Like it or not, artificial intelligence, especially generative AI, is that much Technology story of 2024.
OpenAI may have swallowed up the most attention and money to date, with the launch of viral services like ChatGPT and billions of dollars in funding. But a new report from analysts at top VC Accel and Dealroom shows that Europe and Israel are now seeing a host of companies hopeful of making it big.
Europe and Israel typically account for about 45% of total venture funding annually, but when you turn this to the specific area of AI, that percentage falls to less than half (and even less for generative AI). This could be taken as a sign that Europe and Israel are lagging in the market. Or, to put it more optimistically, this means we will see a number of exciting developments in the coming months and years as the region catches up.
Investors are now looking for the next big thing, potentially at less inflated prices than in the US. Interestingly, Accel partner Harry Nelis said one of the reasons this report came to fruition was because his company worked hard. Take the task of evaluating all the emerging generative AI startups across your region to figure out what to invest in. So watch this space.
In the meantime, here are some of the most interesting data points from the report:
London is the city that ‘created’ the most GenAI startups.
Of the 221 startups analyzed by Dealroom and Accel, around 27%, or almost a third of the group, were founded in London. Tel Aviv came in second place with 13%. Berlin 12%; Amsterdam 5%. Interestingly, despite being a city everyone has been talking about as a hotbed of AI development for some time, Paris ranked very near the top at 10%.
But the startup is packing a punch.
GenAI startups founded in France are making the most money.
In total, the French startup, which describes itself as working in the field of generative AI, has raised $2.29 billion to date. This is more than any country in all of Europe and more than Israel. Recent rounds include Mistral AI, which raised $640 million earlier this month (previously raised about $500 million+), “H”, which raised a $220 million SEED ROUND a few weeks ago, and also a massive round at Poolside. It is reported that funds are being raised.
Other notable AI startup activity in Paris includes Hugging Face, an open source repository for machine learning models, which raised $235 million in August 2023. Additionally, there is a new research-focused organization called Kyutai, armed with hundreds of millions of euros to make waves in open source AI models.
Why do some places perform so much better than others?
In total, France's $2.29 billion is almost as much as the following three countries raised combined: The UK has received $1.15 billion in funding for generative AI startups (including Stable Diffusion makers Stability AI, Synthesia and PolyAI). Israel $1.04 billion (including Nvidia's recent acquisitions of startups including AI21 and Run:ai) Germany $636 million (Aleph Alpha's $500 million investment last year accounts for the bulk of this). Additionally, other countries in the region each attracted less than $160 million. We have received funding in the seven-figure range, sometimes much less than that.
Nelis believes the main reason is the perfect storm of strong educational institutions. Educational institutions not only produce a lot of tech talent, they also attract large tech companies and build their own operating systems to leverage that talent.
“Having produced so many founders in Paris shows the importance of real, long-term investments in education,” said Nelis. “The same goes for London meals at schools such as Cambridge, Oxford and UCL.” However, the step between university and startup is not immediate. The middle step, for many, is working for a big tech company that has set up shop to improve hiring.
“Universities are very important in attracting hyperscalers,” Nelis said, noting that Facebook/Meta initially established an AI lab in Paris, Google eventually established a similar facility there, and has already established operations with DeepMind. He said. In London and Paris.
Hyperscaler technology companies, “founder factories,” are a big part of the story.
Indeed, while startups may feel like the crucibles of AI development, major technology companies play a key role in fanning the flames. Looking at the long tail of GenAI startups, about 25% of founders have previously worked at Alphabet (DeepMind or Google), Apple, Amazon, Meta or Microsoft (known as MAAMA). The higher you go, the more clubby it becomes. Among the top 10 startups, 60% of founders are from MAAMA.
In fact, one company in particular stands out as an AI founder feeder.
It's not a great message for those coming from outside that group, but as the field matures and grows, that too will likely evolve and expand.
