European AI startups have gained significant momentum in the past few years, but like any industry, they’re facing significant challenges that are shaped by global economic factors. Though these companies continue to reach impressive technological milestones, the macroeconomic environment–primarily investment trends and supply chain disruptions–is impacting how AI startups can remain profitable against global competition. There are a slew of creative European AI startups that have a promising future, but first, they have to make it through the industry challenges.
The Best That AI Startups Have to Offer
Despite the significant struggles AI startups have been facing recently, Europe has nurtured a vibrant AI ecosystem with startups emerging in various sectors. Companies like Synthesia and Mistral AI, based in the UK and France, are making progress in generative AI.
Meanwhile, Germany's DeepL is a leader in AI-powered translation. These companies, along with many smaller startups across the continent, rely on a globalized market for talent, investment, and customers.
One kind of company that’s on the rise is those offering AI companion services, usually in the form of an AI girlfriend or boyfriend. Two of the leaders in this space are HeraHaven AI and Talkie AI. Given that these companies have a more diverse global customer base, this decreases their reliance on one single consumer market like the US. Though there are a significant number of promising startups, they still have a lot of hurdles to make it through as they duke it out for success.
Venture Capital Funding Slow-Downs
Venture capital funding is vital for any startup, not just ones that revolve around AI. Though there was initially a boom in AI tech investment, investors have slowed down in the past few months, making the future of these companies a bit more uncertain. Global economic uncertainty, significant inflation, and investor interest all play a part in the decreased funding.
Given that it’s become harder and pricier for startups to borrow money, the competition for securing funding has become fierce. That just means that companies need to be prepared to make compelling cases on how their startups have long-term viability. In this economy, investors aren’t typically looking for a gamble. They want a tangible path to profits, a sustainable business model, and a strong market demand before they consider investing.
Now, that’s not to say that it’s impossible. However, AI startups need to be creative and strategic in how they go about procuring investors to convince them that their business model is more promising than the competition.
Global Supply Chain Disruptions Cause Issues
If the financial pressure wasn’t stressful enough, AI companies also have to deal with global supply chain disruptions. For example, the semiconductor shortage has affected a hefty number of markets, and European AI companies are not immune.
Given the level of high tech that AI needs to function, the rising costs and production delays are impacting the companies’ ability to get the tech they need at the price they need when they need it. To boot, the unpredictability of access to affordable technology like GPUs and custom chips (which keep algorithms running and processing extensive data) has impacted long-term bottom lines. It’s difficult to plan for the future when prices and availability are constantly changing. And that’s not something that startups can promise investors because no one can predict the future–not even AI algorithms.
Contending With Global Transportation Bottlenecks and Labor Shortages
In addition to costs and the availability of necessary AI components, the industry is also impacted by labor shortages and transportation delays that stem from outside factors. Of course, this slows down the timelines for AI development and adds uncertainty to when development can progress. If a company doesn’t know when they’re going to get their necessary supplies, how can they promise to deliver the final product by a certain time? There goes their competitive edge.
The Future of the European AI Sector
There may be a lot going against the European AI market, but that doesn’t mean it’s out of the global race. Companies will need to strategize as they work around the challenges of finding funding, supply chain issues, and transportation delays.
One way AI startups are combatting these issues is by taking advantage of increased investment in AI research and development. The European Commission recently created measures to support European startups and SMEs in developing AI technologies.
If the past is anything to go by, European AI startups will weather the storm and continue to adapt to these struggles and whatever other ones lie ahead.
