterate and hopefully find something people really want. As Y Combinator partner Dalton Caldwell says, a pivot “<a href="https://www.ycombinator.com/library/6p-all-about-pivoting" target="_blank" rel="noopener">just means changing your idea</a>”. It’s actually less of a big deal than it seems in the moment. </li>
 	<li style="font-weight: 400;" aria-level="1">We wouldn't force an idea so hard. There are some purely rational reasons to consider when committing to a new idea: market size, momentum, if the team has an edge in that sector, resilience to downturns. But it’s more art than science. You need to make sure that as founders, you’ll be excited to wake up and work on this idea for the next five years, no matter what hardships entrepreneurship throws at you. Your own motivation is what makes or breaks a company. </li>
</ul>
👉 Read:<a href="https://sifted.eu/articles/improvise-adapt-pivot-product-market-fit/"> Five tips for finding product-market fit</a>
<h3>Managing the team</h3>
When we decided to “change the idea”, we had four employees. My cofounder and I very optimistically thought we’d come to a consensus on a new direction in a few days “behind the scenes". Try more like six weeks! 

So thinking we could change tack without the team knowing was silly. Therefore we communicated in a very open and transparent way to the team, which helped relieve the pressure on our shoulders and build trust. We followed these key messages: 
<ul>
 	<li style="font-weight: 400;" aria-level="1">We are changing the idea, and that’s ok. We’d rather do it now because we’ve lost conviction in our original idea and because we have sufficient runway to rebuild something else. </li>
 	<li style="font-weight: 400;" aria-level="1">We won’t have anything to ship or build until we decide on the idea. </li>
 	<li style="font-weight: 400;" aria-level="1">You have two options:
1. Look for another job. In that case, we’ll do everything in our power (intros, recommendations) to make sure you secure your ideal position in no time.
2. Stick with us, look for the next idea and build it with us.</li>
</ul>
The whole team chose option two, and we’re forever grateful for this. 

If we had to do it again, we would be more realistic about how much time it takes to change the idea and communicate that to the team straight away.  
<h3>Managing our investors</h3>
We updated the VCs who invested in Lago individually, quite early in the process. Luckily for us, they are US-based and quite used to early-stage companies changing direction. Their reactions were very encouraging; for some, pivoting was a sign we were growing and learning as a team. 

We decided to update our angel investors when we had more clarity, but at some point the news of our pivot leaked into the ecosystem. We received countless messages of support and relevant intros, however a handful of reactions were quite different in Europe than in the US. 

👉 Read: <a href="https://sifted.eu/articles/handle-pivot-business-advice/">How to handle a pivot</a>

As I alluded to at the beginning of this piece, some of the European reactions showed us that pivoting in this region is still seen as a definitive failure rather than a step in the journey. Clear answers and proof that we would “nail it this time” were expected immediately. 

These reactions added a lot of extra stress. We tried to stay calm and offered to give the money back in these situations. No angel ended up taking the offer, but our message was clear: as an early-stage company we’re iterating. If you’re not on board, we’re happy to part ways with no hard feelings. 

If we had to do it again, we would communicate more proactively to angels and aim at educating those who have not built a company themselves or seen early-stage iterations before. VCs and angels are two different segments that deserve different messaging. 
<h3>What’s next for pivoting founders?</h3>
Our network in the US made the whole process easier. We had access to role model teams that had pivoted early on — Amplitude, Segment, Brex, Hugging Face, PostHog, and Airbnb, to name a few. We had access to VCs and angels who had seen companies through hard pivots to IPOs. And we had peer founders around us also considering a pivot. 

This supportive community made the difference — the phrase “pivot hell” exists for a reason. 

Pivots are part of a natural and healthy startup ecosystem. And if European tech wants to survive the slowdown that has already begun, it will require more teams to pivot. And more understanding investors. 

It is said that the greatest companies are built during downturns, by agile and resilient teams. Can Europe afford to miss out on the next Segment, Amplitude or Airbnb by treating pivots as taboo?


<a href="https://www.linkedin.com/in/anhthochuong/">Anh-Tho Chuong Degroote </a>is CEO of <a href="http://www.getlago.com/">Lago</a>.

Startup Life

Whole of Europe

Europe needs to catch up on pivot culture

Iberia used to have something of <a href="https://sifted.eu/articles/demium-spain-belarus/">a reputation</a> for being a sleepy backwater when it comes to deeptech innovation. Countries like Spain have been criticised for being friendlier markets for <a href="https://sifted.eu/articles/spain-startups-shame-or-gain/">copycat ecommerce ideas</a> than truly cutting-edge innovation — but that’s all starting to change.

Spain is now producing <a href="https://sifted.eu/articles/quantum-banking/">world-leading quantum computing startups</a>, while Portugal boasts AI unicorns like Unbabel, as well as rising stars like <a href="https://sifted.eu/articles/sensei-autonomous-stores/">automated retail startup Sensei</a>.

<a href="https://sifted.eu/articles/startup-european-innovation-agenda/">A recent European Commission plan</a> also outlined a roadmap to create “deeptech valleys” all over the continent, as well as new training programmes to prepare Europe’s next generation of deeptech talent.

In this piece, we asked four top deeptech investors in the region to pick some of the most exciting companies they’re seeing in fields like AI, AR, photonics, cybersecurity and big data. There was just one rule: they could only pick one portfolio company!

Here’s who they chose to spotlight.
<h3>Rocío Pillado, partner — Adara Ventures<img class="aligncenter wp-image-70156 size-large" src="https://sifted.eu/app/uploads/2022/07/Screenshot-2022-07-01-at-15.36.24-1024x633.png" alt="Rocío Pillado, partner — Adara Ventures" width="1024" height="633" /></h3>
Adara Ventures was founded in Madrid in 2005 and invests in early-stage B2B companies working in fields including cybersecurity, big data, and digital health. The firm's portfolio companies include cybersecurity provider AlienVault, consumer intelligence AI platform Seedtag and AI optimisation startup Apres.
<h4>KIT-AR — Lisbon, Portugal</h4>
KIT-AR is an end-to-end solution that uses augmented reality (AR) to improve the performance of manufacturing workers. Paired with an AR headset, the tech gives workers “computer vision” of components, enabling them to implement quality assurance checks with greater reliability and less training.
<h4>Spotlab — Madrid, Spain</h4>
Microscope analysis remains a highly manual, very challenging and non-standardised skill, done with the naked eye. Spotlab turns any smartphone into a microscope analysis tool, using an AI model to reduce interpretation errors and help professionals make data-driven decisions. 
<h4>Nearby Computing — Barcelona, Spain</h4>
The number of Internet of Things (IoT) devices is increasing exponentially, with 43bn devices expected to be deployed by 2023 (three times the number in 2018). This paradigm shift will require a shift from “cloud computing” to “edge computing” (<a href="https://www.techtarget.com/searchdatacenter/definition/edge-computing">where data is processed</a> closer to the data source rather than in a central cloud server). Nearby Computing’s product allows clients working with complex networks of devices to build edge computing architecture that is flexible and easily manageable.
<h4>One from the portfolio: Iomed — Barcelona, Spain </h4>
Up to 80% of the information in a hospital is unstructured and cannot be used for medical research purposes. Thus, clinicians spend thousands of hours manually structuring data to perform studies at scale. This results in narrow data samples, very long time lapses and a highly inefficient process. Iomed’s neurolingusitic programming models structure medical text automatically, building a data infrastructure that allows multiple “microservices” to perform medical research, in a fully GDPR-compliant process.
<h3>Miguel Arias, partner — K Fund</h3>
[caption id="attachment_70155" align="aligncenter" width="1024"]<img class="wp-image-70155 size-large" src="https://sifted.eu/app/uploads/2022/07/Screenshot-2022-07-01-at-15.34.12-1024x713.png" alt="Miguel Arias, partner — K Fund" width="1024" height="713" /> Miguel Arias, front left[/caption]

