Fundraising face-off: Key takeaways from our workshop at Sifted Summit

Every year, Sifted Summit brings together Europe’s leading founders and investors for two days of interactive panels, workshops and networking in London. This year, our team was proud to host a workshop on the first day of the event.

Wise’s Global Head of Operations, Rohan Basu, was joined by entrepreneurs, Dimitri Masin, Co-Founder and CEO at Gradient Labs and Lukas Bromig, Co-CEO and Co-Founder at Unite Labs for an in-depth conversation on the state of fundraising in the US versus Europe.

Throughout the session, the panellists shared first-hand insight into their experiences fundraising on both continents, scaling internationally and the unforeseen costs of raising capital abroad.

In case you missed it, we’ve compiled some of the key takeaways from their conversation below.

Where should your startup fundraise?

Rohan opened the session by inviting Dimitri and Lukas to share their experiences fundraising in an increasingly global — and competitive — market for startup capital. Kicking things off, he noted that Wise, Gradient Labs and United Labs all have “different perspectives on American versus European investors and the pros and cons of each.”

Dimitri shared that his startup’s latest $13M Series A round, led by American VC Redpoint Ventures, wasn’t planned. “It wasn’t intentional. We spoke to a couple of investors, including some US investors and in our case, we really connected with our investor's style.” It’s only in hindsight that they realised it was the right move for their business, “We’ve realised how much of a difference it actually made. They came in with a much more aggressive growth mindset, which was necessary because we are in a very, very competitive market.” For Dimitri, the American investors’ fast-paced approach was essential to ensuring they could effectively grab market share in the fast-moving conversational AI space.

Lukas, however, chose to partner with a group of European investors for UnitedLabs’ €2.8M pre-seed round. Why? Even though they “had a lot of inbound interest from the US,” Lukas knew that his startup wasn’t ready to scale from day one. He noticed that “in the US, investors were already talking about scaling the sales org, before we had a robust product.” For him, building trust and a strong reputation was the short-term priority over sales. “We felt that these investors would push us towards sales, and we've seen other startups in this space fail just for that reason. They were scaling too quickly, burning trust, burning customers, and burning their reputation in the market.”

Regardless of their location, Lukas wanted to partner with investors that had their own founder experiences. In the end, the leading investors of their pre-seed round were a group of founders from Berlin, “They knew exactly what we were going through. If we had any issues, we could call them. They made really good intros, they have a really great network, and they actually executed on that.” Having their investors nearby made a big difference for Lukas and his team. He said, “We’d meet with them every other month, maybe every second month and we can see them in person whenever we need advice.”

And unlike some of the US investors they spoke with, Unite Labs’ investors were okay with their team “building for another one and a half years.”

At Wise, Rohan noted that the company’s “agnostic” approach to their initial funding reflected the company’s “inherently international” business model. Having a mix of “European investors, UK investors and US investors,” meant that the founding team could benefit from the unique advantages of experts in each region.

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Prioritising boots-on-the-ground expertise

In addition to funds, investors can bring valuable first-hand market experience to the table. For Dimitri and his team at Gradient Labs’, his investors' understanding of the US market has been critical to their sales-first hiring strategy. Dimitri knew his team needed to scale but the turnaround times for onboarding talent in the UK and Europe were too long. He shared, “Having a US investor helped us to realise that we can hire much faster there, and we’ve seen that in practice.” Using his investors’ advice, Gradient Labs “first sales hire, head of sales and our first couple of account executives are all based in New York.” And there’s no sign of their hiring pace slowing.

While Unite Labs has focused on the European market in its early days, it’s looking further and further afield as it scales. Lukas said, “half of our customers are in the US and with our product, we need to be on the ground. So, we're interviewing people over there now, and it’s very likely that we’ll set up an entity in the US next year.” Lukas acknowledged that either he or his co-founder could even move to the US to develop their own first-hand understanding of the market.

This expansion strategy is influencing the business’ fundraising goals. Lukas mentioned, “We’re also planning on an expansion round in the next year to scale things in the US. We would like to keep a lead in Europe so we can still prioritise expansion here, but for the round after that, we already want to set out the groundwork to look in the US and UK.”

This foresight reflects a sentiment felt by many European founders. When it comes to later funding rounds, capital doesn't exist in Europe in the same way that it does in the US. Lukas said, “we do see that gap here in Europe and there may not be enough investors for us here that can actually follow on at that level.”

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Managing investor expectations

As the conversation turned to investor relationships, panellists shared that investors in different countries and industries can have varied expectations when it comes to growth and returns. Lukas mentioned that as Unite Labs scales, they “may need to raise faster because companies in the US are building aggressively and investors expect us to grow at a reasonable rate.” He’s up for the challenge, though: “It’s giving us a nudge to speed up.”

In the AI industry, this need for speed is particularly true. Dimitri says the benchmark for success has rapidly changed. “Previously, it was considered good to have a million in ARR in the first twelve months of your conversation, now that’s not that impressive.” As the industry grows, and companies like Lovable record ARR as high as $100m in less than a year, investors' expectations are catching up. Particularly investors in the US.

This growth has led to high valuations and inevitably, discussion of whether or not we’re in an AI bubble. But when Rohan posed the question, “Do you think we're in a bubble with AI valuations?,” neither Dimitri nor Lukas thought so.

Dimitri said, “I don't think it's a bubble, but I think there is definitely hype. We're already proving and seeing how much value AI can bring. So, I do think the value is real this time around.” That’s not to say that every AI company will win, “Certainly some companies will fail, and I do think valuations right now in the AI space are crazy. Some investors are completely off, but the nature of it is that some will succeed and some won’t.”

Lukas added, “I would agree, it's more boom than bubble. I think that AI is making it apparent that there are a lot of things that are not done right in biotech companies today. A lot of the money being spent now is being spent on things that should be invested in anyway, and AI is the justification for it.”

Navigating FX risk when raising capital overseas

While overseas investors can offer more money, more expertise, more exposure to overseas customers, it can also leave startups vulnerable to foreign exchange (FX) risk.

Lukas and his team at Unite Labs now have several core customer bases — Switzerland, Denmark, the UK and the US. And as a result, they have a need to receive money in multiple currencies — USD, GBP, DKK and EUR — and pay their international employees in foreign currencies. “There's a lot of back and forth conversion so having the ability to exchange our money flexibly is important to us.” This ability is only becoming more important as Unite Labs grows, “for the last funding round, we had almost exclusively European investors but in the next round, we are planning on having some follow-on investors from the UK and US. At that point, it makes sense to be able to access our investors’ currencies.”

Rohan noted that Wise Business is an expert at managing these situations, “We have over 700,000 businesses using us and a lot of them are inherently international. If you get funding in different currencies, you could be getting ripped off on your FX rates and for big rounds, the fees aren’t negligible. The Wise business account is there to solve a lot of those problems for you and it’s very founder and startup friendly.” A testament to the account’s efficacy, both Lukas and Dimitri used Wise Business to receive their fundraise, saving money in the process.

Dimitri shed some light into his own experiences navigating FX risk during that time, “Even though I have a financial background, I didn't realise or didn't think about how much FX risk you’re faced with when you raise money abroad.” In his case, fluctuations in the value of USD had a real impact on what Gradient Labs took home, “at the time we raised, the US dollar had a very different value. Three months later, there was almost a million euro difference. You really need to consider these fluctuations and take them into account in your financial forecast.”

For Dimitri and his team, Wise Business was the obvious solution to navigating and mitigating this risk, “Wise Business is extremely convenient. It was difficult to even consider using anything else.”

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