Germany on the rise as France falls back in the global ranking for AI startups

The best European country for AI startups is Estonia, according to a new ranking by the global startup ecosystem map and research centre StartupBlink.

The report, ranking the top 21 countries and 50 cities for AI startups, used data about funding, team size, and the number of unicorns as well as total investment, among others. 

Based on their findings, Estonia ranks as the sixth best hub for AI startups in the world, surpassing major European AI powerhouses such as France and Germany.

This is six places higher than the country occupies in the general startup ecosystem ranking also released by Startup Blink earlier this year.

The small Baltic country, home to fewer than two million people, is known for the success of tech startups such as Skype and Bolt and has the most tech unicorns (startups worth more than $1bn/€950m) per capita in Europe.

"Estonia's remarkable performance in the AI startup ecosystems stems from its focus on innovation and density of startups, ranking second globally in AI startups per capita, with about 48 per million people," Ghers Fisman, Head of Research at StartupBlink told Euronews Business.

"The ecosystem's success is reinforced by Veriff, an AI unicorn ranked in the top 20% by StartupBlink, based on investment, website traffic, and employee count," he added.

The Estonian government aims to grow the startup and technology sector to 15% of the nation's GDP by 2025, offering programmes, including E-residency, startup and digital nomad visas, thus a big proportion of the working population is engaged in startups.

Germany climbed but France is lagging behind

Compared to the previous ranking, France dropped two places in the rankings, as it struggled to keep pace with the rapid growth of AI ecosystems in countries like Singapore, despite producing success stories like Mistral AI.

Meanwhile, Germany has climbed three places since last year, securing the seventh place, and overtaking France.

"Germany's rise to the 7th position globally in the AI startup ecosystem is driven by its impressive 244% increase in AI funding during 2023, far outpacing global trends,” said Fisman.

"With 463 AI startups - more than France, which it replaced in the rankings - the country has built a strong foundation for innovation. Success stories like DeepL, one of the best-ranked AI unicorns by StartupBlink, further highlight how Germany is leveraging its resources to establish itself as a leader in AI."

Other European countries showing marked improvement include Sweden (17th) and Ireland (20th) having climbed five and four spots respectively from 2023. 

Romania (11th) is also highly ranked, surpassing European nations such as Norway, the Netherlands and Finland when it comes to nurturing AI startups. 

Global ranking for AI hubs

Globally, the US ranks as the top country for AI, closely followed by Israel and the UK. 

Singapore climbed three spots to rank fifth, ahead of China, which holds eighth place despite having the world's most valuable AI startup, ByteDance.

According to the report, six out of the top 10 AI cities are in the US. San Francisco is leading this ranking, scoring four times more than the second-best New York. Beijing grasped the third place.

London is the top AI city in Europe, and the fourth in the global ranking, holding a 50.6% lead over Paris, which secured the eighth position. 

In AI, Bucharest ranks a lot higher than its score for start-up ecosystems (26th). The city is also fifth in Europe, surpassing Cambridge (6th) and Oxford (11th).

A major slowdown in AI funding in 2024

There is a notable slowdown in AI investments, compared to last year coupled with a decline in AI unicorn creation in 2023 and 2024, notes the report by StartupBlink.

Funding by mid-2024 reached a little more than a quarter of 2023's total. However, last year marked extraordinary highs and saw five massive funding rounds totalling $18.55bn (€17.59bn) - including OpenAI’s $10bn (€9.5bn) - that significantly boosted industry funding. 

"The first half of 2024 lacked any rounds exceeding $1bn (€950mn), creating a sense of stagnation," said Fisman. "However, a significant late-year boost, such as OpenAI's $6.6bn (€6.26bn) raise in October, illustrates how a single large funding event can reignite investor confidence and shape the trajectory of AI investments."

Another reason behind the lagging investments is that the euphoria around AI is wearing off and investors have started feeling the tension between costs and slow productivity growth. 

Brussels-based think tank Bruegel said in a recent report: "Without significant productivity gains, the current investment cost trajectory is unsustainable. We estimate that 3% annual productivity growth across advanced economies would be required to sustain AI model cost extrapolations to 2030."