American venture capitalists are more likely to invest in AI than VCs in other countries are

American venture capitalists are significantly more focused on artificial intelligence than investors in other regions are, according to our new Fast Company analysis.

Recently, we discovered an apparent disparity between the amount of public attention paid to AI and the amount of venture capital the sector actually attracts. Despite every news headline, press release, and quarterly report seeming to contain the term “AI” these days, only about 20% of all venture dollars between June and August actually went into AI funding. But the discrepancy grows even wider when looking at the investing choices of VCs outside of the U.S. 

Roughly 27% of U.S. venture capitalists put bets on AI companies in the early stages (from seed level to Series B) between July 15 and September 1, according to Crunchbase—the largest share of investors in any region. Europe falls below 20% and China at about 15%.

Venture rounds, of course, don't provide a full panorama of all the money flowing into AI. Much of the capital fueling AI comes from large enterprises like Microsoft, Google, Nvidia, and Salesforce. And AI investment in China, from state-backed venture funds and established companies like Tencent and Alibaba, is too opaque to fully capture.

But venture funding's role in the ecosystem is more than nontrivial, and the difference in how much attention that venture capitalists in various regions pay to AI is meaningful. For example, Chinese investors are more likely than investors in other countries to put dollars into manufacturing startups, European investors favor renewable energy companies, and Caribbean-based investors invest more than others in crypto.

It might seem like a water-is-wet assertion: China is different from Africa, so we should expect the investments flowing from each to be different as well. But the notion that technology is technology, a monolithic entity indifferent to the particularities of place and culture, has previously led investors awry.

"There used to be this thesis that you could just kind of clone . . . some well-known startup and it will work in your ecosystem," says Courtney Powell, COO of the venture firm 500 Global. Uber, for example, pulled out of Pakistan in 2022 and instead acquired the local startup Careem, which had already better navigated the country's unique ecosystem (and which is in competition with the successful motorbike ridesharing company Bykea, a model that has no American counterpart).

In other words, investors are attuned to the kinds of companies their own countries can support—and generative AI isn't always high on that list. The Caribbean has become a haven for crypto investors after countries like the Bahamas outlined steps to embed digital assets into the country's economy, to the degree that it allows citizens to pay their taxes in crypto. China's role as the world's manufacturing center makes its investors uniquely receptive to opportunities in robotics. Australia and New Zealand's agrarian terrain orients investors towards farm tech to a greater degree. And a combination of cultural, historical, and regulatory differences has made Europe a hotbed of climate investment.

Some differences also come down to the personal dispositions of investors themselves. “We've observed that European investors seem more willing to accept longer return horizons than their U.S. counterparts, which is often needed when investing into impact and [first of a kind] technologies," said Hayden Young, head of marketing at SET Ventures, a Dutch clean tech venture firm. 

That can mean a greater acceptance of experimental but potentially game-changing technologies where paths to exit extend farther into the distance. And it can translate into more money being put into, say, hydrogen fuel cells, and less into carbon-copy software startups, such as the productivity SaaS apps in the 2010s, whose relative improvements compared to market incumbents were dubious, but which nonetheless dominated American venture investing throughout the decade. 

The next generation of that investment mentality is, arguably, today’s AI startup set, which often relies less on creating new technologies and more on slightly tweaked deployments of LLMs produced by OpenAI, Anthropic, and Meta.

The result is that an American entrepreneur with a potentially revolutionary solution to climate change might look abroad for funding to countries more oriented towards investing in that space—and perhaps ones that are more immediately threatened by warming temperatures. Or an American founder who has conceived of a completely new banking infrastructure—one that could never exist alongside an existing financial system built on top of millions of lines of legacy COBOL code—could be welcomed by VC’s in a country still building theirs from scratch.

https://www.fastcompany.com/91191854/venture-capitalists-america-us-ai-artificial-intelligence-startup-vc-invest-region-china-europe-asia-latin-caribbean?partner=rss&utm_source=rss&utm_medium=feed&utm_campaign=rss+fastcompany&utm_content=rss