Thanks to the chatbot ChatGPT, artificial intelligence (AI) is currently one of the trending topics in Germany. The topic is also of great importance for Fin.Connect.NRW.
The possible uses of AI go far beyond chatbots. Autonomous driving, Industry 4.0, real-time translation or pricing algorithms are just a few examples. Due to the quasi-universal possible uses, no generally accepted definition of AI has yet been established. In order to at least have a common understanding, the definition of the AI monitor from the German Economic Institute (IW) is used below. Accordingly, AI is understood to mean “the creation of (quasi) intelligent programs and machines that can make decisions independently and execute them based on these actions.”
Political Significance
It is precisely these universal application possibilities that make AI so important in politics. The AI Act, which is intended to set the regulatory framework for the use of AI, is currently being negotiated at the EU level. Another aspect is a plan to coordinate the efforts of the EU member states. The Federal Republic of Germany has also had its own AI strategy since 2018, which was updated in 2020. And North Rhine-Westphalia also has its own goals with regard to AI: In the strategy for digital North Rhine-Westphalia from 2019, one of the goals was “to expand the KI.NRW competence network into one of the leading competence networks in Europe”.
The background to all of these efforts is that AI is a decisive factor in overcoming significant challenges such as climate change or demographic change and at the same time a decisive factor in competition between business locations and companies. Only those who manage to take advantage of the opportunities offered by AI and at the same time contain the dangers through the regulatory framework will be able to survive in international competition.
AI Startups and Companies
While the regulatory framework is clearly the responsibility of state and supranational actors such as the EU, it is primarily the responsibility of companies to use the freedom and technologies to make appropriate offers, such as ChatGPT. However, customers are of crucial importance. Only if they are prepared to accept and demand AI applications will companies develop corresponding products and services. Fortunately, it can be said that society in Germany is open to AI. Companies and therefore the entire economy have a key role to play in driving AI forward. Until 2022, the economy has also filled this role and significantly advanced AI. The year 2022, which was very unusual with the energy crisis and uncertainties caused by the Russian war against Ukraine, has not left AI untouched. Nevertheless, in 2022, 18.8 percent of industrial companies and industry-related services used AI and a majority of companies attributed more opportunities to AI than risks.
However, these pure indicators are not all-inclusive on their own. Small and medium-sized enterprises (SMEs) are really crucial. SMEs typically include those companies that have fewer than 250 employees and a turnover of less than 50 million euros. More than 97 percent of all companies in Germany fall into this category and they accommodate more than 64 percent of all employees in the EU. In particular, SMEs usually also include startups. There are different definitions of what exactly a startup is. One of the stricter definitions comes from the Kreditanstalt für Wiederaufbau (KfW). Accordingly, a company counts as a startup if it is no more than five years old and has employees and a full-time founder. In addition, a company must be innovation or growth-oriented, meaning that it carries out research and development or offers a Germany-wide market innovation. Due to the strictness of the criteria, the KfW information represents a lower limit for the number of startups. Some authors consider startups to be companies that are a maximum of 12 years old, while a study commissioned by the German Startups Association sets an upper limit of a maximum of 10 years . In total, however, there were more than 600,000 business start-ups in 2021 compared to the existing 3.4 million legal entities. The potential is clear from the fact that many of the companies that influence our daily lives today were recently startups themselves. For example, Google (Alphabet) was founded in 1998, Amazon in 1994 and Facebook went online in 2004, while BioNTech has been around since 2008. Especially for a key technology like AI: A startup today can quickly develop into a significant company with a trillion-euro valuation.
AI Startups in NRW and Germany
This brings us to the question of how many AI companies there are in North Rhine-Westphalia and Germany. There are various studies on this, the results of which will be briefly summarized below. First of all, the study by the Leibniz Center for European Economic Research (ZEW) should be mentioned. In 2022, company start-ups in the field of AI were examined on behalf of the Federal Ministry for Economic Affairs and Climate Protection (BMWK). In 2021, there are more than 6,000 companies in Germany that were founded since 1995, are active in the field of AI and were still economically active in 2021. This does not necessarily include companies that have been active in the field of AI since they were founded, but also those that are now researching AI and offering corresponding goods and services. Of these more than 6,000 companies, more than 850 were founded in Berlin. It is followed by Munich with more than 600 companies (plus more than 125 in the Munich area), followed by Hamburg with more than 325. Cologne is the most important location in North Rhine-Westphalia and has more than 200 companies. Düsseldorf is still the location for more than 125 companies. A further analysis of startups by federal state can be found in the North Rhine-Westphalia Innovation Report. In June 2021, there were around 700 startups with AI applications in Germany. Only 77 of them were located in North Rhine-Westphalia. There are 205 startups in Berlin, 157 in Bavaria and 83 in Hamburg.
The now sixth AI Startup Landscape offers further information on the federal state comparison. In 2023, more than 500 AI startups could be counted in Germany. Only around 10 percent of them come from North Rhine-Westphalia. This puts NRW in third place behind Berlin (32.5 percent) and Bavaria (24.6 percent). However, information on residents per AI startup is also published. In Berlin there are around 22,000 residents for every AI startup. However, in North Rhine-Westphalia there are around 345,000. This puts NRW in 8th place behind Bremen.
Finally, reference must be made to the KI.Landkarte commissioned by the state government of North Rhine-Westphalia. There are currently 172 companies listed here that make offers in the field of AI. 117 of them are startups.
Conclusion
Startups have a significant impact on the economy and thus the prosperity of tomorrow. This applies in particular to the key technology of artificial intelligence. In terms of gross domestic product, North Rhine-Westphalia is the largest federal state, ahead of Bavaria and Baden-Württemberg. However, other federal states dominate in the field of AI. In terms of the number of AI startups, Berlin and Munich and partly Hamburg lead the way. When it comes to the number of AI startups in relation to the population, NRW is only midfield. There is therefore a need to catch up.
However, the good news is that this does not require a massive capital investment. This is revealed by the German Startup Monitor 2022. 1,976 startups were asked about important levers to strengthen the startup ecosystem. The acceleration and simplification of administrative processes dominates at 89.9 percent, followed by the opening and simplification of public procurement for startups at 76.1 percent and the simplification of employee participation at 67.1 percent. The expansion of state venture capital investments, the establishment of individual flagship start-up centers at universities and the introduction of a special visa for IT specialists and potential founders were also mentioned by more than 60 percent. With its population and economic power, NRW has every opportunity, because with Fin.Connect.NRW it has an initiative that also aims to improve the financing of innovative start-ups.
