Artificial intelligence, particularly generative AI, is the focal point of tech news in 2024. Services like OpenAI's ChatGPT and the billions of dollars in funding have attracted significant attention. However, according to the latest report from venture capital firms Accel and Dealroom, a wave of emerging companies in Europe and Israel is poised to make a name for themselves in the AI sector.
Image source note: The image is AI-generated, provided by the image licensing service Midjourney
Europe and Israel typically account for about 45% of global venture capital, but in the AI sector, this proportion is less than half (even lower for generative AI). This can be seen as a lag in the market for Europe and Israel, or more optimistically, as a sign that the region will see a series of interesting developments in the coming months and years. Investors are looking for the next big thing, with potential prices not as inflated as in the US. In fact, Harry Nelis, a partner at Accel, said the report emerged because his company has been evaluating all the generative AI startups emerging in the region to decide where to invest.
Some of the most interesting data points in the report include: London is the city with the most generative AI startups, accounting for 27% of the 221 startups analyzed by Dealroom and Accel. Tel Aviv comes in second at 13%; Berlin at 12%; and Amsterdam at 5%. Paris, a hotspot for AI research and development, ranks in the middle of the city list, accounting for 10%.
Additionally, French startups claim to have raised the most funds in the generative AI field, reaching $2.9 billion so far, surpassing Israel. Recent funding cases include Mistral AI raising $640 million earlier this month (after raising over $500 million previously), H company's $220 million seed round a few weeks ago, and reports of Poolside also conducting a large funding round. Other AI startup activities in Paris include Hugging Face (raising $235 million in August) and a new research organization called Kyutai, which has hundreds of millions of euros to make an impact in the field of open-source AI models.
Why do some places perform better than others? France's $2.9 billion in funding is almost equivalent to the sum of the other three countries. UK generative AI startups have raised $1.15 billion (including larger companies like Stability AI, Synthesia, and PolyAI), Israel $1.04 billion (including AI21 and Run:ai, recently acquired by Nvidia), and Germany $636 million (with Aleph Alpha's $500 million raise last year making up the bulk). Beyond that, funding for startups in other countries in the region is less than $160 million each, sometimes far below that, with amounts even less than seven figures.
Nelis believes the main reason is strong educational institutions, which not only cultivate a large number of technical talents but also attract major tech companies to set up their businesses in the region to absorb talent. He said, "You can see the importance of real, long-term investment in education for Paris to produce many founders. The same is true for London, thanks to schools like Cambridge, Oxford, and UCL." However, the steps between universities and founders are not immediate: many first work in large tech companies, which set up businesses to improve recruitment.
In fact, while startups may be the cradle of AI development, large tech companies also play a significant role in nurturing founders. About 25% of the tail of GenAI startups have founders who have worked at Alphabet (DeepMind or Google), Apple, Amazon, Meta, or Microsoft (which we call MAAMA). Among the top ten startups, 60% of the founders come from one of the MAAMA companies.