5 months ago
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Like it or hate it, artificial intelligence – especially generative AI – is the technology story of 2024.
OpenAI, with its rollouts of viral services like ChatGPT and billions in funding, may have gobbled up the lion’s share of attention and money so far. But according to a new report out from top VC Accel and the analysts at Dealroom, over in Europe and Israel there are a wave of hopefuls now emerging to make their mark.
Together, Europe and Israel typically make up some 45% of all venture funding annually, yet when you translate that to the specific sphere of AI, the proportion drops to less than half of that (and generative AI even less). You can take that as a signal that Europe and Israel are lagging in the market. Or more optimistically, it means that we will see a number of interesting developments in the months and years ahead as the region catches up.
Investors are now on the hunt for the next big thing, potentially at prices that are less inflated than in the U.S. Interestingly, Accel partner Harry Nelis tells me that one of the reasons why this report materialized at all was because his firm has been hard at work evaluating all the generative AI startups emerging across the region, to figure out what to invest in. So watch this space.
In the meantime, here are some of the most interesting data points out of the report:
London is the city that has ‘generated’ the most GenAI startups.
Of the 221 startups Dealroom and Accel analysed, some 27%, nearly one-third of the group, were created in London. Tel Aviv took the number-two slot at 13%; Berlin 12%; and Amsterdam 5%. Interestingly, although Paris is the city everyone has been talking about for a while as a hotbed for AI development, it found itself very much in the middle of the city rankings, at 10%.
Image Credits: Dealroom/Accel (opens in a new window) under a license.
But those startups are packing a punch.
French-founded GenAI startups are raking in the most money
Collectively, French startups that self-describe themselves as working in the field of generative AI have raised $2.29 billion to date, the most of any country across Europe, and more than Israel. Recent rounds have included Mistral AI raising $640 million earlier this month (on top of some $500 million+ before that), “H” raising a $220 million SEED ROUND a few weeks ago, and Poolside reportedly also in the midst of raising a hefty round.
Other notable AI startup activity in Paris include Hugging Face, the open-source repository for machine learning models, which raised $235 million in August 2023; as well as a new research-focused organization called Kyutai, which itself is armed with hundreds of millions of euros to make some waves in open source AI models.
Why is that the case that some places do so much better than others?
Altogether, France’s $2.29 billion is nearly as much as the next three countries have raised combined. The U.K. has seen $1.15 billion in generative AI startup funding (Stable Diffusion maker Stability AI, Synthesia, and PolyAI among the bigger players here); Israel $1.04 billion (with startups including AI21 and Run:ai, which Nvidia recently acquired); and Germany $636 million (with Aleph Alpha’s $500 million round last year accounting for the bulk of that). Beyond that, other countries in the region have pulled in less than $160 million each — sometimes significantly less than that, with funding in the lowest seven-digit range.
Nelis believes that the main reason for is the perfect storm of strong educational institutions, which not only produce lots of technical talent but also attract large tech companies to build out their own operations to tap that talent.
“You can see the importance of real, long-term investment in education yielding a lot of founders in Paris,” Nelis said. “The same goes for London feeding from schools like Cambridge, Oxford and UCL.” The step between universities and founders, however, isn’t immediate: the middle stage has been, for many, working in big tech companies, which set up shop to improve recruitment.
“Universities are clearly very important for attracting hyperscalers,” Nelis said, citing Facebook/Meta establishing its AI research labs in Paris early on, as well as Google eventually establishing a similar set-up there, having already built out an operation with DeepMind both in London and Paris.
“Founder factories” – hyperscaler tech companies – are a big part of the story
Indeed, while startups may feel like the crucible of AI development, major tech companies have a major role to play in feeding those flames. Looking at the long tail of GenAI startups, some 25% of them have founders who previously worked at Alphabet (DeepMind or Google), Apple, Amazon, Meta, or Microsoft (let’s call them MAAMA). It gets even more clubby the higher up you go. Among the top 10 of these startups, a full 60% of the founders come from one of the MAAMAs.
In fact, one company in particular stands out as a clear AI founder feeder:
Image Credits: Dealroom (opens in a new window) under a license.
It’s not a brilliant message for those coming from outside that grouping, although that, too, is likely to evolve and expand as the field matures and grows.
