Amidst a global venture capital (VC) slowdown dating back to 2022, one sub-sector has surged past the rest: Generative AI (GenAI). While similarly complex and capital-intensive sub-sectors have waned, GenAI's VC deal count has skyrocketed by 250% since 2020, with 18% of all VC funding dollars going to GenAI-focused startups in 2023.

However, as GenAI deals soar, the sub-sector is becoming increasingly geographically concentrated. The United States has gradually increased its share of total VC GenAI deals from about 57% in 2019 to 65% in 2023 and the first half of 2024, a trend first identified in our 2024 Global Startup Ecosystem Report (GSER).

This concentration can be attributed to the U.S.' deep VC markets, which enable GenAI startups to scale at rates not possible in other regions like Europe or China. Consequently, the U.S. produces the most unicorns globally, creating wealth for GenAI founders, employees, and investors. These unicorns also act as a signal, attracting global startups to relocate to the U.S. to leverage the available capital and experience of top ecosystems like Silicon Valley and New York City.

Foreign-Founded GenAI Unicorns Flock to the U.S.

It is unsurprising then that in addition to leading the world in domestically-founded GenAI unicorns, the U.S. has also been home to many startups that relocated there to become a unicorn firm. The following chart includes both unicorns founded as GenAI, as well as startups that started as AI companies and then pivoted to generative capabilities, founded since 2010.

These foreign-founded GenAI unicorns come from a range of countries, including the U.K., Ukraine, Israel, and France, among others. With the U.S. minting so many GenAI successes, is it possible for other countries to catch up?

Yes. But it will require a mix of patient ecosystem development strategy and smart policy. When a startup relocates to the U.S. and succeeds, even becoming a unicorn, it should be seen as a tremendous opportunity for the local ecosystem. It does not have to be a zero-sum game.

Startup ecosystems that maintain relationships with their relocated founders benefit from the hum,pan and financial capital gained by those founders who scaled in a top ecosystem. In many cases, these founders return after exiting to become an investor and mentor for that ecosystem’s next generation of founders.

The Path Forward for Global GenAI Startups

There are examples of this already underway in Europe. The founders of Machine-Learning collaboration platform Hugging Face, which relocated from France to the U.S. shortly after it was founded in 2016, have retained their connection to the French startup ecosystem. Besides returning to offer mentorship to French founders, Hugging Face founder Clément Delangue invested in Alinia AI's pre-seed round of $2.4 million on June 5, 2024. Former employees have also launched their own AI startups like Adaptive in Paris, which recently raised a $20 million seed round, demonstrating a tangible impact on the French startup landscape both in terms of human and financial capital.

AI customer-support startup Glia, while started in the U.S., has three co-founders, including Carlos Paniagua of Estonia. The other co-founders, Americans Daniel Michaeli and Justin DiPietro, knew of Estonia’s innovative startup ecosystem, and chose to open Glia secondary offices in Tartu and Tallinn. Further demonstrating their commitment to the ecosystem, Glia has contributed to the IT education program Jõhvi, which teaches tech skills to aspiring Estonian tech workers.

European GenAI Startups Follow Successful Co-Founder Models

These anecdotes reinforce the importance of ecosystems retaining relationships with founders even when they relocate, as their experience can be imparted on the next generation of local founders.

There is some evidence that recent European GenAI startups have followed the example of the previous generation’s successful relocated startups. While the dataset is too small to draw definitive conclusions, Startup Genome found that European GenAI startups founded since 2017 that have raised a Series A round have a higher rate of three or more co-founders than U.S. GenAI startups.

According to Startup Genome research, a startup has a greater chance of becoming a scaleup (valued at >$50M within four years of founding) when it has at least three founders. A mixed set of founders, representing backgrounds in both business and technology/engineering, is more likely to be able to identify innovative technology, and then, critically, commercialize it.

Hugging Face and Glia were both started by three founders, which were comprised of two technical founders and one business founder, respectively.

Key Takeaway

While the U.S. currently dominates the GenAI sub-sector, other countries can catch up by fostering strong relationships with relocated founders and encouraging startups to adopt diverse co-founder models. By implementing smart policies and patient ecosystem development strategies, these countries can create an environment conducive to the growth and success of GenAI startups, ultimately contributing to the overall vitality of their startup ecosystems.