Forty per cent of AI start-ups in Europe aren't involved in AI

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Out of 2,830 AI start-ups only 1,580 genuinely are, claims new report

Forty per cent of all new supposedly artificial intelligence start-ups in Europe don't actually use AI in any key part of their business.

That's according to a new report that claims to have examined 2,830 technology start-up companies in the European Union.

According to the report, The State of AI 2019 [PDF], one in 12 new start-ups put AI "at the heart of their value proposition" in 2019, up from just one in 50 in 2013, with the UK "the powerhouse of European AI", accounting for one-third of Europe's AI-related start-ups.

Companies that people assume and think are AI companies are probably not

However, not all of them, on closer examination, are fully engaged in AI, the report suggests.

"We individually reviewed the activities, focus and funding of 2,830 purported AI startups in the 13 EU countries most active in AI - Austria, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden and the UK," the report explains. 

It continues: "Together, these countries also comprise nearly 90 per cent of EU GDP.

"In approximately, 60 per cent of the cases - 1,580 companies - there was evidence of AI material to a company's value proposition."

The report, by MMC Ventures, goes on to add that around 60 per cent of AI start-ups in the EU are nevertheless at their earliest stages of funding, receiving investments from ‘angel investors' or seed-stage funding.

Just one-in-six have moved on from this early stage to the growth phase, although in the UK (along with France and Germany) companies are typically further developed.

The AI label magically attracts between 15 per cent and 50 per cent more funding compared to other technology start-ups

The reason why so many start-up companies either claim to be involved in AI or are relaxed about others claiming that they are is quite simple: the AI label magically attracts between 15 per cent and 50 per cent more funding compared to other technology start-ups.

However, according to David Kelnar, head of research for MMC, it is not necessarily entirely down to the companies, but often third-party data websites (such as Crunchbase and Pitchbook) mis-classifying them as AI, and not correcting their mistake. Likewise, there's little incentive for a start-up to correct the mis-classification when it can make funding easier to raise.

Talking to Forbes, Kelnar said: "We looked at every company, their materials, their product, the website, and product documents. In 40 per cent of cases we could find no mention of evidence of AI".

He added: "Companies that people assume and think are AI companies are probably not."

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