Like that or I hate itArtificial intelligence – especially generative AI – is the The technology story of 2024
OpenAI, with its rollout of viral services like ChatGPT and its billions in funding, has probably captured the lion’s share of attention and money so far. But according to a new report from VC major Accel and analysts at Dealroom, a wave of hopefuls is now emerging in Europe and Israel to make their mark.
Europe and Israel together account for about 45% of total project funding annually, but when you translate that to the specific field of AI, the proportion drops to less than half that (and generative AI is even less). You can take this as a sign that Europe and Israel are lagging behind in the market. Or more optimistically, it means that we will see a number of interesting developments in the coming months and years as the region catches up.
Investors are now looking for the next big thing, perhaps at less inflated prices than in the United States. Interestingly, Harry Nellis, a partner at Accel, told me that one of the reasons this report came out at all is because his company had a hard time dealing with this problem. Working on evaluating all the AI startups emerging across the region, to know what to invest in. So watch this space.
In the meantime, here are some of the more interesting data points from the report:
London is the city that has “created” the largest number of GenAI startups.
Of the 221 startups analyzed by Dealroom and Accel, about 27%, nearly a third of the group, were founded in London. Tel Aviv ranked second with 13%; Berlin 12%; and Amsterdam 5%. Interestingly, although Paris is the city that everyone has been talking about for a while as a hotbed of AI development, it finds itself in the middle of the city rankings, at 10%.
But these startups pack a punch.
GenAI startups founded in France receive the most money
Collectively, French startups that describe themselves as working in generative AI have raised $2.29 billion to date, the most raised by any country in all of Europe, and more than Israel. Recent rounds have included Mistral AI raising $640M earlier this month (plus ~$500M+ prior to that), H raising a $220M SEED round a few weeks ago, and Poolside is also said to be in the midst of raising a round Huge.
Other notable AI startups in Paris include Hugging Face, the open source repository of machine learning models, which raised $235 million in August 2023; Plus a new research-focused organization called Kyotai, itself armed with hundreds of millions of euros to make some waves in open source AI models.
Why do some places perform so much better than others?
In total, the $2.29 billion provided by France is roughly equivalent to the amount raised by the next three countries combined. The UK has seen $1.15 billion in innovative funding for AI startups (biggest companies here include Stable Diffusion, Synthesia, and PolyAI); 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). Moreover, other countries in the region have raised less than $160 million each – and sometimes much less, with funding in the low seven-figure range.
Nellis believes the main reason for this is the perfect storm of powerful educational institutions, which not only produce a lot of tech talent, but also attract big tech companies to build their own operations to leverage that talent.
“You can see the importance of real long-term investment in education, which is what brought a lot of founders to life in Paris,” Nellis said. “The same applies to nutrition in London from schools such as Cambridge, Oxford and University College London.” However, the step between universities and founders is not immediate: the middle stage, for many, was working at big tech companies, which set up shop to improve recruitment.
“Universities are obviously very important to attract hyperscalers,” Nellis said, citing Facebook/Meta establishing its own AI research labs in Paris early on, as well as Google eventually creating a similar setup there, having already built an operation with DeepMind has both. In London and Paris.
“Enterprise factories” — hyper-scale technology companies — are a big part of the story
In fact, while startups may seem like the crucible for AI development, big tech companies have a key role to play in fueling that fire. Looking at the tail end of startups in GenAI, about 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 more frequented the higher you go. Among the top 10 startups, 60% of founders come from a MAAMA university.
In fact, one company in particular stands out as an obvious source for AI founders:
It’s not a great message to those coming from outside that group, although that too is likely to evolve and expand as the field matures and grows.