The Slush 100 Pitching Competition — The importance of startup due diligence

Slush 100 Pitching Competition Awards 2022 revoked the win of Immigram due to a post-event due diligence that revealed that the company had links to Russia.
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December 19, 2022

Slush is a well-known annual startup and tech event in Helsinki, Finland, that also holds a pitching competition. However, the 2022 Slush 100 Pitching Competition turned into a massive scandal that had significant negative consequences for the event, the organizers, and the investors that would provide funding to the winners.

The scandal

The prestigious Slush 100 Pitching Competition award for 2022 was initially attributed to Immigram. The award they were about to receive included an investment of €1M by five international venture capital companies: Accel, General Catalyst, Lightspeed Venture Partners, NEA, and Northzone.

Anastasia Mirolyubova holds a bouquet of flowers after her Slush 100 award win. Source: Slush Media 2022.
Anastasia Mirolyubova, Co-Founder and CEO of Immigram, holds a bouquet of flowers after her Slush 100 award win. Source: Slush Media 2022.

Even though Immigram is a UK-registered company since 2021, and the founders have been operating in the UK for a few years, not to mention that the reason to become UK-based was political, but Immigram allegedly still has operations in Russia. It seems that Immigram is focusing on clients in Russia  and at the time of the competition the company was looking for new team members located in Russia.

As a result, the organizers faced a wave of criticism from people and organizations claiming that a European award shouldn’t be given to companies with Russian ties.

Following the extended criticism, the event organizers performed more enhanced due diligence on the winners. Finally, on November 21st, Slush announced that “in light of new information on the extent of the Slush 100 Pitching Competition winner’s operations in Russia, Slush has decided to revoke their win”.

Shortly before the Slush announcement, Immigram itself posted on LinkedIn that it “opts out of Slush competition”. Additionally, Immigram stated that it “will continue supporting Ukraine and building a company for millions of talented people who want to move internationally,” indirectly expressing its opposition to Russia’s military aggression in Ukraine.

Due diligence - Why?

According to Merriam-Webster dictionary, due diligence is a “research and analysis of a company or organization done in preparation for a business transaction.”

Due diligence:

  • Protects a company from reputational damage.
  • Helps an entity understand the risks before entering a business relationship.
  • Enables companies to comply with specific regulations, such as anti-money laundering (AML) regulations

Due diligence is not only appropriate for entities subject to AML rules but also to all companies because everyone needs to comply with sanctions today. Additionally, due diligence allows a company to identify potential risks before entering any type of transaction or agreement.

How about the potential investors involved?

In the case of the Slush 100 Pitching Competition awards, investors were going to invest funds in the startup-winner of the competition. However, failure to conduct due diligence on the participants of the competition in advance, did not allow investors to understand the risks involved when investing in a company with operations in Russia.

When risks are identified and understood, every company is in a better position to decide whether it is willing to work with a potential client/vendor/business partner or, in this case, investing in a startup with operations in Russia.

We cannot be sure why neither the Slush 100 Pitching award organizers nor the investors conducted due diligence on Immigram before providing the award. Maybe investors thought that Slush would do the due diligence and Slush thought that the investors would do the due diligence. Maybe the due diligence was not finalized, but the winner had to be announced. Maybe the Immigram team concentrated on other aspects of their business without focusing on their roots (important to note, that there were already articles written about Immigram’s connection to Russia years ago, so this information was not hidden). Most importantly, maybe it was a risk the investors and Slush were willing to take.

Whatever the case is, apparently, the investors didn’t have and probably did not request all the information they needed to decide whether they were willing to invest in a company with links to Russia, a country which is subject to sanctions. Ultimately, both parties suffered, and their reputation was damaged.

How due diligence can protect a company

Due diligence is conducted by taking the following steps:

1. Understand the other party by obtaining information about:

  • The background of the other party
  • The individuals who direct the company (directors, founders, board members)
  • The individuals that own or control the company (UBO)
  • In the case of a group of company, the ownership structure
  • Whether PEPs are involved or control the entity
  • Whether the other party is subject to or is working with entities that are subject to sanctions

2. Understand the countries involved by obtaining information about:

  • The countries where the party or the owners or the person that controls it is located or established
  • The countries where the party or its investors or controllers have their principal place of business
  • The countries where the owners of the party have links
  • The countries where the party generates or sends income (source of funds)

3. Conduct KYC checks, Politically Exposed Persons (PEPs) checks, adverse media checks and sanctions checks.

4. Consider sanctions lists. Not only regulated entities are required to check against sanctions checks. Entering into a contract or agreement with a party which has links with countries, companies, or persons subject to sanctions can expose a company to reputational risks.

5. Understand the relevant risks involved before entering into a business relationship. Then, take measures to mitigate those risks. KYC checks, sanctions screening, identity card verification with the use of an identity verification system are useful procedures that can mitigate risks.

6. Due diligence needs to be conducted before any contract is signed. Slush did not conduct due diligence before accepting the participants’ applications in the contest. Due diligence was conducted after receiving intense criticism about awarding the prize to a company with Russian ties.

What should the organizers have done differently

Failure of conducting due diligence lead the Slush organizers into the difficult position of revoking the Immigram win, stating: “Slush is sorry for this oversight. We should have reviewed all participants’ operations more closely before letting them enter the competition”.

Official announcement from Slush on Twitter 2022.
Official announcement from Slush on Twitter 2022.

What type of due diligence should be performed in this specific case?

  • Take into consideration the Sanctions against Russia - everything connected to Russia is at high risk these days.
  • Check the connected entities of the shareholders/ founders/ members of the board. That means colleagues, wives, husbands, and kids. Where do they come from? Where do they live? What other organizations are they part of? Where have they invested in?
  • Company structure. Does the ownership structure of the company make sense? Who controls the company? Does this person have any links to Russia?
  • In-depth research of the shareholders and UBOs, such as ID checks, and shareholder company documentation checks.
  • Not just looking at the UK documentation. Typical AML question is “What other parent/ daughter/ branch companies do you have and in what regions?”
  • Source of funds. Where does the money come from and where is it going? Where do you pay taxes? Where do you operate?
  • Looking outside of the official AML documentation, such as social media (LinkedIn, Twitter) and Google. Whom do you support? What articles have been written about you?

The case of Slush awards highlights the importance of due diligence and the consequences of not doing so in advance.

How Vespia can help

Vespia is an all-in-one AML compliance solution that will help you perform automated due diligence and onboarding of startups, business customers and partners, LPs and co-investors.

We will take care of all of your due diligence tasks. Use Vespia by itself, combine with any other tools that you are using or let your Compliance Officer use Vespia for extra help.  

Vespia requires just 3 pieces of information (name, registration code, country) about a legal entity in order to provide you with a full overview of the business, such as:

  • Verification of a company using the commercial registers and business databases
  • Verification of ownership structure, shareholders, and UBOs (names, %, ownership type)
  • Sanctions, PEP, RCA, Adverse media, Google search
  • KYC of representatives and UBOs (ID check)
  • Original incorporation documents from the register
  • AML form filled in and signed by the company
  • Vespia Compliance Officer assessment (if needed)

We will provide you with a report in the Vespia Dashboard, as well as a downloadable PDF report with all the original sources and files connected to your case. As an extra, Vespia includes an assessment by our compliance officer.

With years in the RegTech business, Vespia has all the AML compliance expertise to help you remain compliant with your due diligence obligations.

Contact us to see how we can help your business manage its risks and automate your due diligence process.

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