AI is creating a new digital divide in Europe, splitting the continent into concentrated pockets of activity and large tech deserts.
Europe’s VCs have tilted sharply towards AI companies in the UK, France and Germany. There were 293 VC fundraises by Europe’s “AI native” startups — those developing generative AI applications, AI agents and specialised AI hardware — in the past 12 months and just over half (54%) of these deals happened in those three countries, according to Sifted data.
The bulk of the remaining AI deals in this period were inked in a handful of geographies such as Sweden (19), Spain (18), the Netherlands (18) and Switzerland (12).
But there are many European countries that are seeing little-to-no AI deal activity: there were just five rounds for AI-native startups in Poland in the past 12 months; there were two in each of Greece, the Czech Republic and Estonia and just one in Portugal in that time.
Europe’s east-west tech funding divide is not new, nor is it unusual to see the three most populous European countries divvy up the majority of investment spoils. But it’s a worry, for some, to see so many countries being excluded from a race that AI proponents say could change the way we live and work.
“I think the concern is very real,” says Oksana Vodonos, an investor at Warsaw-based VC firm 500 Global. “From where I sit in Warsaw, and working closely across CEE [central and eastern Europe], the Baltics and the Caucasus region, there’s definitely growing anxiety about being left out of the ‘AI party’ in Europe.
Large parts of the European map have not seen anything like the flurry of massive funding rounds for AI companies — which includes Mistral’s €600m raise in Paris, Synthesia’s $180m raise in London and Helsing’s €600m raise in Berlin. AI success stories are harder to spot beyond western Europe, though there is unicorn ElevenLabs, founded by two Polish engineers (the kicker: it’s headquartered in New York and London).
The AI divide has been recognised in Brussels, with EU officials outlining plans in February to invest €200bn in AI projects, including new data centres, across the 27-country bloc.
“It’s not that the talent or ambition isn’t here, it absolutely is,” says Vodonos. “But the capital, visibility and early believers? The gap is there. Most AI fundraising is happening in a handful of western European hubs, which could definitely deepen brain drain and widen the divide.”
And if other European countries are struggling to keep pace with startups in the French or German capitals, then they’re a long way off competing with the global tech leaders in the US, which are spending hundreds of billions on data centres and — in the case of Facebook owner Meta, at least — are reportedly offering $100m sign-on bonuses for AI experts.
Mind the gap
While Europe’s AI funding divide looks stark, others frame the moment as an opportunity for new entrants to break into the tech elite.
Csongor Biás, managing director of tech advocacy group Startup Hungary, is used to seeing homegrown startups “flip” — i.e. move their headquarters abroad — and he expects this will continue for reasons not limited to the lure of AI opportunities in places like London or Paris.
But his country can get some AI dollars too, he says. “I don’t think the AI era necessarily speeds up brain drain in Europe. With our crazy technical talent pool, and the unprecedented growth rates of European companies like [Stockholm-based] Lovable and [Vilnius-based] Sintra it has never been less disadvantageous to build outside the Bay Area.”
He’s not overly sentimental about startups leaving, either. While Hungarian startups tend to move their front office operations abroad, there’s typically still a big back office team that remains in Budapest.
It’s a similar story in Greece, where some of the country’s biggest AI stories are taking shape abroad (typically in the UK or the US). “We don’t have core AI platform companies that are growing from inside Greece,” says Alexandros Eleftheriadis, partner at Big Pi Ventures in Athens. “One aspect is the size of the country, size of the funds.”
What’s holding Greek innovation back, he argues, is in the way research and research training is done in the country (and Europe in general), which he says is not set up to achieve “transformative engineering designs.” He adds: “Europe is also doing the opposite of the US: funding research teams, and team bureaucracies, not individuals. Big mistake, but this is a long discussion.”
Another reason for Europe’s AI laggard status, for him, is how few Europeans have the experience of “working in big product development teams”, which means they lack an understanding of “the needs of enterprises, or how to architect large systems.”
Tech exits give workers experience at bigger companies, Eleftheriadis adds, pointing to one of Big Pi’s portfolio companies, AI audio startup Accusonus, which was bought by Meta in 2022. “So now there are 40 people that are being trained by Meta here in downtown Athens. I hope a few of them will come to me with ideas for a new company.”
Other investors tell Sifted that the number of announced AI rounds doesn’t tell the full story. There are young AI companies just getting started and a “pipeline” of deals waiting to appear in the data, says Stergios Anastasiadis, general partner at pre-seed fund Genesis Ventures, also based in Athens.
“It’s a maturing phase,” he says. “Seeing how others do it, then experimenting, learning and taking risks takes some time. I have confidence that the curve will flatten.”
Read the orginal article: https://sifted.eu/articles/theres-growing-anxiety-about-missing-the-ai-party/
