Forty percent of European ‘AI startups’ don’t use AI, claims study

Forty percent of European 'AI startups' don't use AI, claims study

Artificial intelligence or AI is one of the most misused terms in tech today, and new research shows how hyped this technological term has become.

Based on a new report from London-based venture capital firm MMC Ventures, 40 percent of Europe’s artificial intelligence start-ups, don’t actually use AI programs in their products. And the study took into account about 2,830 AI start-ups across 13 EU countries by reviewing the activities, focus and funding of each firm to come to this conclusion. However, it did not name any of the start-ups involved in the study.

The findings raise questions about how the term AI has become a blanket phrase for many start-ups looking to attract better investments and position themselves at the forefront of tech innovation.

As noted by Forbes, the ‘AI Startup’ classification may not have come from these companies themselves. Third-party analytical sites are often responsible for the classification, and it’s not clear from the MMC’s report what percent of ‘fake AI startups’ were misleading their customers.

But the report also shows that there are clear incentives for startups not to speak up if they’re misclassified. Companies branded as AI startups have historically raised larger funding rounds and secured higher valuations as compared to other software businesses. MMC found that they can attract between 15 and 50 percent more funding.

The term “artificial intelligence” is used in a variety of technologies, from simple computer programs that automate tasks to highly complex neural networks, which are systems for processing data, and machine learning algorithms. The widespread misuse of the term has made it difficult for venture capital investors to differentiate between actual and purported AI businesses.

The report also found that when companies deploy AI, its use-case is quite linear and boring. Most of the companies surveyed used AI included chatbots (26 percent of companies) and fraud detection (21 percent). However, in both scenarios, it’s tricky to decide exactly how much this technology benefits customers.

“Getting stuck in buzzwords is never a good thing. AI has become a catch-all phrase that’s often used flippantly,”

Simon Cook, Chief Executive of Draper Esprit
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