Madrid-based K Fund is one of Spain’s <a href="https://sifted.eu/articles/top-early-stage-investors-spain/">top ranked early-stage investors</a>, and recently launched a new deeptech-focused fund, <a href="https://sifted.eu/articles/k-fund-leadwind-deeptech-vc/">Leadwind.</a> It’s still early days for Leadwind, but K Fund has invested in deeptech companies like AI insurance platform Bdeo, no-code data analytics startup Graphext and visual data processing platform Wide Eyes.
<h4>Ipronics — Valencia, Spain</h4>
Ipronics has a great tech team, spun out from the Polytechnic University in Valencia, with many patents around programmable photonics (optical computer processing using light particles). The company’s processor cuts down the development time for building programmable photonic systems.
<h4>Tinybird — Madrid, Spain</h4>
Today, real-time data analytics is a must for many companies, given the vast amount of information that is constantly being collected across many verticals. Tinybird turns raw data into real time insights, helping companies build data products and APIs quickly. The company raised the biggest Series A in Spain to date, a $37m round led by CRV and Singular Ventures.
<h4>Voicemod — Valencia, Spain</h4>
Sonic identity will become a very important part of how we express ourselves in the metaverse. This startup from Valencia has millions of monthly users that use Voicemod to alter their voice, in contexts like gaming, via the company’s AI technology.
<h4>Freeverse — Barcelona, Spain</h4>
A startup from Barcelona, building infrastructure for live NFTs which evolve as their owners use them. They just raised a Series A of €10m. 
<h3>Patricia Pastor, managing director — GoHub Ventures<img class="aligncenter wp-image-70153 size-large" src="https://sifted.eu/app/uploads/2022/07/Screenshot-2022-07-01-at-15.33.08-1024x618.png" alt="Patricia Pastor, managing director — GoHub Ventures" width="1024" height="618" /></h3>
GoHub Ventures is the corporate venture capital arm of water firm Global Omnium, based in Valencia. The firm has invested in companies including robotics startup Inloc Robotics, AI component maintenance platform Fracttal, and IoT cybersecurity startup Barbara IoT.
<h4>Quibim — Valencia, Spain </h4>
Quibim applies artificial intelligence and advanced computational models to radiology images. The tech allows health professionals to objectively measure changes produced by lesions or pharmacological treatments, offering additional quantitative information to the qualitative approach of human-led radiology. 

Radiology has traditionally depended on trained physicians visually assessing medical images for the detection, characterisation and monitoring of diseases. Quibim is disrupting the space with an AI-driven image processing model that cuts down on the man hours needed to analyse radiology images.
<h4>Union Avatars — Barcelona, Spain</h4>
This Barcelona-based startup is developing identity tools for the metaverse through photorealistic avatars. They work with cutting-edge technologies such as computer vision, machine learning and blockchain to deliver a product that will have real use in the coming immersive future.  We think they are creating a passport to the metaverse, a user-centric world where everything will revolve around the user’s identity.
<h4 style="font-weight: 400;">QueryLayer — Valencia, Spain</h4>
A no-code "privacyops" platform that allows legal, security, and engineering teams to work together to meet data compliance and security needs within a single platform. The product is plug &amp; play, automated and scalable for its users.

<h4>One from the portfolio: Galgus — Seville, Spain </h4>
Galgus is disrupting the connectivity sector with a solution that allows users to both manage and create high-performance wifi networks. The technology can be used by clients like airlines and football stadiums, to create customer-friendly and cyber-secure wifi networks. 
<h3>Pedro Ribeiro Santos, partner — Armilar Venture Partners<img class="aligncenter wp-image-70154 size-large" src="https://sifted.eu/app/uploads/2022/07/Screenshot-2022-07-01-at-15.33.37-1024x669.png" alt="Pedro Ribeiro Santos, partner — Armilar Venture Partners" width="1024" height="669" /></h3>
Armilar Venture Partners is headquartered in Lisbon and focuses on deeptech investments with a “global mindset”. The fund’s investments include machine learning payment fraud prevention platform Feedzai, no-code unicorn <a href="https://sifted.eu/articles/outsystems-raise/">Outsystems</a> and digital avatar startup Didimo.
<h4>Smartex — Porto, Portugal</h4>
Smartex is a Portuguese startup, led by Gilberto Loureiro, helping the textile industry reduce waste and save costs. It does this by transforming the fundamentally manual task of quality inspection into a real-time, AI-powered process that enables operators to quickly identify and fix production defects. They have been experiencing an impressive growth trajectory and recently won WebSummit’s startup competition.
<h4>Stratio Automotive — Lisbon, Portugal</h4>
Commercial fleet operators have long been looking for technologies to optimise their operations and maintenance costs, with a particular emphasis on failure prediction and downtime mitigation. But with today’s highly diversified fleets, with so many in-vehicle components with different data access protocols, this is by no means an easy task. 

Stratio, a Portuguese startup, took up that challenge by spending several years doing R&amp;D on how to read low-level vehicle data and how to use it to build AI models to predict failures. Now, they have converted that technology into one of the leading predictive fleet maintenance platforms.
<h4>Freeverse — Barcelona, Spain</h4>
Last year, NFT sales increased by over 200x and reached $17bn in market value. Despite user demand, NFTs still have limited utility — being mostly collectibles — as they are immutable after being minted on the blockchain. Freeverse developed a Layer 2 technology that enables NFTs to scale and evolve according to creator rules — a game-changing infrastructure-level technology which opens up many potential uses for NFTs with real utility and proper economic value, rather than speculative value.
<h3>One from the portfolio: Didimo — Porto, Portugal</h3>
Didimo has developed a technology stack to automate the creation of photo-realistic and fully animatable human avatars in just seconds from a photo taken with any handheld device. Traditional processes use a sequence of piecemeal technology, several hours of computer graphics artists and computational processing (or they produce cartoonish avatars). Its technology opens up new models of interaction with applications in verticals such as entertainment, gaming and retail, and brings digital humans into the metaverse at scale.

Tim Smith is Sifted’s Iberia correspondent. He tweets from <a href="https://twitter.com/timmpsmith">@timmpsmith</a>

Deeptech

Tech

Technology

14 deeptech startups to watch in Spain and Portugal, according to investors

Millionaire entrepreneur brothers Fabian and Ferry Heilemann have been through something of a green awakening. 

“A few years ago, we had this realisation that we’re really in trouble, and the tech ecosystem has not understood it yet,” says Fabian. 

They began with non-profit investments and then pivoted their family office, now called Pirate Impact, to focus solely on impact investing.

And today, they’re announcing that Pirate Impact is evolving into an evergreen impact tech fund with €100m to invest in companies solving the climate crisis and advancing social equality. By 2026, they’re aiming to bring that fund size up to €500m.

It’s far from the only impact or <a href="https://sifted.eu/articles/ranked-climate-tech-investors/">climate tech fund</a> out there — and it’s certainly not the biggest, yet — but its evergreen structure sets it apart. It means the fund can support climate bets all the way from seed to IPO and beyond, which is especially important given that many climate innovations will likely take years if not decades to fully develop and deploy. 

“That’s our USP — if your company is developing well, we’ll be with you for 15, 20 years,” says Fabian. Most standard funds will have to return money to their investors, the LPs, earlier than that.

The brothers have built several businesses between them; most recently Ferry was cofounder and CEO of Berlin-based logistics unicorn Forto, while Fabian was a partner at German VC Earlybird. 
<h3>Cheque sizes and areas of interest </h3>
The fund will be called AENU, because, Sifted’s told, it wants to usher in “a new era of impact venture capital”. It will invest at all stages, with first cheques ranging from €500k to €5m in startups based in the EU and the US. It will aim to do eight-ten new investments a year.

The team are particularly interested in five broad areas:
<ul>
 	<li style="font-weight: 400;" aria-level="1">Energy (energy production, storage, distribution);</li>
 	<li style="font-weight: 400;" aria-level="1">Carbon removal (carbon capture, carbon sequestration, carbon recycling);</li>
 	<li style="font-weight: 400;" aria-level="1">Food (alternative proteins, fermentation, plant-based and cell-based food);</li>
 	<li style="font-weight: 400;" aria-level="1">Enterprise (enabling software like carbon accounting; mobility; materials);</li>
 	<li style="font-weight: 400;" aria-level="1">Education and empowerment.</li>
</ul>
In Europe, the portfolio already includes vertical farming startup Infarm and <a href="https://sifted.eu/articles/labster-edtech-raise/">Danish VR education startup Labster</a>. 
<blockquote>“That’s our USP — if your company is developing well, we’ll be with you for 15, 20 years”</blockquote>
The team are looking for technologies that have the potential to avoid or remove 100m metric tonnes of CO2 emissions, at scale, or significantly improve the quality of life of millions of people. 

At the moment, alt protein startups are top priority for Melina Sánchez, principal and VP of impact, as they are the “biggest lever to reduce emissions in the food sector”. She wants to see “companies that can really make meat lovers fall in love with alternatives — we want to increase the number of flexitarians out there”. 

