AI Act Impact
SurveyExploring the impact of the
AI Act on Startups in Europe
12 December 2022

32

Table of Contents
Foreword	

3

Executive summary	

4Section 1: Survey Participants	•

AI Startups	

6•

Venture Capital Firms	7

Section 2: High Risk AI Systems	

18•

Support for AI Startups	

19•

Regulatory Sandboxes	

20•

Recommendations by VCs to AI Startups	

21

Policy Recommendations	

22

Authors	

23

8

Limitations	

23•High Risk AI Systems	

9Initiator & publisher	

24•

General Purpose AI	

9

Entrepreneurship Centres	

24•

Impact on Innovation & Competitiveness: Startups	10•

Impact on Innovation & Competitiveness: VCs	

10Contributors	

25

Appendix A: Questionnaire for Startups	

26

Appendix B: Questionnaire for VCs	

29

Section 3:
Consequences of working on high risk AI Systems	26

Section 4: Accelerating Compliance 	11•High-Risk Requirements 	

12•

Obligations for providers of High-Risk
AI Systems	

12•Compliance cost	

13•

Financial impact - attractive types of innovation	

13•Startup Story: A Healthcare Startup about the Impact of the AI Act	16

All image in this report are generated by DALL-E 2

Foreword
Participating Initiatives

Startups centers

In each of our country’s AI strategies as well as in the European one, we aim for global
leadership in AI. AI is considered a most strategic and transformative technology with amajor impact on our industry as well as society. This is also the reason why our institutions
exist - be it established by the national governments or from the private sector. We all strive
for achieving the goals of our AI strategies and share common targets:“The business plans of the next 10,000 startups are easy to forecast: take X and add AI”— Kevin Kelly, Founding Executive Editor of Wired Magazine•

Competitiveness: AI is already used as a strategic asset of nations. We need to foster
digital sovereignty by staying relevant and competitive from SMEs to industry leaders.

•

Trustworthiness: AI will affect us all. We want AI solutions based on European values inhigh quality.

•

Speed: There is a global race. We should not be the ones walking.

Having received the feedback from our innovation ecosystems on the AI Act which isoutlined in this document, we strongly advocate in all the discussions about potential risks
and negative effects that we do not forget how AI can be used to help achieve our targets
in the European Green Deal, Healthcare, Digital Sovereignty or other dimensions. The
current strong imbalance in the discussions about the regulation will move us from being theshapers to becoming shaped by others. We would lose our innovative power in AI.

This quote from 2015 visualizes the importance of artificial intelligence for startups and theinnovation ecosystem of countries. Global investments in AI startups more than doubled
from 90bn USD (2020) to 207bn USD (2021) [OECD.ai 2022]. While investments in AI
startups in the US (53%) and China (23%) make up for the most of AI investments, theEU lags behind with 6%. Combining three of the largest startup centers in Europe, we seethat close to 50% of the startups that we host per year in one way or another use AI which
visualizes the relevance of AI for innovation also in Europe. It is essential that we consider
AI as a means for innovation made in Europe and that we support startups in using thistechnology to be able to compete on the global market. We were alarmed by the feedbackof startups and investors with regards to the effects of the current version of the AI Act. We
urge policymakers to rapidly engage into a constructive dialogue with the players in order tofind balanced solutions that would regulate AI while not harming the innovative potential of
Europe.

We hope that the voice of a truly European AI ecosystem will be useful in the discussion of
AI regulation in Europe.

Andreas Liebl
appliedAI

Jörg Bienert
KI Bundesverband

Caroline Chopinaud
Hub.France.AI

Jos van der Wijst
NL AI Coalitie

Piotr Mieczkowski
AI Poland

Mikael Ljungblom
AI Sweden

3

Clemens Wasner
AI Austria

Stefan Drüssler

Jean-Michel Dalle

Mikkel Sørensen

Chief Operating Officer
UnternehmerTUM
Munich, Germany

Managing Director
Agoranov

Managing Director
DTU Skylab
Lyngby, Denmark

Paris, FranceExecutive summary
We talk about high-tech startups. The innovation engine of
our economy that works on the latest technologies with AI
experts as employees.
••

We voluntarily limit Europe’s innovative powerby introducing the AI Act in its current state. If
we decide on doing this, we need to think about
substantial support in parallel.
Other SMEs with less skilled employees will faceeven more challenges, because besides BigTech
from abroad and a few local companies, it is theStartups that make AI accessible to the broader
economy.

