The Strategist

Analysts: 40% of startups specializing in AI don't really use it

03/11/2019 - 11:45

Analysts at MMC Ventures have concluded that about 40% of European startups, which are known to be involved in development of the artificial intelligence (AI) technology, do not actually use it. Thus, only 1.6 thousand startups out of 2.8 thousand are really engaged in AI. Startups say that they are engaged in AI because companies in this sector attract more significant investments and are more valued. In addition, this can be explained by vagueness of the very concept of "artificial intelligence."

British investment firm MMC Ventures has published a report on the spread of artificial intelligence technologies and its use by European start-ups. In total, 13 countries, which account for almost 90% of EU GDP (including the United Kingdom, Germany, France, Italy), have more than 2.8 thousand startups that claim to be engaged in artificial intelligence. At the same time, based on publicly available information, interviews with managers, etc., MMC Ventures concluded that there is no evidence of using artificial intelligence for 40% of these start-ups.

Thus, according to MMC Ventures, only about 1.6 thousand European startups are really engaged in artificial intelligence. According to David Kelnar, director of research at MMC Ventures, many companies state that they are engaged in AI, but in fact they don’t use it, although many of these start-ups are planning to develop AI and machine learning in the future. These companies attract more investment and are more valued than other developers.

According to the report, the average amount invested last year in AI startups was 15% more than in other software startups.

In addition, due to the fact that it is difficult to give a clear definition of what exactly belongs to AI, this concept describes a whole range of technologies: from fairly simple software used to automate certain processes to neural networks and machine learning technologies. Sometimes various analytical websites call them “AI”, and then this information gets shared.

The share of startups engaged in development in this area has grown dramatically in recent years. Only every 50th startup was engaged in AI in 2013, but now it is every 12th.

Last year, 8% of startups were created by AI, while in 2015 there were just 3% of them. Because of the popularity of this trend, investors now have to figure out whether a startup is really engaged in developments in the field of artificial intelligence. “There are different levels of complexity when it comes to creating these algorithms, and many inflate information about what they allegedly do. This is an investor’s responsibility to conduct an expert review of the company... but many firms cannot do it,” said Ophelia Brown, a partner of the British investment fund Blossom Capital.

MMC Ventures also analyzed the most popular startups actually engaged in AI. Most of them were located in the UK (479), France (217), Germany (196), Spain (166) and the Netherlands (103). As for the spheres, most of all startups were engaged in development related to medicine and maintaining health: 21% of all startups working with AI are various medical, fitness and other applications of this kind. The industry is followed by financial technologies (18%), media and entertainment (12%) and retail (11%).