France leads the way for generative AI funding in Europe, with three times the number of generative AI startups in London

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Like it or not, artificial intelligence — especially generative AI — Technology Story of 2024.

OpenAI has gotten the bulk of the attention and money so far, with viral services like ChatGPT and billions of dollars in funding. But according to a new report from top VCs Accel and analysts at Dealroom, a wave of hopefuls is now emerging in Europe and Israel to make their mark.

Europe and Israel together make up around 45% of total venture funding annually, yet when you translate this into the specific field of AI, the ratio drops to less than half (and generative AI even less). You could take this as a sign that Europe and Israel are lagging behind in the market. Or more optimistically, it means we’ll see a number of interesting developments in the coming months and years as the field continues to grow.

Investors are now looking for the next big thing, possibly at prices that are lower than in the US. Interestingly, Accel partner Harry Nellis told me that one of the reasons this report came out was that his firm was hard at work evaluating all the generative AI startups emerging in the region, to figure out which ones to invest in. So watch this space.

Meanwhile, here are some of the most interesting statistics from the report:

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

About 27% of the 221 startups analyzed by Dealroom and Accel, which is almost a third of the group, were created in London. Tel Aviv took second place with 13%; Berlin 12%; and Amsterdam 5%. Interestingly, although Paris is the city that everyone has been talking about as a hotbed for AI development for a while now, it was found right in the middle of the city rankings with 10%.

Image Credit: Dealroom/Excel (Opens in a new window) under a licence.

But these startups are very powerful.

GenAI startups founded in France are making 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 $640 million earlier this month (having previously raised over $500 million), “H” raised a $220 million seed round a few weeks ago, and Poolside is also reportedly set to raise a hefty round.

Other notable AI startup activity in Paris includes Hugging Face, an open-source repository for machine learning models that raised $235 million in August 2023; as well as a new research-focused outfit called Kyutai, armed with hundreds of millions of euros to make some waves in open source AI models.

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

Overall, France’s $2.29 billion is almost as much as the next three countries have raised combined. The U.K. has $1.15 billion in generative AI startup funding (Stable Diffusion maker Stability AI, Synthesia and PolyAI are among the big players here); Israel has $1.04 billion (startups including AI21 and Run:ai, which Nvidia recently acquired); and Germany has $636 million (the bulk of which includes Aleph Alpha’s $500 million round last year). Beyond that, other countries in the region have raised less than $160 million — sometimes even less, with funding mostly in the low seven-digit range.

Nellis believes this is largely due to strong academic institutions, which not only produce a lot of tech talent but also attract large tech companies to set up their operations to tap that talent.

“You can see the importance of real, long-term investment in education, which has benefited a lot of founders in Paris,” Nellis said. “The same goes for funding from schools like Cambridge, Oxford and UCL in London.” However, the step between universities and founders is not immediate: The middle step for many has been working at big tech companies, which have opened their own shops to improve recruitment.

“Universities are obviously very important for attracting hyperscalers,” said Nellis, citing Facebook/Meta establishing their AI research labs in Paris, with Google eventually establishing a similar set-up there, having already established an operation with DeepMind in both London and Paris.

“Founder factories” — hyperscale tech companies — are a big part of the story

In fact, even though startups may seem like a vital link to AI development, major tech companies have a key role in fueling this fire. Looking at the long tail of GenAI startups, about 25% of them have founders who have previously worked at Alphabet (DeepMind or Google), Apple, Amazon, Meta or Microsoft (let’s call them MAAMA). The higher you go, the more popular it gets. 60% of the top 10 founders of these startups come from one of the MAAMA.

In fact, one company in particular clearly stands out as an AI founder feeder:

Image Credit: The Dealroom (Opens in a new window) under a licence.

This is not a great message for those coming from outside that group, however, as the field matures and develops, it will also evolve and expand.

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