In summary4•

The 113 EU-based AI Startups in this survey drive
AI Innovation by developing diverse AI Systems,with both specific and generic purposes.

•

Now being somewhat competitive, 73% of thesurveyed VCs expect that the AI Act will reduceor significantly reduce the competitiveness ofEuropean Startups in AI.

•

33% - 50% of the AI Systems would classify as
High-Risk which goes way beyond the assumption
in the Policy Impact Assessment by the EU
Commission (5-15%).

•45% would consider their solution as a General
Purpose AI.

•

50% of the AI Startups believe the AI Act will slow
down AI Innovation in Europe. 16% consider
stopping to develop AI or relocation outside the EU.

•

For High-Risk AI Systems, the additional
requirements and obligations are a significant
challenge for startups in terms of technical andorganizational complexity and compliance cost.

•

All relevant indicators for VC investments forhigh-risk startups will decrease.

•

VC investments shift toward AI Systems with a
specific purpose, in low-risk applications, and, tosome extent, to non-AI startups and outside ofEurope.

While this data reflects only a small fraction of theEuropean Industry, it is the one driving innovation.
Feedback from established SMEs as well as larger
European companies indicates similar challenges. Largestartup nations around the world like the US, UK, China,
Israel support AI startups to grow in the global race toleadership in AI. Yet, startups in the EU will start with theburden of additional cost, slowed down innovation andlower valuations and VC investments. Exceptions for
SMEs do not help as those startups want to grow and theyneed to consider compliance from the beginning if they
don’t want to redo all the work once they grow beyond acertain threshold.
There exist several options to lower the impact on thestartup and innovation ecosystem in Europe. Each ofthem can and should be addressed for Europe to staycompetitive in the global race to AI leadership.

Image generated by Dall-E 2 with the prompt:“Mood of a tech Startup ceo after being told that
her company has to follow new regulations that are
intended to protect health, safety and fundamental”

Section 1

Survey Participants
Image generated by Dall-E 2 with the prompt:“AI Startups and VCs from different European countries offer views on theupcoming AI Regulation, Corporate memphis style in grey blue yellow andwhite colors”
5Section 1: Survey Participants

A board set of start-ups across Europe knowledgeable about AI
participated in the survey

AI Startups

In which country is your company located?

65% of all startups familiarized themselves with the AI Act before the survey

with Netherlands (89%) and Germany (80%) leading and Poland being the last
knowledgeable.
Of the surveyed startups, 96% are providers of AI Systems that are meeting theDefinition of AI System in the meaning of the AI Act1.

The vast majority of the surveyed solutions meet the definition of AI System, bringing
them into the scope of the AI Act. By implication, those startups developing the AI
Systems would be in the role of the provider, thus facing additional obligations throughthe AI Act, in particular if their AI Systems classifies as high-risk.

“Regulation is needed, but it must
not hamper the innovation of theEuropean economy, especially for
SMEs, which cannot afford lawyers
and to investigate compliance withthe growing number of unclear
requirements. European SMEs need
simple and clear regulations.”- Chloe Pledel
Chef de projets européens,Hub.France.AI“Higher awareness in Germany
confirms the importance of mandatory
association membership and theallocation of public funds for public
education or organization activities.
Poland needs to catch up.”
- Piotr Mieczkowski
Managing Director, AI Poland

Target group: AI Startups and other AI developing companies
Countries of data collection: Austria, France, Germany, Poland, Sweden The Netherlands
Count of participating Startups: N=113
Period of data collection: mid-October to mid-November 2022
Questionnaire: See Appendix A

1 Considering AI System(s) that:•
Uses machine learning and/or logic- and knowledge based approaches•
Operates with a certain level of autonomy•
Produces outputs such as content (generative AI systems), predictions, recommendations or decisions

6

European AI Innovation is well balanced between specific purposeAI, generic solutions and tools for AI development
What type of AI Application are you developing?

