AI: The 2023 renaissance

This year's survey checked the pulse on European tech industry sentiment towards the region's ability to build global AI leaders - a question that yielded interesting results. Overall, half the industry is confident that Europe will be able to produce a generation of AI category-leading companies. But this confidence certainly does not extend to all, with 28% of respondents sharing a more pessimistic outlook in their responses. Interestingly, Europe's founders were slightly less likely to take an optimistic view versus other respondent types.

AI has been at the heart of manifold discussions in the industry - and beyond - in 2023. Its elevation in public discourse, however, belies the fact that AI has been at the core of so many companies and so much investment since well before the last decade. Generative AI, which has captured so much attention in 2023, is of course just a specific branch of the much broader, overarching field of AI.

Investment into AI in Europe is defying the broader downturn, with 2023 total investment on track to come close to, or perhaps even surpass, last year's record-breaking amount of $8.7B.

While investment into AI in Europe has grown massively over a 10-year period, total investment volumes are a long way off the levels seen in the US. Over the past five years, almost $35B has been invested into European AI companies, compared to more than $130B in US AI companies. While Europe is now consistently seeing rounds of investment of $100M or more, and even up to $0.5B, this pales in comparison with Microsoft's $10B investment into OpenAI.

The difference in scale in absolute investment volume into AI companies in the US and Europe is largely a function of greater scale and frequency of growth stage activity.

At the growth stage, Europe has an 16% share of total AI / ML capital invested in 2023. This is a small, but notable increase in share from 10% in 2014.

By comparison, at the early stage, Europe has an 33% share of total AI / ML capital invested in 2023. Again, this share has climbed consistently over time as Europe's tech and AI ecosystem has matured. In 2014, for example, Europe's early stage share was just 16%.

This underlines the fact that early stage activity in AI has expanded significantly in Europe, growing faster in relative terms than the US. But, there is unquestionably more work to do in order to scale up these companies successfully and to build a growth stage environment that enables access to deeper pools of capital.

The fact that AI is flourishing under the radar in Europe should not be a surprise. Europe has a strong technical talent pool, owing its strength to world-class scientific and technical institutions and the depth of its engineering talent.

This strength extends into the field of AI. Over the past decade, Europe has not only witnessed a greater than 10x increase in the number of people working in AI roles, but also claims a larger resident population of highly-skilled AI professionals compared to the US.

Of course, many of these AI professionals are working in roles at US-headquartered technology companies that have built a large AI research presence in Europe, such as Alphabet or Meta. But as Mistral AI - a company founded by European former leading AI researchers at Meta and DeepMind - demonstrates, these European-based pools of AI talent have become an incredibly rich breeding ground for the founders and talent behind the next generation of European AI companies.

As a consequence of AI investment defying the broader downturn in total capital invested in European tech, AI's share of total investment spiked to an all-time high in 2023, climbing to 17%. Again, the data makes it clear that AI has been an important feature of European investment themes for many years, consistently accounting for more than 10% of total investment over the last five years.

What is also notable is that the gigantic sums invested in US AI leaders, such as OpenAI and Anthropic, in the last two years has resulted in a widened gap between Europe and the US's relative share of investment in AI in 2023. In the US, AI investment accounted for 30% of total tech investment, almost double the level seen in previous years.

There has been no shortage of perspectives on Europe's position in the AI race. Amidst the noise, it is easy to overlook the fact that the AI theme has actually hit a stride in Europe in recent years, with European AI companies consistently securing mega-rounds of $100M or more. In fact, this year will come close to matching the record set in 2021, despite the huge headwind of a steep drop in overall investment levels in Europe in 2023.

As of the end of Q3 2023, European AI companies had raised 11 rounds of $100M or more, compared to 37 rounds by US AI companies over the same period. So far, however, European AI companies have not yet raised the type of billion-dollar or multi-billion-dollar rounds that have become crucial sources of firepower for the most important and fastest-growing US AI companies, like OpenAI or Anthropic. The multi-$100M+ rounds, however, are certainly beginning to appear in Europe.

The most remarkable subset within the AI space this year has undoubtedly been Generative AI.

Generative AI companies focus on developing and applying artificial intelligence technologies, particularly machine learning techniques, to generate new content, data, or media. This category features companies like Mistral AI and Aleph Alpha in Europe, alongside OpenAI (the makers of ChatGPT) and Inflection AI in the United States.

While Generative AI companies may represent a relatively small fraction of overall tech fundraising activity on an absolute count basis, they have swiftly had an outsized impact on workflows, regulatory discourse, and society at large.

What is also notable is that whilst generative AI companies have leapt into the public consciousness in 2023, they have been quietly being started and funded in greater numbers for many years, both in Europe and the US.

As the most important emerging branch of AI, Generative AI has not only captured the world's attention, but it has also captured a significant share of overall AI investment too.

The share of AI investment specifically allocated to Generative AI companies has taken a major step forward in Europe, hitting 11% in 2023, but a giant leap in the US, where Generative AI now accounts for more than half (60%) of all AI investment.

Generative AI companies had seen a relatively slow and steady influx of funding since 2019, reaching peaks in 2022 of $2B invested in the United States and $0.5B invested in Europe. Then OpenAI happened. With a whopping $10B of investment raised in a single round, OpenAI's latest round skyrocketed the theme's total funding in US in 2023 to $16B. An extreme example of the impact one or two outlier companies can have on the ecosystem.