Heilemann is keen on seeing more alternative biofuels for trucking, shipping and aviation and cost-competitive carbon removal technology.
<h3>Environmental assessments</h3>
They’re also tracking the impact the portfolio has on increasing biodiversity and improving water usage.

They’ll assess that, says Sánchez, via sector research, and projections based on a startup’s operational data. Sometimes the team will also use lifecycle assessments, either proxies or those carried out by startups — although they’re not so applicable to software businesses.

Some startups that might seem pretty "green" to others won’t fit the AENU thesis. “We’ll exclude any startups in the animal value chain,” says Sánchez; for example businesses that help reduce the methane produced by dairy cows.

Other startups that AENU is unlikely to back include micromobility operators. “That’s one area that’s very hot from an investment perspective, in climate, where the impact is not as high as some other areas which remain underinvested in,” she adds. 
<h3>The evergreen structure </h3>
So far, AENU’s funds have been raised from (an especially wealthy set of) “family and friends”, including Tier founder Lawrence Leuschner, Skype founder Niklas Zennström and several German family offices. The Heilemann brothers have also committed a “substantial part of their net worth” to the fund. In autumn, the team plans to approach institutional investors to raise more capital, and hold two to four closings per year from then onwards. 

“The proof’s still out,” says Fabian, on whether they’ll like the evergreen model — although he says he’s spoken to partners at some of Europe’s largest funds and at some of the more “sophisticated” family offices about the plan and they haven’t laughed him off.
<blockquote>“We want to drive systemic change, turn this into a large operation and make a meaningful contribution"</blockquote>
“The evergreen structure brings a lot of benefits to LPs of a fund — just look at Sequoia’s move [the US VC switched to an evergreen fund structure last year]. There’s a lot of value still to be captured in the three, five, eight years post-IPO.” 

He doesn’t expect the VC scene to switch to properly paying attention to the triple bottom line overnight, but he’s confident it will happen. “Somebody has to take the first step.”
<h3>The team </h3>
The Heilemann brothers have hired two others to the investment team so far: Sánchez and Siobhan Brewster, another partner, who was formerly a partner at fellow Berlin-based firm Amplifier. They expect to add two more partners by the end of the year.

They’re also building out a network of scientific experts to advise the portfolio — especially the 20-30% of their investments that tick the deeptech box. They’re big brains in themes like wind energy, solar and energy storage, and include names like Professor Dr Ottmar Edenhofer, the director of the Potsdam Institute for Climate Impact Research, and Dr Beate Heraeus, an economist. Advisers aren’t paid and don’t get carry; instead they get access to AENU’s network and the chance to angel invest alongside the fund. 

And Sánchez is growing the impact team. AENU is currently hiring an impact associate to carry out in-house lifecycle analysis, and they’ll likely be joined by another researcher by the end of the year.

“We want to drive systemic change, turn this into a large operation and make a meaningful contribution here,” says Fabian. Now he just needs to see if the institutional investors bite.

Amy Lewin is Sifted’s editor and cohost of <a href="https://podcast.sifted.eu/">The Sifted Podcast</a>. She tweets from <a href="https://twitter.com/amyrlewin">@amyrlewin</a>

Sustainability

Germany

Northern Europe

Climate Tech

Venture Capital

New €100m evergreen climate tech fund AENU launches

Revenue-based financing providers, which offer ecommerce and SaaS startups an alternative to VC funding, have been all the rage in the past few years. 

18 <a href="https://sifted.eu/articles/revenue-based-financing-europe-competitors/">RBF providers</a> have emerged in Europe since 2017 and they raised a record $671m from VCs in last year alone.


But lending to startups is about to get a whole lot riskier. RBF providers are exposed to interest rate fluctuations and rely on their clients seeing strong revenues; when their lending portfolio suffers, they do too. 

Tough times are already biting. Layoffs have started within the sector, smaller players have stopped lending altogether and larger RBF companies tell Sifted they’re on the prowl for <a href="https://sifted.eu/articles/tech-startup-acquisitions-europe/">acquisitions</a> as valuations drop.

“When we’re at the peak of the credit cycle, it’s easier to get credit and proliferate more esoteric forms of financing and do funkier and funkier types of lending,” Alastair Brown, CEO of Shard Capital Partners, tells Sifted.

“But when the tide goes out and recession hits, we’re going to have a lot of these lenders swimming without trunks. We’ll see a few lending portfolios where we’re thinking, how on earth were they able to build a portfolio with a default rate of this much?”
<h3>Is revenue-based financing a risky business?</h3>
Offering companies an upfront loan to be repaid as a percentage of future revenues per month — the business model of revenue-based financing — worked pretty well in the good times of 2020, when the SaaS startup market was<a href="https://www.paddle.com/offers/outliers-state-of-saas-growth"> worth $145bn</a> and annual revenue increased by an average of 78%.

But it’s a riskier business than traditional secured loans, which are backed up by assets as collateral if the debtor can’t pay the loan back. RBF providers have no such collateral if clients default. 
<blockquote>“When we’re at the peak of the credit cycle, it’s easier to get credit and do funkier and funkier types of lending”</blockquote>
“Unsecured credit is typically the one that’s in trouble when you have a crisis coming because you don’t have anything to back it up,” says Altin Kadareja, CEO at private debt platform Cardo AI. 

“Suddenly your clients’ revenues aren’t ensured any more, and you have no guarantee they can pay you back.” 
<h3>Managing the risk</h3>
Last week, London-listed VC firm Forward Partners published its <a href="https://www.londonstockexchange.com/news-article/FWD/final-results/15518511">2021 annual results</a> — including those of its RBF arm, Forward Advances. 

Forward Advances' total write-offs reached 8.4% of its 2021 cohort of loans, largely driven by defaults on three unnamed accounts. It attributed this level of write-offs to its rapid expansion and said it had “put mitigations in place to reduce write-off risk going forward” — including strengthening its tech, using new data sources and introducing additional governance measures. 

👉 Read:<a href="https://sifted.eu/articles/revenue-based-financing-europe-competitors/"> Revenue-based financing in Europe: The competitors, compared</a>

Although most of the RBF providers Sifted speaks to say they’re not yet seeing defaults rise above forecasts, many say they’re “monitoring the situation closely” as the macroeconomic situation changes.


Clearco, which began providing loans in 2017, tells Sifted that its default rates are actually beginning to decrease — and that having more historical data on companies and the market makes it easier to figure out which clients are worth underwriting. 
<h3>Time to rethink</h3>
Still, even Canadian-HQ’d Clearco, which is the best-funded RBF startup active in Europe, has been affected by the market downturn. In June it <a href="https://sifted.eu/articles/startup-tech-company-layoffs/">laid off 10%</a> of staff at its European hub in Dublin, just two months after it announced 125 new roles there.

Meanwhile Uncapped, <a href="https://sifted.eu/articles/revenue-based-financing-europe-competitors/">one of the best-funded</a> European-based players in the market, made <a href="https://sifted.eu/articles/startup-tech-company-layoffs/">26% of its team redundant</a> in May.

One fintech investor tells Sifted that they’ve been put off the RBF model because companies that turn to this type of financing do so “due to a lack of alternatives, so there’s a lot of adverse selection that will become quite unstuck with a recession”.

“Layered onto that, higher interest rates are going to make the model much harder to extract value from the players,” the investor says, pointing to the fact that liabilities will increase.“Their balance sheets will get much more expensive to maintain.”

Other RBF providers are having issues raising enough to provide loans. Investors tell Sifted that a couple of smaller players have already stopped lending altogether as they struggle to raise capital. Those that have managed to raise more recently are looking to acquire smaller, less valuable rivals. 

Outfund acquired Spain’s Clicfunds last year to enter the Spanish market, and Levenue acquired Amsterdam’s Requr in January. Last month, Outfund’s founder <a href="https://sifted.eu/articles/outfund-20m-revenue-based-finance/">told Sifted</a> that it was acquiring a smaller German competitor.
<h3>Portfolio diversification</h3>
RBF startups loan to businesses which have recurring revenue, which generally means ecommerce or software-as-a-service (SaaS) companies. With consumer spending dropping sharply and startups making cuts, having a narrow portfolio focus could be dangerous.

“Retail and SMEs are closest to where the economic crisis will hit, so we could see some of these companies dislocate their sector strategy towards other sectors,” says Kadareja.

But so far, founders tell Sifted they’re sticking to their guns.


Some RBF providers, like Wayflyer, Clearco, Uncapped, Outfund and ViceVersa, have a lending portfolio predominantly made up of ecommerce companies and, within that, SME retail.