Section 1: Survey Participants

Venture Capital Firms

Already now, VCs have a mixed impression of the global
competitiveness of European AI Startups
Q Do you think EU-based AI Startups are globally competitive? (N=14)

Venture Capital fuels the innovation ecosystem. Their reaction on the AI Act will
heavily affect the future health of the AI startup landscape which makes them animportant voice about the impact of the AI Act.
AI Act Awareness
Only 60% familiarized themselves with the AI act before the survey (on asuperficial level). 40% acknowledged that they need to familiarize themselves morewith the risk categories.
Investment volume
The participating VCs represent a broad range from small VCs that plan to invest lessthan €10 Million up to €500 Million. The median participant plans to invest €10-50
Million. The participating VCs are only partially investing in AI startups (from 10%) up
to specialized VCs where 100% of their portfolio companies use AI.

“The people discussing and writing AI Regulation are like a bubble inside the AI
bubble, which, in itself, is relatively small compared to the rest of the European
industry. Yet, the rules affect the Union market and the results show that more
and wide communication is needed to avoid surprises.”- Till Klein
Team Lead Trustworthy AI, appliedAI Initiative

Target group: Venture Capital Firms
Countries of data collection: Europe
Count of participating Startups: N=15
Period of data collection: Early-November until Early-December 2022
Questionnaire: See Appendix B

7

The Funds represent all types of funds - from VCs specialized in AI
to VCs that have only minor parts of their portfolio in AI startups
Q What share of the startups you hold equity in is using AI as part of their offering? (N=14)

Section 2

High Risk AI Systems
Image generated by Dall-E 2 with the prompt:“The share of high-risk AI-Systems is higher than assumed, some startups
consider relocation outside the EU, some VCs consider moving funding awayfrom European AI , Corporate memphis style in grey blue yellow and whitecolors”
8Section 2: High Risk AI Systems

High Risk AI Systems

General Purpose AI

Nearly 33%-50% of the respondents would classify their AI System as a “high-risk” System
according to Annex II or III, which is more than double than the 5-15% assumed in the
Impact Assessment by the EU.

General Purpose AI Obligations are written with Large Models from BigTech in mind, butmany European Startups are in the scope, too.

A central assumption of the EU Impact Assessment does not hold:33% of the Startup Solutions could be classified as high risk
Q Considering the flag-ship Use Case of your Startup/company, in which risk class of

45% of the surveyed Startups consider their AI System to be GPAI, making them subject tothe obligations of GPAI providers. The impact of this development has not been assessed,
as General Purpose AI was neither considered by the 2021-Draft by the EU Commission
nor by the accompanying Policy Impact Assessment.
Startups that are part of AI Value Chains not only need to meet the general AI Act
obligations, but also need to set up contractual arrangements to exchange relevant
information with their customers, creating additional burden and complexity.

the AI Act is it going to fall?* (N=113)

45% of the AI Systems by Startups could be classified as
General Purpose AI
Q Do you consider your AI System to be of’ ‘general purpose’? (N=112)“We need a revision of the assumptions
for high-risk solutions and clear andeasy-to-read regulations.”- Chloe Pledel
Chef de projets européens, Hub.France.AI

9“The feedback from the startups
confirms other analyses done byappliedAI. Based on the 4th draftcompromise text, the amount of highrisk AI cases is much higher than
anticipated. We must reduce both
uncertainty as well as total amount ofhigh risk cases.”“Regulating GP AIs is a reasonable idea as the most large models are provisioned fromoutside the EU. Yet, the proposed approach creates many challenges and implications
that might be severe, because GP AI regulation was not considered in the Policy Impact
Assessment and in the design of the AI Act.”- Andreas Liebl-Till Klein

Managing Director, appliedAI

Team Lead Trustworthy AI, appliedAI Initiative:Section 2: High Risk AI Systems

Impact on Innovation & Competitiveness:
Startups

Impact on Innovation & Competitiveness:
VCs

51% of the respondents expect a slow down of their AI development activities as a result

Almost three quarters of the participating VCs expect that the AI Act will decrease the global
competitiveness of AI Startups made in Europe.

of the AI Act.

Around 12% of the startups say they consider relocating outside the EU or stop working
on AI altogether.
Another ~16% expect a positive impact of the AI Act on their business.
The main beneficiaries of the AI Act in the global Race to AI are expected to be outside ofEurope, specifically US-based BigTech companies and AI startups outside the EU.

