"Last year, two-thirds more AI start-ups were created in Germany than in the previous year. But in one important metric, German companies cannot keep up with the American competition.
The excitement surrounding artificial intelligence (AI) has triggered a surge in AI start-ups in Germany. In 2023, 341 AI-related start-ups were created in this country - an increase of two thirds compared to the previous year.
This is shown by an evaluation published on Wednesday by the start-up association together with Deutsche Telekom's tech incubator, Hubraum.
The increase in AI start-ups clearly goes against the general trend, because overall, almost 5 percent fewer start-ups were founded in 2023 than in the previous year. The share of AI start-ups in total start-ups consequently rose from 6-8 percent in the years from 2019 to 14 percent last year.
According to a survey conducted by the study authors among 306 companies, AI start-ups concentrate significantly more on business with corporate customers than usual start-ups.
93 percent of start-ups with a focus on “generative artificial intelligence” are active in this “business-to-business” area, while for other start-ups it is only 65 percent.
Generative artificial intelligence is the name given to models trained on huge amounts of data that can create texts, images, videos or other data on command.
They are the basis for applications like ChatGPT from Open AI. Although many people know AI companies from a user perspective, as is the case with ChatGPT, the study authors write: "But the great potential lies in opportunities to increase efficiency for the established economy."
Founders criticize medium-sized businesses
For this reason, the study authors see cooperation between start-ups and established businesses as central. However, according to the survey, two thirds of German AI start-ups criticize the lack of willingness of medium-sized companies to get involved in new technologies such as AI.
The increasing start-up momentum in Germany is probably also due to the fact that investments in start-ups related to generative artificial intelligence around the world will increase from 4.8 billion euros in 2021 and 4.2 billion euros in 2022, according to the study authors' evaluation 22.3 billion euros literally exploded last year. For comparison: General investments in start-ups more than halved between the exceptional year 2021 and 2023, according to the Hubraum and Start-up Association. They recently amounted to 246 billion euros.
Only a quarter with product on the market
The willingness of investors to invest also seems to have an impact on the self-confidence of AI founders. 20 percent of start-ups focusing on generative artificial intelligence are aiming for an “exit” for 1 billion euros or more. “Exit” means a sale or IPO. Among start-ups without an AI focus, only 3 percent are aiming for such a billion-dollar valuation. The result is based on a survey of 306 start-ups.
Meanwhile, fears of an investment bubble are growing in the industry. One thing is clear: not everyone will make it. Especially since German AI start-ups are, on average, still particularly young. According to the study, only just under a quarter of companies already have a product on the market.
And even if they successfully enter the market, start-ups with research-intensive business models in particular need a lot of money to expand their company.
AI experts and computing power are very expensive.
And there are still significantly more of them in the United States. According to an analysis by Hubraum and the Start-up Association, even normal start-ups received six times more capital in America between 2020 and 2023, adjusted for population size. In the AI area, the gap is even greater.
American AI start-ups raised twelve times more capital per capita than their German counterparts.
Since 2018, the providers Open AI and Anthropic alone have raised around four times as much capital as all European start-ups focusing on generative AI combined.
"Not only are there a lack of strong tech players as major investors in Europe, there is also the question of whether investors are generally skeptical about the (regulatory) environment in Europe," write the study authors." [1]
1. Deutsche KI-Start-ups boomen - und hängen trotzdem hinterher: Zwei Drittel mehr Neugründungen im KI-Bereich als im Vorjahr, aber 12-mal weniger Geld pro Kopf als in Amerika. Frankfurter Allgemeine Zeitung (online) Frankfurter Allgemeine Zeitung GmbH. Apr 24, 2024. Von Maximilian Sachse
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