<blockquote>“The more you diversify your client base, the better”</blockquote>
Others, like Silvr, Karmen, re:cap, Capchase and Vitt, either have a half SaaS or predominantly SaaS lending portfolio.

Silvr, which raised a $20.6m Series A in February, has already split its risk across both categories. 80% of the funding it deploys is split equally between ecommerce and SaaS companies, while the remaining 20% goes to mobile applications. 

“The more you diversify your client base, the better,” cofounder and CEO Nima Karimi tells Sifted. 

Most of Europe’s RBF providers’ loans are designed to be paid off within 12 months, so they're able to shift their portfolio quite quickly.

“If you’ve underwritten the loans correctly and you realise that in the future, a certain kind of company is going to be less profitable, you can simply run your book and get your money back, then choose what the next kind of business you lend to will be,” one investor tells Sifted. 

“But if you’ve got losses in your portfolio, that’s when it becomes a problem. People forget that lending businesses are naturally leveraged. One fuck-up has a tenfold — or even hundredfold — impact on you.”

<h3>Do revenue-based financing startups need to pivot?</h3>
Revenue-based financing startups may also choose to add adjacent services like inventory financing and data provision. 

Clearco began offering inventory financing at the end of 2020 and also has a kind of matchmaking service designed to make M&amp;A between its portfolio companies easier. 

Uncapped announced plans to move into business banking last May, and hired Revolut’s head of business banking to take it global. But those plans have been abandoned and the company tells Sifted it’s got some product announcements in the next quarter that will be “specifically designed to help online businesses through the economic uncertainty”.

Investors tell Sifted that the fact these companies’ loans are relatively short is what gives them confidence: once the 12 months are up, RBF providers with enough capital can be nimble and pivot to survive. This could mean the RBF market doesn’t do that much RBF-ing in a year’s time. 

“My view is negative on the underlying loans, but it’s not negative on the market as a whole,” says Kadareja.

“While smaller players might disappear altogether, the larger ones will find a way to navigate a changing market environment — that’s the good thing about them being fintechs and not banks.” 

Amy O’Brien is Sifted's fintech reporter. She tweets from<a href="https://twitter.com/Amy_EOBrien"> @Amy_EOBrien</a> and writes our fintech newsletter — <a href="https://sifted.eu/members/register?step=1">you can sign up here</a>.

Fintech

Funding

What would a recession mean for revenue-based financing startups?

Street Fleet, a Berlin-based rider platform owned by <a href="https://sifted.eu/articles/gorillas-funding-struggles-layoffs/">embattled </a>speedy grocery startup Gorillas, has told its 100+ riders that it's closing at the end of July, leaving many of them jobless. 

Riders tell Sifted that they're unsure whether they'll be paid all the money they're owed by Street Fleet. The platform — which provides riders to Gorillas and other Berlin-based delivery companies such as Delivery Hero — has been accused of failing to pay riders for up to three months, which led to protests in Berlin over the weekend. 

Gorillas says that it has offered to hire a “sizeable number of Street Fleet riders into its own crew” but has not specified how many. 

[caption id="attachment_70266" align="aligncenter" width="1024"]<img class="wp-image-70266 size-large" src="https://sifted.eu/app/uploads/2022/07/Photo-from-Miriam-1-1024x473.jpg" alt="A banner from a Street Fleet protest in Berlins that reads &quot;Pay us!! On Time!&quot;" width="1024" height="473" /> A banner from Saturday’s protest by Street Fleet riders[/caption]

The closing of Street Fleet is the latest sign that Gorillas, which shot to unicorn status within nine months of launching and has raised over $1.2bn from VCs, is struggling amid changing market conditions. 

Two weeks ago Handelsblatt <a href="https://www.handelsblatt.com/technik/it-internet/start-ups-in-der-krise-gorillas-suche-nach-neuen-geldgebern-stockt-verkauf-als-ausweg/28440684.html">reported</a> that Gorillas was struggling to raise fresh investment, and that the entry of a "strategic investor" or a sale to a competitor could be on the cards. Gorillas also recently lost two of its <a href="https://sifted.eu/articles/gorillas-hr-executives-layoffs/">most senior HR executives</a>, pulled out of Belgium and closed its main distribution centre in the Netherlands. 

Gorillas, which owns 100% of Street Fleet’s shares, according to documents seen by Sifted, says this is all part of a company refocus: “Following Gorillas’ recent change in strategic direction from operational activities to a focus on its five core markets and brand, combined with growing market uncertainty, Street Fleet has had to announce the folding of its operations.” 

The company didn't comment on its fundraising plans, but tells Sifted that it has a “healthy run rate”.
<h3>Missed wages</h3>
Street Fleet came under fire last week from riders, some of whom claimed they weren't paid for their work for up to three months. 

Riders at Street Fleet are employed on contracts guaranteeing them a set number of hours: some work full-time, some part-time and others have so-called mini-jobs, where the maximum monthly salary is €450 a month or the maximum workload is 70 days per calendar year. They are not “gig” workers.

In the case of the missing payments for May — which should have been paid out on June 15 — riders said they alerted Street Fleet to the problem immediately, but payments only started to be made to riders from June 29. 

Five days before that, Fleet Street employees were told via an email that the company had attempted to make another “payroll run” and had “successfully completed about half of the remaining payments” for the month of June alone. But, the email claimed, errors in personal data had prevented the rest of the payments from going through.
<blockquote>“I also haven’t received my bonus for over three months now — but I don’t even bother to chase it up anymore as I know that it has no impact”</blockquote>
The company added that it would issue “an advance payment of 60% of the missing salary” to those who hadn’t been paid. According to 10 riders Sifted spoke to, some were paid the 60%; others were paid nothing. 

Asked about the late payments, Gorillas tells Sifted: “Street Fleet's payroll was, until this incident (with wages this month), in the hands of a subcontractor, who made a serious error in the processing of Street Fleet's riders' wages.” Neither Gorillas nor Street Fleet would explain why it took up to three months in some cases for the problems with payments to be recorded, measured and acted on.

Complaints over delays in pay have been lodged against Gorillas in the past. Last June, when rider protests erupted in Berlin over poor working conditions, one of the <a href="https://sifted.eu/articles/rider-protests-gorillas/">key demands</a> was for pay to be fair and on time — but riders tell Sifted that problems with late or missing payments persist.

A rider, who prefers to remain anonymous, tells Sifted that she's in a WhatsApp group of 15 riders that was specifically set up to share information about how to address payment issues with Gorillas.

“Earlier on this year, during March and April, I was not paid my salary due to payroll issues — which was really hard considering I’d just moved to Berlin from South America,” she says. “I also haven’t received my bonus for over three months now — but I don’t even bother to chase it up anymore as I know that it has no impact.”

Gorillas says that it’s been improving its payment processes and that now only 1-3% of payments have discrepancies.
<h3>Unprofessional HR</h3>
The payroll problems aren’t the only HR issue that riders have encountered at Street Fleet. Seven riders tell Sifted that they still haven’t received payslips for the last two months — a legal requirement in Germany. 

Sifted understands that Street Fleet riders should be able to access their payslips through the ADP (Automatic Data Processing) payroll system used by the company. But four riders tell Sifted that they were still asking for access months after they began employment with the firm. 

As a result, while most riders have now been paid for the month of May, they're unsure whether they've been adequately compensated for the missed payments prior to that month — or, indeed, whether payment problems will follow. 

“I think [the salary is about right] but I don’t know. I don’t have access to the ADP portal so I won’t know until I’ve seen a payslip,” says Pearl, a rider from Asia who's been living in Berlin for more than a year. She does not want to give her real name for fear of repercussions from her employer.

“I am not sure whether they will pay us on July 15 for June. They have already paid so late for May with hundreds of excuses,” a rider, who did not want to give his name, says. “It’s been chaos in the last three months.” 

Health insurance is also an issue. Three riders who were employed full time at Street Fleet tell Sifted that they haven't been given health insurance since they started at the company. In Germany, employers are legally obliged to subsidise the health insurance of full-time employees. Individuals that don't have adequate cover can be fined up to 14 months of contributions at a maximum of <a href="https://www.krankenkassenzentrale.de/wiki/krankenversicherungspflicht?fbclid=IwAR0kddHOq-2IMDV6foKiGnTQ4ivff6E5lEAISmu27ZnaoONXKIHHUhLFoNY#">€639.38 per month</a>.

In an email seen by Sifted, where riders complained to Street Fleet about the lack of insurance cover, the company said that employees had not provided the correct information and paperwork needed to set up their health insurance with insurance providers. 

