At the end of February, Microsoft bought shares in the French startup Mistral AI. This company, which has been in existence for less than a year, is now valued at 2 billion dollars and is described as a threat to the position of OpenAI. What does this tell us about the European technological ecosystem and its chances of catching up with the world?
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Europe is less innovative in terms of technology and lags behind in the race for dominance in the global market. This common opinion is confirmed by the numbers. According to data from the global analytics agency Dealroom, the largest technological ecosystems in the world are located in the United States - six of them are in the top ten. Of course, Silicon Valley dominates, but huge hubs are also created by Seattle and New York.
Beyond them, only in fifth place is London, in seventh - Paris, as well as Tel Aviv (position no. 8) and Beijing (position no. 10). The dominance of the USA is therefore significant, and it should be noted that Dealroom takes into account not only the size of investments, but also, among others, scientific potential, number of patents or number of unicorns, i.e. companies valued at over a billion dollars.
The gap between the United States and the rest of the world seems to be even larger when looking at the size of investments in individual regions. According to the latest Dealroom report from December 2023, European startups grabbed 19.5% of Venture Capital funding, compared to 42% of VC investments in the States and 36% in Asia, of which as much as 19% of the money went to China.
The global list of the TOP 500 largest global companies doesn't look any better. In the Fortune Global 500 ranking, there were only forty-three companies from Europe, compared to one hundred and thirty-six entities from the USA and one hundred and thirty-five companies from China. The report covers all sectors of the economy, but technology companies are in prominent positions. Amazon - in fourth place, Apple - in eighth, Alphabet - in seventeenth, Samsung - in twenty-fifth.
There are very few European technology companies there, because the only strictly technological company on the list - and not, for example, automotive - is the German SAP (only 472nd position!). The situation improves slightly when looking at the list of companies in terms of market capitalization. There, the leading places are occupied by American or Chinese Big Techs, but the Dutch ASML also found its place there, the only company in the world engaged in the production of extreme ultraviolet lithography machines, necessary for the production of advanced integrated circuits. The aforementioned SAP also ranked fiftieth.
And what about the biggest European unicorns, i.e. startups, that have achieved high capitalization? What about Revolut, Spotify, Vinted or Klarna? They exist - and some are developing very well, although there are significantly fewer of them than in the States or Asia. According to Statista data from April 2023, there were 697 American unicorns, 463 Asian ones, and only 165 European ones.
But is it really as bad as the data suggests? According to Niklas Zennström, a Swedish entrepreneur and programmer, creator of Skype among others - not necessarily. A few months ago, Zennström and the VC fund Atomico he manages published an article in the French Le Monde titled European technology will become a global superpower. It suggests that the Old Continent is increasingly recognized as a potential global technological superpower, with an industry valued at $3 trillion and showing a solid annual growth rate averaging 27% since 2015. What's more, Europe scoops up as much as 30% of the first funding rounds, those at the early stage of startup development. That's not much less than the USA, which receives 36% of initial investments.
According to Zennström, despite historical comparisons suggesting that Europe is constantly catching up with the United States and China, the region is becoming a leader and is already setting the tone in some market segments. For example, in the area of startups focused on ecology and achieving the sustainable development goals set by the UN. What's more, compared to a few years ago, there is now a whole generation of experienced startup leaders from companies like Ayden or BlaBlaCar. The founder of Atomico also claims that Europe has a well-educated workforce and has twice as many programmers and engineers as the USA, as well as a very significant share in artificial intelligence research.
Zennström also notes a number of challenges facing the Old Continent. Especially in the area of scaling, where Europe lags behind in terms of institutional financing. The region also needs more local investment to fully realize its technological potential. However, in the broader perspective, the narrative and perception of Europe are changing for the better and this is, according to the head of Atomico, a unique opportunity to create a sustainable, future-oriented technological ecosystem on the continent.
However, it should be noted that Niklas Zennström's article was supposed to bring a certain dose of optimism, as it was published shortly before the presentation of the Atomico State of European Tech 2023 report. Meanwhile, this study indicates that in 2023, investments in European startups were as much as 45% lower than the previous year, and one of the bright spots were AI startups. As many as eleven European companies in this industry received funding of $100 million or higher. The second positive surprise was the number of specialists dealing with artificial intelligence, which has increased tenfold over the last decade and is already higher than in the USA.
In addition to the aforementioned Mistral.AI, there was also a lot of talk about the German Aleph Alpha dealing with generative artificial intelligence. This startup raised a record $500 million in funding. There is also the German DeepL, a company dealing with machine translations, which many experts consider to be the best in the industry, significantly surpassing in quality even the popular Google Translator.
However, one cannot fail to notice the huge dominance of American companies. The capitalization of NVIDIA, the main player providing chips and other technologies driving what is happening around AI, amounted to $1.83 trillion and exceeded the valuation of Alphabet, the parent company of Google. Sam Altman, CEO of OpenAI, also recently appealed to investors in the United Arab Emirates, among others, for investments in AI infrastructure at the level of several trillion dollars. Seeing such data, the numbers coming from Europe are no longer so impressive.
The bitterness is also added by the fact that Europe is facing its own geopolitical challenges. These include the weakening German economy and the war in Ukraine, as well as Brexit. London is the main European technology hub, and the entire British technology ecosystem with companies such as ARM (responsible for the architecture of our smartphone processors) is an essential part of it. The UK's exit from the EU has introduced additional complications, especially in terms of worker mobility, data transfer and regulatory compliance.
This is also accompanied by strong regulations, in which Europe is a pioneer. This includes the AI Act, the world's first regulations governing the operation of companies in the AI field, or the DSA, Digital Services Act, called the "constitution of the internet". According to supporters, these are very necessary regulations that will set the direction for the rest of the world and affect our online safety. Critics argue that they will further hinder the development of European technology startups and cause some of them to move to the USA or Asia.
And what will really happen? The development of AI technology is gaining momentum around the world, so we should quickly find out whether companies such as Mistral.AI or Aleph Alpha have managed in the global race.
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