Financing AI innovation

All major economies in the world are racing to achieve a leading position in the development and deployment of AI technologies. Back in 2018, the European Commission and Member States started working jointly to maximise Europe’s potential to compete globally on innovative technologies. The Coordinated Plan on AI laid the foundation for cooperation, identified areas for investments and encouraged Member States to develop national strategic visions on AI. The plan defined a common direction and the objectives for a European policy on AI. As a result, most Member States have adopted national AI strategies and started the implementation, investments in AI have increased and the EU was able to mobilise a pool of critical resources to support these processes.

Still, when comparing EU spending on AI to other geographies, such as China and the United States, Europe, despite its scientific excellence, is lagging behind. Only 7% of annual global equity investments are allocated to these technologies. [*]  While 25 billion USD are spent on AI investments and blockchain technologies globally, Europe only invests 1.7 billion EUR (EIB). In the breakout session on Financing AI innovation at the EU High Level Conference on AI - From Ambition to Action on 15 September 2021, we took a closer look at the main challenges to innovation from a financing perspective. We invited stakeholders who are directly involved in financing AI to discuss how to move towards a successful financing mechanism in Europe.Representatives from European investment bodies (EIB and EIC), venture capital funds (Lunar Ventures), the private sector (Airt and PRIMNEXT), and innovation labs (Merantix Lab) discussed the bottlenecks to innovation and shared ideas on how to move “from ambition to action” so to enhance collaboration and make financing more targeted and accessible for startups and SMEs. Topics that were explored include the low R&D investment compared to the AI talent pool available in Europe; the lack of market regulation resulting in the fragmentation of the innovation ecosystem and mismatch between AI demand and supply; the scale-up financing gap; the challenge of attracting more resources into this space; procurement practices not fit-for-purpose; and the question of access to funding and capacity-building.

Despite progress achieved through financing instruments like the AI co-investment facility andInnovFin Equity, panelists agreed that the EU and its main partners must continue to work together to address the wider array of challenges to maximise the European potential and generate sustainable economic growth at all levels.  Furthermore, key recommendations emerged from both technological and financial perspectives:

 

Technology

1. improving tech literacy, namely capacitation through educational programmes and advisory services for SMEs and startups;

2. monetising and valorising deep tech business models, which may be at times difficult for investors to evaluate;

3. democratising improved access to technology for companies in need of onboarding or adapting their business models to new AI technologies.

 

Financing

1. supporting larger fund sizes, also IPO funds to address the 2nd Valley of Death of growth financing, intensifying efforts into scaling-ups and serving a market, which would otherwise seek financing outside the EU.

2. using blended finance mechanisms to adapt financing needs to the type of technologies and risks absorbed by investors.

3. accompanying financial instruments with non-financing schemes such as capacity building and advisory services. Address hurdles for investors in considering the asset class (e.g. development of analysts who are tech-savvy).

4. deploying more resources to new players, new funds and investors with scientific background investing in disruptive technologies.

 

This discussion was particularly timely given the 2021 review of the Coordinated Plan which aims at implementing a concrete set of joint actions on how to create EU global leadership on trustworthy AI. Accelerating investments in AI technologies to drive resilient economic and social recovery is one of the main pillars of the review. It was also timely from a financing perspective since, through the InvestEU Programme, the EC and its Implementing Partners are currently shaping the next generation of financial instruments for the coming 7 year period.

The recordings of the discussions are available here!

 

(*) Artificial Intelligence, Blockchain and the Future of Europe: How Disruptive Technologies Create Opportunities for a Green and Digital Economy, Arnold Verbeek and Maria Lundqvist, 2021

 

Tag
innovation finance Artificial Intelligence Deeptech EIC EIF EIB