Street Fleet didn’t elaborate on what the possible issues could have been with employees' health insurance, but said: “We have done and continue to do everything necessary to comply with all legal requirements. This obviously includes application for mandatory insurance."
<h3>Street Fleet closing</h3>
Internal emails seen by Sifted state that Street Fleet is closing on July 31 — and riders are questioning whether they will receive all the money they are owed. 

“They’ve said they’re going to shut down at the end of July,” says John, a rider who moved to Berlin from southern Europe less than a year ago. “Even when the company is still active, it’s difficult to find someone to talk to. You send an email and then there’s a delay.”
<blockquote>"If they’re shutting on July 31, how is the August 15 payment going to be made?"</blockquote>
He adds: “We have two payments  — one for June and one for July — that are supposed to be paid the following month on the 15th. But if they’re shutting on July 31, how is the August 15 payment going to be made? We’re not able to get any information about this. And what happens if they don’t pay us then?”

Street Fleet tells Sifted that the closing of the company “is not connected with the payroll issues. All riders will get fully paid until their individual contract ends. We truly regret the situation for our riders and were very open and transparent with them.”

For three Street Fleet riders, the unpaid wages have left them approaching destitution, and they worry about finding new employment soon. A rider named Rose, who works for the company with her partner, says: “I asked [Street Fleet) to have at least a Gorillas coupon; they never answered me. With my boyfriend, we literally have €10 in our account, so we had to ask a friend for money to pay rent.”

Gurdeep, another rider, tells Sifted that his family sold their home in India for him to come to Germany for his education. His student visa is about to run out — and without one, he cannot apply for another job. 

“Once it expires, I cannot go out of the country, I cannot apply for other jobs. And now, I’ve been fired from this job,” he said.

“I have already paid my rent for next month. After that, I have no clue.”
<h3>A new rider platform</h3>
Two riders tell Sifted that when they applied for jobs directly with Gorillas earlier this year, they were told by email that Gorillas was not hiring in Berlin — but that another company was. The same email, sent to multiple people, reads: “However, a new player in the delivery scene called Street Fleet is currently hiring and offering an hourly salary of €12, flexible scheduling and a signing bonus of €200. Please apply through this link if you are interested in working with them.” The email was signed "Your Gorillas Rider Growth Crew".

Now that Street Fleet is closing, riders are being advised to apply for yet another platform. In an email to riders on June 30, Street Fleet recommended that riders apply to Quickzii Delivery, a "third-party logistics company based in Berlin" that is offering part-time jobs to riders.

The email reads: “This opportunity is with another independent employer, not Street Fleet, and is not a job guarantee. Street Fleet is not involved in the application process or selection of candidates. If selected, you will receive a new contract with the new employer.”

An employee from Street Fleet who prefers to remain anonymous tells Sifted that they don’t know too much about Quickzii — only that it's looking for riders. Street Fleet management forwarded the advert to its own riders to support them in finding a new job, they add.

[caption id="attachment_70267" align="alignnone" width="1024"]<img class="wp-image-70267 size-large" src="https://sifted.eu/app/uploads/2022/07/Protest-image-1024x473.jpg" alt="" width="1024" height="473" /> A banner from Saturday's protest[/caption]

According to government documents seen by Sifted, Quickzii was incorporated on April 28 by Delivery Hero. Its owner is a managing director at Delivery Hero, Parham Jabari, and it has no obvious connection to Street Fleet or Gorillas. 

Many riders of Street Fleet are sceptical about working with Quickzii. At a protest organised by 20 Street Fleet riders on July 2, the group waved a banner featuring a many-headed beast, with each neck emblazoned with the names of delivery companies. Its caption read: “Same shit, different name”.

Miriam Partington is Sifted’s Germany correspondent. She also covers future of work, coauthors<a href="https://sifted.eu/members/register"> Sifted’s Startup Life newsletter</a> and tweets from<a href="https://twitter.com/mparts_?lang=en"> @mparts_</a>

Pete Carvill is a Berlin-based <a href="http://www.petecarvill.com">reporter,</a> writer and editor. He tweets from<a href="https://twitter.com/pete_carvill"> @pete_carvill</a>

Startups

Gorillas-owned rider platform Street Fleet lays off 100+ riders and is set to shut down

Sales from ecommerce are still <a href="https://www.census.gov/library/stories/2022/04/ecommerce-sales-surged-during-pandemic.html" target="_blank" rel="noopener">surging</a> from the pandemic — but where there’s payments, there’s payment fraud. 

While payment fraud used to involve riskier crimes like stealing a physical card or breaking into physical premises, cybercriminals can now take your account details from a computer on the other side of the world. According to a report by cybersecurity firm Gemini, <a href="https://geminiadvisory.io/gemini-annual-report-2020/" target="_blank" rel="noopener">115m</a> stolen debit and credit card details were posted on the dark web in 2020 — and that’s not the only way people’s money is at risk. 
<div style="padding: 56.25% 0 0 0; position: relative;"><iframe style="position: absolute; top: 0; left: 0; width: 100%; height: 100%;" title="Who is most likely to fall for payment scams? | Sifted Studios x TrueLayer" src="https://player.vimeo.com/video/725992243?h=820ad1f8fa&amp;badge=0&amp;autopause=0&amp;player_id=0&amp;app_id=58479" frameborder="0" allowfullscreen="allowfullscreen"></iframe></div>
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New <a href="https://www.ukfinance.org.uk/system/files/2022-06/Annual%20Fraud%20Report%202022_0.pdf" target="_blank" rel="noopener">data</a> from UK Finance found there is “an epidemic of fraud” in the UK and unauthorised fraud losses across payments, remote banking and cheques totalled more than £730m in 2021.

But there are solutions, from tighter security measures to identify that customers are who they say they are to <a href="https://truelayer.com/openbanking/what-is-open-banking" target="_blank" rel="noopener">open banking,</a> a potential solution for several key types of payment fraud. 

What are the types of payment fraud, and what can be done to prevent it?
<h3>1. Card-not-present fraud is the most common type of card fraud</h3>
Some payment fraud uses stolen bank details, e.g. card details. The most common type of card fraud in the UK is card-not-present fraud where fraudsters purchase products or services online by using stolen card details.

https://public.flourish.studio/visualisation/10485748/

“By far the biggest problem in the UK with fraud is still unauthorised card transactions,” Jack Wilson, head of public policy at TrueLayer tells Sifted. “That’s the type of fraud that everyone will be familiar with when your details from your card get stolen or cloned or intercepted in some way and then those details are used to make payments online without your knowledge.” 

Although card-not-present fraud targets the consumer initially, the charges are often passed on to the merchant when the customer realises what has happened and requests a refund. In 2021, remote purchase fraud was valued at <a href="https://www.ukfinance.org.uk/system/files/2022-06/Annual%20Fraud%20Report%202022_0.pdf" target="_blank" rel="noopener">£412.5m</a> — and caused immeasurable stress for customers.
<blockquote>"By far the biggest problem in the UK with fraud is still unauthorised card transactions" </blockquote>
“Every time there’s an unauthorised transaction, the customer is being worried about that transaction and it’s causing them distress,” says Wilson. “Even if they can ultimately get a refund from their bank for an unauthorised transaction, it’s still something they have to deal with.”

As the cost of living bites, it couldn’t be more imperative that people are protected from their money being taken away. Regulators are looking at different ways that can be achieved. 

“It’s a big problem and it’s being tackled with a big solution,” says Wilson. “Regulators have introduced something called strong customer authentication (SCA), which means now that when you’re paying by card, you will often be asked to step up the security, by doing something like adding a one time password into a customer journey or using a fingerprint.”  

However, difficulties in the roll-out of these new rules have cost merchants <a href="https://home.barclaycard/press-releases/2022/04/retailers-losing-out-on-4-3-million-in-sales-each-day/" target="_blank" rel="noopener">£130m</a> since they came into effect, according to one major card issuer. Retailers have also <a href="https://www.eurocommerce.eu/media/196158/20210430%20Retail%20Joint%20Letter%20on%20measuring%20the%20impact%20of%20SCA%20April%202021%20-%20EBA.pdf" target="_blank" rel="noopener">reported</a> issues with UX and conversion. 

