Yesterday the European Investment Bank (EIB) published a report which concluded that companies and governments in Europe are substantially underinvesting in artificial intelligence (AI) and blockchain. This is especially in comparison with other leading regions. It declared that “the European Union struggles to translate its scientific excellence into business application and economic success”.
The report on AI and blockchain found that Europe’s venture capital ecosystem focuses predominantly on providing early-stage finance for AI/blockchain-based small and medium-sized enterprises (SMEs) but underperforms in the subsequent expansion and growth stages.
The study estimates a total investment gap in AI and blockchain technologies in the European Union of approximately €5-10 billion ($6-12 bn) per year. Whilst the United States and China collectively account for over 80% of the €25 billion ($30 bn) annual equity investments in AI and blockchain technologies, the EU27 only represents 7% of this global amount with an annual equity investment of €1.75 billion ($2.1 bn).
Apart from venture funding, Europe also lags when it comes to buying established companies which may be hampering the potential for exits by venture backed startups. From 2000 to 2019, there were 526 acquisitions of AI companies in the United States, but only 139 in the European Union (including the United Kingdom). This, coupled with the limited value of tech initial public offerings (IPOs) in the EU, could explain the low exit opportunities for disruptive technology investment in the European Union.
The study attributes the limited role played by EU corporate investors in acquiring AI and blockchain companies to the European Union’s dependence on non-EU investors. Compared to the United States, the European Union has fewer venture capital investors specializing in AI and blockchain. The high upfront investment has also created a limited appetite for investment in AI and blockchain. Venture capital investors, banks and other financial providers need to be equipped with the tools to assess complicated technologies and sufficient available capital to invest.
Similarly on the demand side, EIB’s report concludes that it is critical for small and medium businesses to enhance innovation and produce high-quality R&D. Other major actors such as government-led initiatives must take a central role in defining strategy and overseeing the cooperation of major players in the overall innovation ecosystem.
According to EIB’s research, three major areas require improvement in Europe’s AI and blockchain landscape: the development, increased deployment and innovation of disruptive technologies. EIB’s findings emphasize the need for an integrated approach to support the take-up of AI and blockchain technologies in the market.
Disruptive technology possesses a central role in steering Europe’s green and digital transitions. R&D in AI and blockchain will ripple into other key areas, including security and defense, and climate-related issues. Given the accelerated transitions toward a digital economy brought by the COVID-19 pandemic, it is more timely than ever for investment into Europe’s AI and blockchain technologies.
The EIB is also actively deploying the technology itself. In April, it launched a €100 million ($120m) bond on the public Ethereum blockchain settled using central bank digital currency from the Banque de France.