France leads the way in GenAI funding in Europe, London has three times as many GenAI startups

Like it or hate itartificial intelligence – especially generative AI – does the technology story of 2024.

OpenAI, with the rollout of viral services like ChatGPT and billions in funding, may have absorbed the lion's share of attention and money so far. But according to a new report from top VC Accel and Dealroom analysts, there is now a wave of hopefuls emerging in Europe and Israel looking to make their mark.

Together, Europe and Israel account for about 45% of all venture capital funding annually, but if you translate that to the specific domain of AI, that share drops to less than half of that (and generative AI even less). You can interpret that as a signal that Europe and Israel are lagging behind the market. Or more optimistically, it means we'll see some interesting developments in the coming months and years as the region catches up.

Investors are now on the hunt for the next big thing, possibly at prices that are lower than in the US. Interestingly enough, Accel partner Harry Nelis tells me that one of the reasons this report became a reality in the first place was that his company has been working hard on evaluating all the generative AI startups emerging in the region, to find out in which they should invest. So watch this space.

In the meantime, here are some of the most interesting data points from the report:

London is the city that has 'generated' the most GenAI startups.

Of the 221 startups Dealroom and Accel analyzed, around 27%, almost a third of the group, were founded in London. Tel Aviv took number two with 13%; Berlin 12%; and Amsterdam 5%. Interestingly, while Paris is the city everyone has been talking about for a while as a hotbed for AI development, it was in the middle of the city rankings at 10%.

Image credits: Dealroom/Accel (opens in a new window) under license.

But those startups pack a punch.

The GenAI startups founded in France raise the most money

Collectively, French startups that describe themselves as working in the field of generative AI have raised $2.29 billion to date, the most of any country in Europe, and more than Israel. Recent rounds include Mistral AI raising $640M earlier this month (on top of ~$500M+ before that), “H” raising a $220M SEED ROUND a few weeks ago, and Poolside also reportedly in the middle quite a round.

Other notable AI startups 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 noise in open source AI models.

Why is it that some places do so much better than others?

In total, France's $2.29 billion is almost as much as the next three countries raised together. The UK has seen $1.15 billion in funding for generative AI startups (Stable Diffusion maker Stability AI, Synthesia and PolyAI are among the bigger players here); Israel $1.04 billion (with startups like AI21 and Run:ai, which Nvidia recently acquired); and Germany $636 million (with Aleph Alpha's $500 million round last year accounting for the majority of that). In addition, other countries in the region have each raised less than $160 million – sometimes significantly less than that, with funding in the low seven-figure range.

Nelis believes that the main reason for this is the perfect storm of strong educational institutions, which not only produce a lot of technical talent, but also attract large technology companies to build their own activities to tap that talent.

“You see the importance of real long-term investments in education that bring in a lot of founders in Paris,” Nelis said. “The same applies to the food in London at schools such as Cambridge, Oxford and UCL.” However, the step between universities and founders is not immediate: the middle phase for many was working at large tech companies, which focused on improving recruitment.

“Universities are clearly very important for attracting hyperscalers,” Nelis said, citing Facebook/Meta early on setting up its AI research labs in Paris, and Google eventually setting up a similar setup there, having already established an operation with DeepMind had built up. in London and Paris.

“Founder factories” – hyperscaler technology companies – are a big part of the story

While startups may feel like the crucible of AI development, big tech companies have an important role to play in fueling those flames. Looking at the long tail of GenAI startups, about 25% of them have founders who previously worked at Alphabet (DeepMind or Google), Apple, Amazon, Meta or Microsoft (let's call them MAAMA). The higher you go, it gets even more clubby. Among the top 10 of these startups, as many as 60% of the founders come from one of the MAAMAs.

One company in particular stands out as a clear AI founder:

Dealroom
Image credits: Dealroom (opens in a new window) under license.

It's not a brilliant message for those coming from outside this grouping, although that too will likely evolve and expand as the field matures and grows.

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