In addition to SCA, the card industry is trying to tackle fraud on cards through a suite of other measures. Whilst <a href="https://www.ukfinance.org.uk/system/files/2022-06/Annual%20Fraud%20Report%202022_0.pdf" target="_blank" rel="noopener">£966.6m</a> of fraud has been reported to be stopped by banks and card companies, losses on UK cards still totalled £524.5m in 2021.
<h3>2. One third of chargebacks are estimated to be fraudulent</h3>
Another type of fraud is confusingly called friendly fraud — or fake chargebacks — but it isn’t very friendly, it’s where fraudsters manipulate a system put in place for security. 

https://public.flourish.studio/visualisation/10485857/

“In card payments you have this extra protection when you use a card to buy something online, which is that you can complain to the merchant if you don’t like what you’ve got, if there’s something defective with your product or the service you’ve received,” says Wilson. “If the merchant doesn’t resolve that for you and you still think the merchant is in the wrong, then you can escalate that to your card issuing bank, which is what is called the chargeback.”  

A study by YouGov and TrueLayer found chargebacks cost merchants (with an average transaction value of over £500) an average of <a href="https://f.hubspotusercontent10.net/hubfs/3954168/%5BMarketing%5D%20Reports/Owned/Report%20-%20Change%20at%20the%20checkout%20-%20YouGov%20-%200621.pdf">£235k.</a> It’s estimated for each £1 taken by someone committing fraud, <a href="https://www.expertmarket.co.uk/merchant-accounts/chargeback-fraud-statistics" target="_blank" rel="noopener">merchants lose £1.70.</a> 

“The bottom line is the chargeback regime is really punitive for merchants, not just friendly fraud, where they’ve been charged when it’s not fair for them to be charged back,” says Wilson. “But a chargeback in itself comes with costs that the card issuer imposes on the merchant.” 
<h3>3. Account takeover fraud is increasing</h3>
Another kind of fraud is when fraudsters take over your account by using phishing techniques or bots to trick you into giving over your username and password before they change the details and lock you out. 

According to Experian, account takeover fraud has increased by <a href="https://www.experian.co.uk/business-products/account-takeover" target="_blank" rel="noopener">more than a third</a> over the past few years.  

More trickery includes authorised push payment fraud where people are tricked into making a bank transfer, often by someone posing as an existing supplier. 
<blockquote>"People have transferred their whole life savings into accounts that they think are for safekeeping and have actually transferred all of that money to fraudsters" </blockquote>
“There’s also a problem in the UK with bank transfers, the type of payment that you make when you go to your online banking and manually input the details,” says Wilson. “That type of payment is susceptible to something called authorised payment push scam, which is APP for short.” 

UK Finance found UK banks and their customers lost <a href="https://www.ukfinance.org.uk/system/files/Fraud%20The%20Facts%202021-%20FINAL.pdf" target="_blank" rel="noopener">£583.2m</a> to APP fraud in 2021, which continues to rise from £479m lost in 2020.

https://public.flourish.studio/visualisation/10486351/

“People have transferred their whole life savings into accounts that they think are for safekeeping and have actually transferred all of that money to fraudsters,” says Wilson. “The inherent weakness in bank transfer scams is the fact that the consumer is entering their details manually, the sort code and account number, and up until recently there has been no way to validate that account belongs to the person you intend to pay.” 
<h3>4. More than 6m customers are now using open banking</h3>
But not all is lost, there are a few ways to combat ecommerce fraud surrounding your bank details. One is <a href="https://truelayer.com/blog/confirmation-of-payee-open-banking" target="_blank" rel="noopener">confirmation of payee,</a> where a bank will check the name, sort code and account number corresponds to your intended beneficiary and will warn you if they think it’s a scam. Another is open banking.
<blockquote>"A stronger safeguard is open banking"</blockquote>
“A stronger safeguard is open banking because when you pay somebody with open banking it uses the rails of an instant bank transfer, so the same rails that manual bank transfers use, but instead of the consumer inputting the account holder name, the account details, it will be the open banking provider who’s entering those details.” 

Not only does open banking pre-populate payment instructions, reducing the risk of human error and customers being tricked into sending the money to a fraudster, but open banking providers also onboard and carry out diligence with merchants. 

The Open Banking Implementation Entity (OBIE) recently <a href="https://www.openbanking.org.uk/insights/three-open-banking-milestones-for-may-2022/" target="_blank" rel="noopener">announced</a> that the UK has reached 6m users and 5m monthly open banking payments. The increase in successful payments is attributed in part to open banking’s inherent safety. 

https://public.flourish.studio/visualisation/10508887/

“Open banking payments don’t involve sharing any kind of data that can be used to commit fraud,” says Wilson. “We’re on a mission to encourage as many businesses and merchants as possible to adopt open banking payments, one reason being the inherent safety of that type of payment.” 

Want to learn more about how open banking can prevent the UK’s £1bn fraud problem? <a href="https://bit.ly/3OU4uoF">Read this</a> and watch our myth buster video <a href="https://vimeo.com/725992243">here</a>: 
<div style="padding: 56.25% 0 0 0; position: relative;"><iframe style="position: absolute; top: 0; left: 0; width: 100%; height: 100%;" title="Who is most likely to fall for payment scams? | Sifted Studios x TrueLayer" src="https://player.vimeo.com/video/725992243?h=820ad1f8fa&amp;badge=0&amp;autopause=0&amp;player_id=0&amp;app_id=58479" frameborder="0" allowfullscreen="allowfullscreen"></iframe></div>
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In data: The types of payment fraud causing ‘epidemic’ losses

A coffee machine just doesn’t cut it anymore — the traditional office is dead, and employers now need to do more to attract top talent back to the physical workspace.

Employees resisting returning to the workplace often cite work-life balance as a key reason why. And while Zoom and Slack have become commonplace team tools it’s hard to replace in-person interaction, especially for a business is in its formative years. 

“Creativity thrives when people are working together in the same space,” says Amy French, director at Level39, a community of 180 tech startups and scaleups based in Canary Wharf, London. “The same goes for sharing knowledge and experience with colleagues — what they don’t know, they won’t ask. So, when surrounded by conversation and new information, it sparks learning and new ideas. It also helps colleague relationships develop and grow.”

French believes the relationships built in-person through connections, referrals and chance interactions at events are a key driver for business development. “There is no replacement for in-person collaboration and connections,” adds French.

So how are employers jazzing up the office to bring teams back together?
<h3>Ask your employees what they want</h3>
Companies looking for new office space in 2022 should have a different list of must-haves compared to pre-pandemic times. Employee demands have changed and the way in which they use a communal office space has, too.

<a href="https://sifted.eu/articles/vanmoof-fundraise/">Dutch ebike brand</a> VanMoof quickly outgrew its office in Amsterdam East during the pandemic. Before starting the search for their new office, they did a survey to get a better understanding of what its employees' needs were. 
<blockquote>"There are open plan desks, little quiet nooks, decked out meeting rooms and all the snacks and good coffee you can wish for"</blockquote>
“We were curious to understand where our employees like to spend most of their time at the office, if they prefer dedicated desks or flex desks, if they are happiest in a quiet or buzzing environment,” Lenny Heeren, culture and workplace lead at VanMoof, tells Sifted. “We also asked them to sum up their ideal office in a few words. We received a lot of valuable feedback and ideas and with the outcome, we managed to open the doors to our second office in Amsterdam in September, 2021.”

Employee input is invaluable to a business leader looking to invest in a workspace that will keep staff happy — and it’s key to ensuring money isn’t wasted on the wrong things. What you think may be important to your staff may actually be lower down on their priority list.

“We spend so much of our days at work that it’s key that an office is as comfortable as possible,” says Maaikedirkje Cornelissen, office manager at VanMoof. “Our offices are designed in a way that they cater to as many needs as there are colleagues. That means there are open-plan desks, little quiet nooks, decked-out meeting rooms and all the snacks and good coffee you can wish for.” 
<h3>A greener space</h3>
Employees are increasingly aware of sustainable practices, and, according to Level39, are demanding the same from their employers and office spaces. 

The Level39 workspace, which is owned by property developer Canary Wharf Group, is situated in a sustainable-certified building. It’s committed to achieving Net Zero Carbon by 2030, and has sent zero waste to a landfill since 2009. 
<blockquote>“More and more people are seeking to commute on two-wheels instead of four"</blockquote>
Canary Wharf Group is committed to bringing people and nature closer together through its Biodiversity Action Plan and Eden Project Partnership, which supports its quest to have a thriving ecosystem across its estate.

“Collaboration with 'green' industry partners is also a great avenue,” says French. “Last year, we joined Tech Nation's ‘Tech Zero’, an industry initiative to encourage tech companies of all sizes to consider their carbon emissions and commit to achieve net zero. It offers resources and a toolkit to support those companies to deliver their net zero goals.”

