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Many AI startups across Europe don’t actually use artificial intelligence

Forty per cent of European start-ups classified as artificial intelligence (AI) start-ups don’t actually use the technology, according to a new study by London’s venture capital firm MMC.

The study analysed the activity of about 2,830 AI start-ups in 13 EU countries, reviewing the activities, focus and funding of each company.

The results showed that only around 1,580 of those companies (60%) actually use AI, while the other 40% of so-called AI startups in Europe seem to have been wrongly labelled for various reasons.

“In 40 per cent of cases we could find no mention of evidence of AI,” MMC head of research David Kelnar, who compiled the report, told Forbes. Kelnar says that this means “companies that people assume and think are AI companies are probably not.”

The fact that these startups are labelled as “AI companies”, Forbes noticed, does not necessarily come from the firms themselves. Sometimes third-party analytic sites are responsible for the classification, and it is not clear from MMC’s report what per cent of fake AI startups it identified was directly misleading their customers.

However, Kelnar believes most of these companies are well aware of this fact but aren’t doing anything about it because being seen as an AI startup has many advantages.

Particularly, the MMC report shows how companies working AI regularly raise anywhere between 15 and 50% more funding from investors compared to other tech startups.

It makes complete sense from a business perspective then to just go with the flow when someone classifies your company as an AI startup.

“There is little incentive to correct a listing since it spells potentially-less investment down the line and it can pay to brand yourself as being an AI company”, Kelnar said.

But even among those companies that actually use AI, their applications are quite banal and not particularly sophisticated, the report added. Most of the surveyed firms used AI that included chatbots and fraud detection. In both cases, it is not known how exactly does it benefit the customer.

“A virtuous cycle has developed. Progress in AI is attracting investment, entrepreneurship and interest. These, in turn, are accelerating progress,” MCC Ventures said in the report.

But is this, in fact, a virtuous circle or just a business manoeuvre from start-ups to attract more investment and customers? As with any new technology, only time will tell.

Image via deepak pal/iqlet

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