AI Startups Attracted 25% of Europe's VC Funding in Recent Years

Table of Contents

A Flat Year, but AI Startups are Thriving

The European venture funding landscape is expected to experience a flat year in terms of overall investment. However, this trend may mask the significant growth and success of Artificial Intelligence (AI) startups in the region.

According to a recent report by VC firm Balderton Capital and Dealroom, 25% of VC funding into Europe – approximately $13.7 billion – went to AI startups this year. This represents a notable increase from the 15% share four years ago, resulting in the emergence of several new unicorns, such as Poolside and Wayve.

European AI Startups Doubling in Value

Balderton Capital general partner James Wise highlights that "you can raise hundreds million euros, even billions euros, as a very early-stage AI company if you’ve got a breakthrough technology in Europe, just as you can in the U.S." This counters what he sees as a ‘relatively negative narrative’ around Europe. Collectively, European AI companies have doubled in value in just four years, reaching $508 billion.

This category now represents nearly 15% of the entire tech sector in value, up from 12% three years ago. Wise notes that this growth is not limited to early-stage startups; funding is available for AI companies at all stages. Moreover, American AI companies also see Europe as a talent pool to tap into.

Employment Numbers Skyrocketing

Dealroom’s findings indicate that 349,000 people were employed by AI companies in Europe this year, a staggering 168% increase since 2020. This may seem surprising given the smaller size of many AI teams; however, Wise believes this aligns with his thesis presented in his recent book, ‘Start-up Century: Why we’re all becoming entrepreneurs — and how to make it work for everyone.’

Wise predicts that "you’re going to see a rise in hundreds of small, very productive companies, rather than one large, medium productive company." There’s also a snowball effect, as AI companies make others more productive. In their CTO survey, 93% of the companies they worked with reported that generative AI tools have significantly changed their workflow in the last year.

Increased Adoption and Productivity

Among these companies, some reported their engineering teams being twice as productive, while others saw an impact on other functions – averaging out to a 20% savings in operating costs. Wise believes this increased adoption will continue, leading to further growth for Europe’s AI sector.

However, Wise and his colleagues now think that "there’s no longer an AI sector." This potential shift could render similar data pointless next year. The increased focus on AI adoption may lead to a more nuanced understanding of the European AI landscape.

Conclusion

The European venture funding landscape may be experiencing a flat year, but the growth and success of AI startups are undeniable. With $13.7 billion in funding for AI companies this year, Europe’s AI sector is thriving. As employment numbers skyrocket and adoption continues to increase, it’s clear that the future holds great promise for AI startups in Europe.

However, as Wise notes, the concept of an "AI sector" may soon become obsolete. The focus will shift from a specific industry to a broader understanding of how AI is integrated into various sectors. This new perspective may provide a more accurate representation of the European AI landscape.

Future Developments

As the adoption of AI continues to increase, it will be interesting to see how this growth affects various sectors. The integration of AI into industries beyond technology may lead to a more comprehensive understanding of its potential benefits and challenges.

Sources

Balderton Capital and Dealroom Report
James Wise’s Book: ‘Start-up Century: Why we’re all becoming entrepreneurs — and how to make it work for everyone’
TechCrunch AI-Focused Newsletter