Offices play a key role in encouraging more sustainable employee behaviour. At VanMoof’s headquarters in Amsterdam, for example, they recycle, have drinking water taps, handle most documentation digitally and have catered vegetarian lunches as the default option. But as an ebike company, its most unique sustainable achievement ​sees almost all the employees riding an electric bike for their commute to work. 

“More and more people are seeking to commute on two wheels instead of four,” Cornelissen tells Sifted. “We offer company plans to make it easier for companies and organisations to get their teams riding. By setting the right example, it makes it easy for employees to contribute to sustainability goals.”
<h3>Physical events are key</h3>
In 2022, it’s not enough for staff to go into an office "just because". The office should provide value to a person’s role, professional development and their employer overall. The opportunity to collaborate, network and build is invaluable.

“Collaborative, flexible and creative workspaces will bring employees back to the office,” says French. “As well as coworking space and offices, we offer a vast range of ecosystem activities and events including access to mentors, investors and partners, as well as amplification and profiling. Our priority as a community is to support our members on their growth journeys, helping them scale in Canary Wharf and beyond.”

In addition to break-out spaces and games rooms, Level39 offers an array of industry activities and events that encourage networking and collaboration. It also curates one-on-one and group sessions with like-minded peers, mentors and investors through a programme of workshops.
<blockquote>"People will be drawn to workspaces that enable collaboration, ignite relationship building and help initiate those 'water cooler' conversations"</blockquote>
Level39 has a curated pool of mentors, investors and partners that have experience ranging across the industry, offering challenge, advice and guidance to its 180 member companies.

“​​For example, we work closely with Innovate Finance on events and opportunities for our two communities, with London &amp; Partners on supporting entrepreneurs expanding to London from overseas, and with Tech Nation on the Tech Zero initiative,” adds French. “People will be drawn to workspaces that enable collaboration, ignite relationship building and help initiate those 'water cooler' conversations.”

Take a <a href="https://www.level39.co/about/membership/">virtual Tour </a>of Level39 or come visit us in Canary Wharf and see what it’s all about. <a href="https://www.level39.co/">Visit level39.co</a>

People

What kind of workspaces will bring employees back to the office?

The <a href="https://sifted.eu/articles/startups-tech-downturn-layoffs-hiring/">tech downturn</a> is making investors nervous. In the first quarter of 2022, global fintech saw its <a href="https://sifted.eu/articles/fintech-downturn-acquisition-neobanks/">biggest drop in funding</a> in three years, meaning the sector — used to receiving the lion's share of funding and <a href="https://sifted.eu/articles/banks-funding-european-fintechs/">attention</a> — is now under pressure. 

“It’s a geopolitical macro level event that’s impacting all sectors and fintech, as a sector, isn’t immune,” Nigel Verdon, CEO and cofounder of fintech Railsr, tells Sifted. “Both public and private markets have limited horsepower to invest at this moment in time due to repricing of portfolios and protecting existing investments.” 

But limited horsepower isn’t none at all. VCs are investing, just more <a href="https://sifted.eu/articles/vc-caution-valuation-survey/">cautiously</a>, and if fintechs can weather the storm, there should be capital available in the future.

So how are fintechs navigating this time? We ask some experts who have been through it all before.
<h3>Profitability over growth </h3>
Last month, Europe’s most valuable fintech, buy now, pay later provider Klarna, <a href="https://sifted.eu/articles/klarna-layoffs/">laid off 10%</a> of global staff amid a valuation crunch. While fintech saw some <a href="https://sifted.eu/articles/european-fintech-q1-fundraising-market/">lofty valuations</a> based on growth in the past few years, Verdon says profitability will be the new focus.

“The risk appetite has gone away from growth as a driver and valuations have been massively discounted,” he says. “Valuations tend to be driven at the moment by companies who have a route to profitability, clear profitability, lowered cash flow and high capital efficiency ratios. It’s all about cash and survivability.”

Peter Briffett, CEO and cofounder of Wagestream, a fintech which provides financial services to <a href="https://sifted.eu/articles/wagestream-60m-payday-lending-superapp/">frontline workers</a> through employers, agrees, adding having profitability is a tried and tested way startups can make it through tricky economic periods. 
<blockquote>"The risk appetite has gone away from growth as a driver and valuations have been massively discounted. It’s all about cash and survivability"</blockquote>
“In the last two or three years, there’s been a lot of available funding for fintechs, fintech has been a very hot growth area, but founders have to realise those days are gone,” he says. “I’m old enough to have seen great companies emerge out of these times and a lot of that is down to the fact they had to look after profitability.” 

Even if a fintech isn’t profitable now, Briffett says a strategy to get there will be key. “The companies that have a route to profitability, are able to see that in the future, trying to bring that date forward is going to be really important,” he says. 

Boris Diakonov, cofounder of ANNA Money, a business account and tax app, says it’s about balance, but always having paying clients and subscriptions has helped.  

“We were looking to have a balanced growth and a balanced financial model,” he says. “A year ago we already turned a corner with operational profitability before growth and we feel like it’s a good solid place to be because then it’s just pure maths, you scale, you earn more money and at one point you become profitable.” 
<h3>Conserving cash </h3>
While fintechs that have recently raised are the lucky ones, Briffett says startups that aren’t able to get through this period without a fund raise should be thinking about reducing costs or making cuts.

“Every single fintech founder would have been told by their board and their investors to conserve cash: really look after your costs, make sure you can weather this downturn, which no one can predict how long it’ll be,” he says. 

Verdon agrees, saying fintechs should “super focus” on cash flow and focus on retaining customers over acquiring new ones.

"A lot of companies have their customer acquisition costs, especially in the consumer world, powered by venture capital money. Those are the kind of costs they’ve got to figure out how to reduce,” he says. “Really focus on your existing customers and customer relationships because they’ll see you through this. I deployed this strategy in 2000 in the dotcom crash and it saved my first company, which we went on to sell in 2006.” 
<blockquote>“Every single fintech founder would have been told by their board and their investors to conserve cash"</blockquote>
But there's still money out there. 

“Fund raises are happening, there’s still capital with all investors,” says Briffett. “But obviously they’re slowing down the amount of their funding and also taking longer.” 

Verdon says there’s some activity around seed and <a href="https://sifted.eu/articles/series-a-experts-weigh-in/">Series A</a> because the markets have become better priced, as well as corporate venture capital (CVC) and <a href="https://sifted.eu/articles/fintech-downturn-acquisition-neobanks/">M&amp;A</a>.  

“I’ve seen strategic investors, like corporates doing corporate venture capital coming back into the market… quite a lot of them still have piles of cash on the balance sheet from a few good years,” he says. “We’ve seen quite a number of M&amp;A opportunities come across our desk, more so in the past three months than the past year.” 
<h3>Picks and shovels </h3>
Diakonov says neobanks were once interesting, but now fintechs which offer solutions outside of banking are gaining more traction. 

“It was all exciting back then when we went from the horrible high street banks to a nice shiny app that can send you a nice shiny card, makes payments and sends you push notifications,” he says. “[But] we’ve seen several of our competitors saying that they are either pivoting or downscaling.”

Verdon says there will be survivors and companies who go by the wayside, but people will always need “picks and shovels” — the tools and infrastructure needed to create other products, such as embedded finance. He adds other sectors, which are better capitalised and have customers already, can (and are) using these tools too. 

“There is some growth and not only that, but there seems to be a structural shift outside fintech companies where traditional brands are embracing the same tools,” he says. “Like bank accounts, cards, payments, rewards and credit, all within their own customer journeys, so sports or retail or transport or other sectors.” 
<h3>Embedded finance</h3>
Pre embedded finance, companies which wanted to offer financial products like payments had to build their own stack, but providers like Railsr startups can implement infrastructure quicker and cheaper. 

“You don’t have to have the overhead and costs or the operational cost of running all this by yourself and running financial operations at scale, that’s actually quite a difficult thing to do, there’s no need for every single fintech to do that,” says Verdon. “Now you can accelerate and be in the market in two to three months, as opposed to nine to 18 months.” 

Verdon says embedded finance enables startups and scale-ups to use finance as a strategic engagement tool with customers to deepen relationships, create better user experience and ultimately generate revenue
<blockquote>“Now you can accelerate and be in the market in two to three months, as opposed to 9-18 months”</blockquote>
Wagestream gives workers access to their money with embedded infrastructure and faster payments. Briffett says he hasn’t seen a reduction of interest in these services due to the downturn.

