Recovery and technological sovereignty with the help of AI and blockchain

GDS Modellica
Artificial Intelligence (AI) and blockchain are two of the most disruptive technologies of our time. As we have mentioned on previous occasions, the COVID-19 pandemic has accelerated the transition towards an increasingly digital society. On this journey, these technologies are not just a key part of the future but also of two other key aspects: a recovery that combines resilience and sustainability and also the strengthening of Europe’s technological sovereignty.

At least, this is what the vice president of the European Investment Bank (EIB), Teresa Czerwińska, states in the introduction to a report produced by the EIB in collaboration with the consultancy firm Oliver Wyman. The report was originally published in July 2021, but it has been republished again this summer. The report is based on a survey of 100 European startups specialising in AI and blockchain and is supported by 18 in-depth interviews with said companies and another 19 interviews with agents in the financial market.

“All major economies in the world are racing to take the lead in the development and deployment of AI and blockchain technologies”, says the report. “Europe, despite its scientific excellence, is lagging behind, especially on the financing front, where we only contribute 7% of annual global equity investments in these technologies”. In other words, for every 100 euros or dollars invested, just 7 come from Europe.

It is no surprise, therefore, that Czerwińska calls for “more firepower” for emerging startups to compete globally, as well as instilling investors with confidence and conviction if Europe truly intends to be a “technological champion”. However, finance is not enough on its own. The report goes on to say, “we also need to strengthen and connect our ecosystems further so that we can translate brilliant ideas into commercial value better and faster”.

The report addresses various bottlenecks that exist with respect to financing for these technologies, and they are divided into three sections: supply, market infrastructure and demand. The first section identifies three bottlenecks: the limited availability of venture capital and private investments, the limited specialisation of EU venture capital funds in AI and blockchain, and the limited appetite for investing in AI and blockchain due to high upfront investment needs and a lack of knowledge and low visibility of commercial applications.

With respect to market infrastructure, the report only notes one significant bottleneck: the limited matching between SMEs and investors. And finally, turning to the demand side, the EIB report points to three key obstacles: the presence of a strong science base but limited valorisation-related R&D spending, the lack of a single European market (despite the fact that it is of a size comparable to the North American or Chinese market), and thirdly, the existence of a fragmented innovation ecosystem.
Recovery and technological sovereignty with the help of AI and blockchain
As well as identifying these bottlenecks, the report also proposes a series of recommendations to overcome these obstacles and achieve the goals set out in the introduction. These recommendations are also divided into three sections: development, deployment and innovation. Let’s take a look at them in more detail:  

Development recommendations:

  1. Intensify fundraising for the AI/blockchain investment scheme with institutional investors, corporates, family offices and national promotional banks.
  2. Monitor the deployment of and consider expanding the AI co-investment facility to provide additional firepower to successful fund managers.
  3. Expand the EIB venture debt programme to support successful SMEs recovering from the COVID-19 crisis.
  4. Launch a dedicated AI/blockchain call for projects as part of the European Investment Council, similar to the recent one on COVID-19.
Deployment recommendations:

  1. Provide advisory services to EU member states in deployment of AI/blockchain investment programmes and support the deployment of these technologies by traditional companies (especially SMEs).
  2. Develop a risk framework to assess and certify AI/blockchain-based technologies that meet EU-wide “trustworthiness” and regulatory requirements.
  3. Adapt EU and member state public procurement processes to accommodate participation of small, young and innovative AI/blockchain companies.
Innovation recommendations:

  1. Strengthen digital innovation hubs to connect stakeholders of the AI/blockchain ecosystem across the EU and foster clusters of specialisation.
  2. As part of the European Investment Fund (EIF) AI/blockchain investment scheme, fuel competition and specialisation in the venture capital market by supporting the creation of new specialised venture capitalists.
  3. Scale up the Investment Support Programme within the AI/blockchain investment scheme to establish a networking platform that connects companies with relevant investors across the EU with a particular focus on addressing the investment imbalance in Central, Eastern and South-eastern Europe (CESEE).

You can find the full report, which we recommend reading in full, in PDF format here.
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