Back in February of 2023, Jonas Andrulis, CEO and founder of German startup Aleph Alpha, talked a big game about how offering European clients an alternative to AI products from Big Tech companies was a solid recipe for success.
“There are a lot of strong enterprises and phenomenal people that don’t want to be dependent on Microsoft or Google,” he told Sifted in an interview.
Today, it’s a very different story for the company that’s raised more than $500m from investors in its bid to lead European AI development.
Aleph Alpha has pivoted from training its own large language models (LLMs), and is now developing a “generative AI operating system” to sell to customers. Developing huge models to compete with the likes of OpenAI is, Andrulis has learnt, an expensive business.
“It’s hard to make it make sense economically. It’s not hard to wire a lot of money to Nvidia. Everybody can do that. But it’s hard to build a working business model,” he told the Sifted Summit on Wednesday. “It just doesn’t make economic sense if your business model is just throwing hundreds of millions of dollars at GPUs.”
Tough for startups
Andrulis added that the huge sums of money that Big Tech companies like Google and Microsoft are throwing at GenAI is creating an uneven playing field that’s hard for a startup to succeed in.
“There are strategic interests that are disrupting this market. Tech giants aren’t seeing this as a working business model by itself but as a tool to strengthen existing models. They don’t need to get a ROI on LLM investment,” Andrulis said.
The founder recently told Bloomberg that “just having a European LLM is not sufficient as a business model” — and he believes that startups like Paris-based Mistral (which this year raised a €600m round led by General Catalyst) could run into problems after having given away large sums of equity to fund training models.
“They’re certainly very smart people, so if there’s a path I’m sure they’ll find it. The problem is, if by the time you figure it out you have a billion in liquidation preferences on your cap table, that’s a pretty steep uphill battle,” he told the Sifted Summit audience.
Sifted reached out to Mistral for a response, but did not receive a reply before publication.
Raising revenue
Aleph Alpha hasn’t exactly been smashing its own revenue goals: in 2023 it brought in a little under €1m, after targeting €5.5m. So how are its plans to 20x its revenues to €20m in 2024 going?
“I would consider last year as almost pre-revenue. Last year I was 120% busy raising [the round]. There were no multi-year contracts. And right now, not only are we orders of magnitude bigger than that [last year’s revenues], it’s actually multi-year, multi-million contracts,” Andrulis told the Sifted Summit audience, adding that signing up strategic investors in a recent fundraise has helped Aleph Alpha’s commercialisation efforts.
“One of the reasons that we went with Bosch, Schwarz Group and SAP is that we want to be on the side of these enterprises and transform their businesses and having them on the cap table accelerates this process.”
Read the orginal article: https://sifted.eu/articles/aleph-alpha-sifted-summit/
