Artificial intelligence, particularly generative AI, has become the dominant technology story of 2024. OpenAI has garnered significant attention and funding with its viral services like ChatGPT. However, a new report by top VC Accel and analysts at Dealroom highlights the emergence of hopeful AI startups in Europe and Israel.
Despite Europe and Israel typically accounting for 45% of annual venture funding, their share in AI funding, especially generative AI, is less than half of that. This suggests that the region is lagging in the market, but it also presents an opportunity for interesting developments in the future.
Investors are now seeking the next big thing in Europe and Israel, potentially at more reasonable prices compared to the inflated U.S. market. Accel partner Harry Nelis reveals that his firm has been evaluating generative AI startups in the region to identify potential investment opportunities.
The report provides several interesting data points. London has emerged as the city with the highest number of generative AI startups, accounting for 27% of the analyzed startups. Tel Aviv follows at 13%, Berlin at 12%, and Amsterdam at 5%. Despite Paris being touted as an AI development hotspot, it ranks in the middle at 10%.
French-founded generative AI startups have raised the most money collectively, surpassing other European countries and even Israel. French startups have raised $2.29 billion to date, with recent notable rounds including Mistral AI’s $640 million and “H” raising $220 million in a seed round. Paris is also home to Hugging Face, which raised $235 million, and Kyutai, a well-funded research-focused organization in open-source AI models.
The success of certain regions in AI funding can be attributed to strong educational institutions that produce technical talent and attract tech companies to establish operations. Paris benefits from universities like Cambridge, Oxford, and UCL, while London feeds off these educational institutions as well. Big tech companies like Facebook/Meta and Google have set up AI research labs in Paris, establishing a connection between universities and founders.
Major tech companies, often referred to as “founder factories,” play a significant role in AI development. A quarter of generative AI startups have founders who previously worked at Alphabet (DeepMind or Google), Apple, Amazon, Meta, or Microsoft. Among the top 10 startups, 60% of the founders come from these major tech companies. This highlights the influence and expertise that these companies bring to the AI ecosystem.
Although the dominance of founders from major tech companies may seem discouraging for those outside the circle, the field is expected to evolve and expand as it matures. The emergence of AI startups in Europe and Israel presents an exciting opportunity for innovation and growth in the coming years. Investors are keeping a close eye on these regions for the next breakthrough in generative AI.
