Dec 012017

Far left- PhD. Juan Pablo Vázquez at the ICT Proposers’ Day 2017 in Hungary.

What is the role of AI startup firms in the European Union?

On November 8, 2017, the European Commission celebrated the annual ICT Proposers’ Day. This year, the Hungarian Ministry of National Development hosted the event, and the organisation was outstanding. The event focused on the 2018 Calls for Proposals of the Horizon 2020 Work Programme in the field of Information & Communication Technologies and Future and Emerging Technologies (FET). The European Union is at the forefront of research in this field in the world. At the event, the selected projects for the year were discussed extensively together with experts from a variety of related fields.

The European Commission is leading the world when it comes to initiatives that build bridges between AI technology, experts and startups (an important component of which is the Startup Europe Club). At the ICT Proposers’ Day, I had the opportunity to moderate a double networking session organised by Startup Europe and the AI and Robotics Services of the Commission, that included two panels: ‘The State of the Funding of Artificial Intelligence (AI) for Startups’ and ‘The Role of Startups in the European Artificial Intelligence (AI) Landscape’.

VCs and entrepreneurs: is there a common ground?

The panel on funding for startups was particularly insightful. Populated with prominent VCs and leading startups, the speakers described their firms’ motivation and their specific ‘sweet spots’ for investing in companies. While VCs asked for clear signs of traction early on, entrepreneurs emphasised that the key to getting funding lied in providing immediate value for consumers.

Things got heated when the discussion gravitated towards understanding if VCs really know the difference between AI and just ‘a very sophisticated algorithm’. Some investors mentioned that when neural networks scale, this is really AI. However, entrepreneurs described AI as a form of applying intelligence in practice, particularly with technology that uses Big Data intensively. Everyone seemed to have their own unique understanding of what AI was, which is probably not the best way to introduce this technology into the market. The introduction of AI into the market had a unanimously positive response.

Artificial Intelligence: A global industry? 

The second panel clearly described AI as a global industry. After all, if a computer is better at image recognition than a person, it has nothing to do with the geographical location. An image is an image anywhere in the world. In this respect, the panellists described some private initiatives, such as ‘France is AI’, which is trying to build an ecosystem for AI in various countries, but lamented that there was no pan-European initiative to make this easier. Panellists suggested that if the European Union had such an initiative, it would provide a serious shot at gaining and maintaining an edge in AI. Still, they were hopeful, noting that government-wide initiatives to promote AI are not only absent in Europe, but also around the world.

When asked if Europe had a shot at being a leading force for AI in the world, panellists unbundled the challenge in three parts. First, data as raw material for the AI industry. In this respect, they feared that regulation on data was too burdensome and inefficient in Europe, which may prompt other economies (especially in Asia) to indirectly becoming the repository of AI data in the world. Second, panellists tackled ‘number crunching’, an area in which Europe is supposed to have an advantage. It turns out that the difficulty in financing ‘number crunching’ projects and the ability of the Asian countries to process data is again becoming a threat. Third, the panel talked about the importance of building a business ecosystem to make the AI industry more economically attractive. There was a general agreement that more successes would lead to better funding, which would eventually lead to better projects.

ICT Proposers’ Day 2017, held in Budapest, Hungary.

The panel focused on the role of startups in Europe redirected the audience’s attention to where and how European AI firms can become a dominant force within Europe and throughout the world. The discussion of the panel —populated once again by VCs and prominent entrepreneurs— revolved around focusing efforts in vertical industries in which the development of AI expertise can give European companies an edge. For instance, there are currently EU-funded companies that are applying AI to car manufacturing machinery that would identify –based on several variables– machines that are about to malfunction and subsequently stop operations, saving companies several million euros in production costs.

Another example came from the Hyperloop entrepreneur. He explained how Hyperloop is divided into four divisions, each with a different strategic approach. The first one is ‘inboarding’. Hyperloop is developing an entire system of tracking passengers to monitor them at a distance, allowing them to enter Hyperloop without any sort of check-in. The ‘Executive Assistant’ division is geared towards making the trip as comfortable as possible. The ‘Collaboration’ division, a clear example of Open Innovation, has over 20,000 collaborators that are actually improving the entire company on a monthly basis in a private ecosystem – this division places a particular emphasis on automation. Finally, there is a ‘Systems’ division, which is focused on adding and/or removing components of the system platform to make the company better, more efficient, and more connected to the environment. This division is trying to make the entire process of booking a trip seamless and effortless.

The panel was particularly critical on regulation, and recommended immediate action. It claimed that the amount of regulation in Europe is unusually high, especially the paperwork required to build a fully operating business. They lamented that this regulation, far from helping entrepreneurs, actually deters them, making it evolution for industries within the European Union to evolve.

The panel ended the discussion on a positive note. It closed by acknowledging that, while having a successful business might be a problem in some economies –because the government or established companies want to intervene too much–, this is not the case in Europe. The panellists unanimously identified the European Union as a market that respects fair trade with regulations designed to protect new companies that are aggressively scaling up and revitalizing industries.

In my view, these discussions left us with some work to do: first, we should congratulate the European Commission for creating such an event. Initiatives like this event are not at all that common in the rest of the world, but demonstrating that it cares about these issues is a great place to start. But the panellists also pointed out some challenges that we will need to revisit. As with many entrepreneurial initiatives, the process of entrepreneurship is still too informal and lacks focus. This not only delays industry transformation, but also makes promising companies fail. There should be a ‘protected ecosystem’ that must be developed at the pan-European level to shelter entrepreneurs from regulation and local constraints during the first years. After all, one ecosystem can disrupt another, but it is rare that one company disrupts an entire ecosystem. And finally: regulation. We understand that regulation has a place and a reason, but too much of a good thing can also be destructive in the short term. I am sure that there must be an optimal solution that satisfies the European Commission’s fundamental requirements without detrimental side effects. In my opinion, the European Commission should take these recommendations seriously and take action. After all, we rarely receive such a clear message from people of this caliber.

Post written by Dr Juan Pablo Vázquez, professor in EADA’s Strategy, Leadership and People Department

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