French AI fundraising sensation shows Europe has talent

They have a business concept, prestigious French engineering degrees, stints at US tech groups, and now 105 million to play with. Thirty-year-olds Arthur Mensch, Timothee Lacroix and Guillaume Lample became the EU’s new AI darlings this week, with a record fundraising round.

Their spectacular financial success was the biggest seed round ever in Europe and values ​​month-old business, Mistral, at more than 240 million, with little more than hope: that the company, which aims to build a language model open-source with B2B applications, they will become a European AI champion and give the bloc a strategic stake in how the industry is shaped and regulated globally.

The excitement surrounding the French trio of former Meta and Google researchers is evident. The big and the good in Paris, including telecommunications billionaire Xavier Niel, shipping magnate Rodolphe Saad and the Decaux family, rushed to buy a ticket along with lead investor Lightspeed Venture Partners. Jean-Charles Samuelian-Werve, founder of French health tech unicorn Alan, worth over 2.7 billion, is assisting the startup. Meta AI chief scientist Yann LeCun, a Frenchman, is an enthusiastic supporter.

As is often the case in France, the state is not far off: BPI France, a state investment vehicle with a mission to nurture national champions, is also a backer.

The high-profile fundraising shows that top French universities, including the cole polytechnique and cole normale suprieure from which Mistral’s founders graduated, continue to produce alumni with cutting-edge skills. The same goes for other European countries: the UK is where nearly half of Europe’s 130 or so AI start-ups are based, according to data compiled by Sifted, followed by Germany and the Netherlands.

It’s hard not to see an element of Fomo in Mistral’s frenzy. But it’s worth noting that the founders agreed to a large dilution above 40%, when it’s typically 10% to 20% early on to fund the expensive computing power needed to train their model. And investors in the region don’t have many options. According to Dealroom, AI fundraising for European start-ups was just $4 billion this year, compared to $25 billion in the US.

Regulators, meanwhile, don’t want to be blindsided by a technology with game-changing potential: what could hurt these startups and their investors is the Artificial Intelligence Act being prepared in Brussels.

The bill, which is expected to be finalized by the end of the year, imposes strict restrictions on privacy, transparency and would ban some technologies.

Developers of AI models like ChatGPT should disclose AI-generated content and publish summaries of copyrighted data used for training purposes. The US and China have already published their own rules. Britain is hosting a global AI security summit this year.

Interviewed by the Financial Times this week, Mensch issued a warning to Brussels: the EU bill in its current state [would] make it very difficult to actually innovate in a field whose implications we don’t really understand yet.

Questioned by the 30-year-old neophyte entrepreneur on stage at a Paris tech rally on Wednesday, French President Emmanuel Macron said he shared his concerns about the EU’s AI law.

The worst case scenario is a Europe that would invest much less than the US or China [in AI] and that would not be able to create great champions, but would start by regulating, he said. This scenario is possible… I don’t want to [the EU] fix things too soon.

He went on to outline a plan to encourage innovation by fostering AI clusters funded with a mix of public and private money.

Regulation had to happen, he said, but not without cooperation with Washington and London, a reference to the need to align Western partners amid tensions and rivalry with China. The French president received a polite response from Mensch: these are good first steps.

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