Whether in chatbots, robotics or cybersecurity – hardly any technology seems to be able to do without artificial intelligence (AI) these days. For companies in a wide range of industries, AI has long been a key competitive factor. Tech startups are therefore faced with the question of whether an innovative solution is even possible without the use of AI. In this article, we will show you what is important and how founders can use the potential.
In everyday life, at trade fairs, in the media – there is now no way around discussions about artificial intelligence (AI). At the latest since the boom in large language models (LLM), such as ChatGPT, the general public has also realized the potential behind the technology. For young companies, on the other hand, it has become a decisive competitive factor: According to the German Startup Monitor, 82% of the startups surveyed now use AI tools to optimize their business processes. This puts them well ahead of larger companies. And politicians are also under pressure to act: in the innovation race and for the future strength of the German economy, AI plays a central role, as tech investor Philipp Klöckner made clear at Hinterland of Things 2023:
“The German economy will only grow half as fast if we don’t use AI.”
Tech investor Philipp Klöckner at Hinterland of Things 2023
However, using chatbots to automate accounting or create marketing content does not in itself make an AI startup. Rather, it’s about putting AI at the core of the business model and solving problems on that basis. In 2023, the appliedAI initiative in Germany counted 508 tech startups that meet this criterion – a remarkable 67% increase over the previous year. The reason could be no less than popularity with investors. Despite the current financing drought, investments in the AI sector rose significantly last year.
The potential of AI is also reflected in the wide range of possible applications. From the education sector to logistics and the financial industry – almost every industry has processes for which tech startups can offer innovative AI solutions. The following examples show what such use cases might look like:
These examples illustrate how tech startups can use AI in a variety of ways. This is particularly attractive in the B2B sector, since the solutions do not have to be limited to a specific industry. An AI analysis tool for forecasting sales, for example, would be relevant not only for retail, but also for logistics or the financial sector.
One thing is clear: the use of AI can give companies a clear competitive advantage – as long as they use the technology effectively. After all, AI is not the right answer for every problem. Cloud platforms can serve as virtual learning environments for schools, robots can support agriculture or logistics, and IoT solutions can transform the energy industry. Ultimately, AI must meet a need – and be based on a viable business model. David Kuczek, partner at HV Capital – Germany’s leading venture capitalist in the field of AI – confirms this:
“Ideally, we are looking for companies that not only solve a specific problem using AI, but can also monetize its use.”
David Kuczek, partner at HV Capital
In any case, other factors are crucial to the success of a tech startup. Even if AI can spark investors’ curiosity, the door to fresh capital is not immediately opened. How broadly is the team positioned? How attractive is the market? And how scalable is the product? All these questions play a central role in the evaluation of tech startups.
So they do exist – startups that have built an innovative business model without AI. The proof: by far the largest number of unicorns, according to Crunchbase, still come from the software industry, followed by finance and IT. However, a trend is also emerging: most of the new unicorns in 2023 will come from the AI and energy sectors. And successful tech startups often combine different technologies and improve their business models by using AI. Till Schlief, founder of the AI startup ladeplan, also sees the advantage:
“Whether it is necessary to use AI certainly depends on the industry and the business area. However, AI can definitely simplify processes and improve the product. Not taking advantage of the benefits of AI would not be conducive to a company’s success.”
Till Schlief, founder of the AI start-up ladeplan
A look at German unicorns shows how this works: the robotics start-up Agile Robots, for example, combines intelligent sensors with AI-supported image processing. The unicorn Celonis is also increasingly integrating the technology into its process mining solutions. And the fintech N26 is now using AI to calculate credit risks. It is therefore likely that other companies will follow suit and not want to miss out on the advantages of AI.
It is not only established companies that have incentives to integrate AI into their business model. In Germany in particular, young tech startups now have some good reasons to embrace the technology:
While investments in German startups fell by 40% overall in 2023, AI startups saw a 330% increase in funding compared to the previous year. For example, the German beacon of hope Aleph Alpha was able to collect a record sum of more than 500 million US dollars. In addition, there are now separate funds that specialize in the technology. Politicians are also trying to further expand AI technologies in Germany. In 2022, the federal government therefore launched five AI competence centers, which will receive 50 million euros in funding annually. Although there is still a large gap between pioneers like the US or China, the need for sufficient investment now seems to be clear.
German startups enjoy a seal of quality when it comes to trust in the field of AI. According to Bitkom, the origin of the AI solution plays a central role: 8 out of 10 companies state that the location of the provider is relevant to them. And for all of them, Germany or the USA are therefore options. The situation is different for countries such as India or Japan. Public discussions about the dangers of AI show how important trust in applications can be, in addition to their performance. German tech startups can benefit from this.
Speed is a crucial factor in the development of AI. Companies that do not adapt their innovations quickly enough will lose touch with their competitors. Tech startups often offer specific know-how that companies can access. In addition, their solutions have often been tried and tested, so that new solutions can be implemented more quickly. According to the management consultancy Deloitte, 65% of companies therefore obtain their AI services from external partners such as startups.
Increasing potential, growing investment, more and more applications – the German AI landscape is currently experiencing an upturn. There is no doubt that tech startups have great opportunities to benefit from the trend. Nevertheless, AI alone is not an innovation. In the wake of the hype, founders should not forget that they have to align their solutions with a specific need. In addition, developing AI can be costly: specialist knowledge, access to large amounts of data and financial resources are a prerequisite. However, if these conditions are met, AI can be a decisive lever for the business model of tech startups.
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