“I think those things are definitely here to stay, I don’t think those things will slow down,” he says. “We’re seeing a really high level of interest from large enterprises because the biggest people issue they have this year and next will be how to get their staff through the cost of living crisis.” 

Briffett adds the <a href="https://sifted.eu/articles/fintech-cost-of-living-inflation-crisis/">cost of living crisis</a> might have an impact on which fintechs will succeed. For example, startups attached to ecommerce will suffer because they’ll be less consumer purchases and <a href="https://sifted.eu/articles/klarna-bnpl-economic-downturn/">BNPL</a> is already under regulatory pressure. Open banking, however, could help people get a view of their financial lives.   

“Whatever you can do to help people make their finances more visible, help them save money, help them budget, those are going to be winning products,” he says. “Those are the tools that are going to get a huge amount of engagement in the next few years. 

“Some of the best companies will always be founded in these times.”

How fintechs are navigating the economic downturn

What goes up must come down — including crypto. Last month the <a href="https://www.ft.com/content/c10bc6f7-abbe-45dc-9367-042186c3336f">$40bn collapse of cryptocurrency luna</a> sent shockwaves through the market, ether shed more than a <a href="https://digitalassets.ft.com">third</a> of its value and bitcoin, the oldest token on the market, fell below $20k for the first time since 2020.  

Of course, volatility isn’t new in the world of crypto finance, but this dramatic crash caused many to question: is it over for crypto?

Zak Lambert, product lead at fintech Plaid, doesn’t think so. “I certainly don’t think it’s over,” he tells Sifted. “It’s a matter of perspective: if it’s a five-year window, it’s a great growth story, if it’s a six-month window, it’s a crash, so the framing matters a lot.” 

It also matters to the many crypto owners. According to a <a href="https://sifted.eu/app/uploads/2022/04/Fintech-unwrapped-3.pdf">Sifted report</a>, the number of global crypto owners almost tripled in 2021.  

So what’s really next for crypto? We asked the experts.
<h3>“Investment will continue”</h3>
For Lambert, it’s first important to remember that not all crypto coins are created equal. 

“There’s an arm of crypto that is fiat-backed and clearly viable,” he says. “And then there is an arm that is maybe not speculative, but more financially engineered and creative, and that piece is what saw the teardown where the market went up basically because there were sentiments that the market would continue to go up and that confidence diminished a little bit and then quite precipitously.” 

Secondly, Lambert says, fast news cycles and society have a low tolerance for longer-term windows for outcomes. 

“Account-to-account payments are fairly new. We expect that to be transformational over time — you’ll be able to transact from your bank account wherever you are in a way that is easier than using cards,” he says. “That doesn’t come true overnight and it’s the same thing with crypto.” 
<blockquote>"Although the stock market is in turmoil, retail investors appear to be sticking to their long-term plans" </blockquote>
Lambert says the continuity of investment capital into the space shows there’s still interest in what crypto could become in the future. However, the <a href="https://sifted.eu/app/uploads/2022/04/Fintech-unwrapped-3.pdf">mega rounds</a> of 2021 including Sorare’s $680m Series B at a valuation of $4.3bn could be a thing of the past for now. 

“If you look at all the big VC funds where crypto is their number one investment area, they are specifically focused on it, they are very interested in the space,” says Lambert. “That is not speculative or price driven, they’ve already raised this money and they need to allocate it to something they think will be a valuable use case in ten years.”  

Yorick Naeff, CEO of crypto trading platform BUX, agrees, adding his clients are still using crypto as a long-term investment. 

“Although the stock market is in turmoil, retail investors appear to be sticking to their long-term plans,” he tells Sifted. “Our clients generally have diverse portfolios that include stocks, ETFs and crypto and given the nature of our offering, we are not surprised to see that the majority of our clients display a longer-term investment strategy, rather than grabbing quick profits in the short term.” 

Dolf Diederichsen, CEO and cofounder of Hyphe, which provides financial institutions with digital asset liquidity, says banks are also still keen.  

“I like to say ‘bear = build’, and certainly the banks we're working with continue to develop the infrastructure and projects slated before this recent market downturn,” he says. “Some of them are actually moving faster now, laying the groundwork for future growth.”
<h3>“Use cases will be actualised” </h3>
Lambert says he expects to see two things in the crypto market: less crypto projects overall and more people building things to solve problems for consumers — not just for the sake of creating something cool. 

“Crypto is really interesting as a concept for a lot of people, that’s fairly self evident. The thing that the industry has not done thus far that it needs to do is prove value for users versus prove interestingness for developers,” he says. 
<blockquote>"Crypto still has a lot of fundamental value and there is a lot of potential in the disruptive nature of some of the crypto-based technologies" </blockquote>
One use case for example is solving the slow pace and inaccessibility of wire transfers. 

“Digital commerce is up, things that don’t require you to be in a physical location to do a certain thing are just more important as we live more of our lives online and crypto is one of the things that lets you carry some portion of your identity or your ability to transact anywhere around the world anytime,” says Lambert. “If it takes someone three days to settle their transaction, then they’re probably going to be less likely to go to the place where they made that transaction the next time.” 

Naeff adds that BUX is continuing to increase its crypto offering so more people will be able to test out the technology. 

“In the long term, we still believe in crypto as an asset class here to stay. We will therefore continue to increase our offering to allow access to even more cryptos via the BUX platform,” he says. “Crypto still has a lot of fundamental value and there is a lot of potential in the disruptive nature of some of the crypto-based technologies.” 
<h3>But first, education</h3>
Crypto also has an accessibility problem — crypto users are overwhelmingly <a href="https://www.forbes.com/sites/marisadellatto/2021/11/11/cryptos-super-user-young-men-43-of-us-males-aged-18-to-29-have-bought-the-currency/?sh=5d4805a349ab">young men</a>.

“The industry needs to prove value to the average consumer,” says Lambert. “If all you can do is self-congratulate and discuss it among people that are already interested in it, you have not done your job in moving the industry forward.” 

Lambert says the parallel for Plaid is open banking: “Open banking is super interesting to anyone that’s deeply involved in it, but open banking as a term doesn’t really mean much to consumers.”
<blockquote>"The industry needs to prove value to the average consumer” </blockquote>
Yet, Lambert says open banking could be the bridge that helps crypto become more accessible to consumers by creating user journeys that people understand. That in turn prompts more people to try crypto again.  

“What we do is take a user, give them a journey that they’re familiar with, it’s super easy and automatically redirects them back to say their Barclays app to move money on to say the Coinbase of the world,” says Lambert. “If the users have a bad time making a deposit, then they’re probably less likely to interact with the place where they made the deposit down the line.” 
<h3>More regulation = more trust </h3>
While some dismiss crypto, it’s hard to dismiss the fact it’s been hard to avoid it — whether it’s horror stories of people <a href="https://www.vice.com/en/article/bvzz9a/i-lost-half-a-million-pounds-bitcoin">losing out</a> or <a href="https://www.vice.com/en/article/bvzz9a/i-lost-half-a-million-pounds-bitcoin">success stories</a> of newly rich kids.  

Last year, FCA research <a href="https://www.fca.org.uk/news/press-releases/fca-research-reveals-increase-cryptoasset-ownership">estimated</a> 2.3m British adults owned some form of crypto asset, which according to the FT isn’t far off the <a href="https://www.ft.com/content/d37a5a77-1fad-4ddf-aa66-af5f1c1e6c87">numbers</a> who invest in stocks. 
<blockquote>"What happens next is regulators get more involved, which they have been, that’s something that is deeply important" </blockquote>
This means users need to know what they are doing and Lambert thinks more regulation will become an important part of that.  

“I think what happens next is regulators get more involved, which they have been, that’s something that is deeply important to us as a foundational piece of the ecosystem,” he says. “There should not be a world where a consumer thinks they have deposited liquid cash somewhere and that at some point gets locked up and they’re not able to receive that liquid cash back.” 

Lambert adds regulation will make the crypto industry better and give people the opportunity to trust crypto. 

“One of the reasons financial services companies, like your local bank branch, have been successful for a long time is because people trust those entities and part of that trust is because governments very tightly regulate those entities,” he says. 

Diederichsen agrees, adding more unified regulation, which continues to develop at an EU level, should make crypto much safer. 

“To some degree it is good to experience tougher conditions,” he says. “Especially if that shakes out products and platforms with unsustainable foundations, or unfair practices that to be honest would not cut it in the sort of regulatory framework we expect by 2024.”

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