AI Act will slow down innovation in Europe’s AI ecosystem, survey finds

AI Act will slow down innovation in Europe’s AI ecosystem, survey finds

The AI Act Impact Survey, co-initiated by AI Austria in collaboration with leading European AI organizations: KI Bundesverband, Hub France IA, AI Sweden, Initiative appliedAI, Croatian Association Cro AI, AI Cluster Bulgaria and ai4si for Slovenia alerts on the risks of loss of competitiveness and investment for the European AI ecosystem. The authors of the report are Andreas Liebl and Till Klein.

While AI is already a catalyst for US and Chinese economic growth, Europe is seriously lagging behind, which is reflected in investments in AI companies: 53% of these global private investments are made in the US, 23% in China and only 6% in Europe.

AI can enable innovation in Europe, but for that to happen, startups need to be supported to be able to compete in the global market. The investigators say they are alarmed by comments from startups and investors regarding the effects of the current version of the AI law, when it should be promoting Europe’s ability to innovate in artificial intelligence

The data from the study has been made public and shared with members of the European Parliament, in the hope that a constructive dialogue will be engaged with AI stakeholders to find balanced solutions that would regulate AI without harming Europe’s innovation potential.

The impacts of the AI ACT on start-ups’ innovation and competitiveness

In this survey, 113 European high-tech start-ups and 7 venture capital funds were surveyed.

  • 65% of startups were familiar with the AI law prior to the survey: the Netherlands (89%) and Germany (80%) in the lead, Poland in last place;
  • 96% are AI system providers that meet the definition of AI system under the AI law;
  • Nearly 33% of respondents would classify their AI system as a “high risk” system according to Annex II or III, 15% hesitate… the impact analysis conducted by the EU was based on 5-15%;
  • 45% of startups surveyed consider their AI system to be GPAI, which subjects them to PMIA vendor obligations.

The impacts expected by start-ups

  • 51% of respondents expect their AI development activities to slow down as a result of the AI law;
  • About 12% of startups say they are considering relocating outside the EU or stopping work on AI as a whole;
  • Nearly 16% expect a positive impact of the AI law on their business.

The main beneficiaries of the AI law in the global AI race are expected to be outside of Europe, particularly US-based BigTech companies and AI startups outside of the EU.

The costs of compliance

  • 50% of startups are in the estimated cost range of EUR 160k – 330k;
  • About 20% expect a somewhat or significantly higher cost, 9.5% are looking at a cost of more than EUR 500k.
  • Half of the startups do not know if they will be able to afford such an effort.

The venture capital funds in the survey

Participating venture capitalists present a range of small venture capital firms that plan to invest from less than €10 million to €500 million. The median participant plans to invest between €10 and €50M.

Some only partially invest in AI startups (10% of their portfolio) while other specialized VC firms’ portfolio consists of 100% AI companies.

Of these funds, 60% were familiar with the AI law prior to the survey, however at a superficial level. On the other hand, 40% acknowledged that they needed to become more familiar with the risk categories.

Nearly three-quarters of participating VCs expect the AI law to reduce the competitiveness of AI startups in Europe. They plan to:

  • Turn to startups outside the EU (+36%);
  • To invest in European startups not using AI (42%);
  • To invest even more in EU startups (15.8%).

Translated from Selon une enquête, l’AI Act ralentira l’innovation de l’écosystème d’IA européen