Two thirds expect a negative impact of the AI Act on AI Innovation in
EuropeQ What impact do you foresee for your company and how are you going to respond to
those obligations? (multiple choice question, N=142)“As the EU is already behind in termsof innovation in AI, this slowdown could
crush the AI ecosystem in the EU as
the impacted companies also consider
leaving the EU for a territory with a morefavorable regulation.”- Chloe Pledel“In addition to all the crises shaking thecontinent, a large part of the innovationindustry is being torpedoed right now.
Investments in AI are now becoming
several hundred thousand euros more
expensive without gaining any added
value. This is a self-made competitive
disadvantage that other geopoliticalregions do not have.”

Chef de projets européens, Hub.France.AI- AI startup
10

VCs see a drastic worsening of Europe’s competitiveness in AI andwill focus on more incremental innovation
Q How is the AI Act likely to change the global competitiveness of EU-based AI startups?
(N=14)

Section 3

Consequences ofworking on high risk
AI Systems
Image generated by Dall-E 2 with the prompt:“An Entrepreneur who is faced with more technological complexity, lessfunding from VCs, and more cost to compliance as a result of the AI Act,
close up, Corporate memphis style in grey blue yellow and white colors”
11Section 3: Consequences of working on high risk AI Systems

High-Risk Requirements
The perceived level of difficulty declines along the AI/ML lifecycle. Data Governance andRisk Management are considered the most difficult. Quality Measures such as Accuracy,
Robustness and Cybersecurity are also rather difficult, but not as much. Record keeping,human oversight and technical documentation appear doable.
For most requirements, less than 25% of the respondents rate a requirement as easy,
hinting at the increased complexity for providers of high-risk AI Systems.

Complexity is rising: Data Governance and Risk Management are
seen as the most difficult high-risk requirements
Q How easy/difficult are the Requirements for High-Risk AI Systems?

Obligations for providers of High-Risk
AI Systems
Startups struggle with demonstrating compliance at the initial placing on the market and withmaintaining compliance during the deployment phase.
Many Startups might develop only one or a few AI Systems, which are not yet deployedat scale, .i.e. making an conformity conformity assessment difficult in the absence of
established procedures for the entire lifecycle, which leads to additional complexity on theorganizational level. In contrast, large companies tend to offer existing products for whicha conformity assessment is necessary, meaning they have established structures andprocesses for that very purpose.
Meeting the obligations of high-risk providers might be relatively easier for large companies
with existing Quality Management Systems and established processes along the productlifecycle that meet other Union Regulation, creating an unfair advantage compared tostartups and SMEs.

Q How easy/difficult are the Obligations for providers of High-Risk AI Systems?

“Startups need to develop their solutions already now in compliance with therequirements of the AI Act but there are no standards or tools existing. We immediately
need an ecosystem that develops those tools in parallel to standards and AI Act
implementation.”- Andreas Liebl,
Managing Director of appliedAI
12“The requirements for developing high-risk AI applications threaten to paralyze ourSMEs at the expense of global organizations that can afford the extra burden. Jobs will
move outside Europe as a consequence.”- Björn HovstadiusManager International partnerships, AI Sweden

Section 3: Consequences of working on high risk AI Systems

Compliance cost
50% are within the estimated cost range between 160k - 330k EUR.
Nearly ~20% of the respondents expect somewhat or significantly higher cost forcompliance.

Financial impact - attractive types ofinnovation
The AI Act is considered to lead to less disruptive innovation and ashift towards smaller incremental ones.
Q How do you consider the risk category in your investment decision?

Half the startups estimate additional cost for compliance within theassumption in the Policy Impact Report, but they do not know how toafford them(Multiple-choice question; N=18)

Q What cost of compliance do you estimate for your company? (Free text; N=63)“As a project-based service provider, weestimate the costs for our company to bevery high to existentially threatening, as
the multitude of “AI products” our company develops will lead to multiplied QMS
and conformity assessment efforts. . We
do not expect to be able to effectively
pass these costs on to our customers.”- AI Startup from Germany
13“Not estimable. We are 4 and do nothave a quality referent.”- AI startup from France“I expect, that overall investments will be reduced the higher the regulation is for thesector. High-risk solutions might get no funding at all. I also see currently no trend for
VCs to invest into General AI or Large models unless government funding will be part ofit.”- VC from Germany

Section 3: Consequences of working on high risk AI Systems

Re-allocation of VC Funds: Regional Focus
The available VC-Funding for AI Startups is likely to shrink under the
AI Act and partially move toward Startups outside the EU and non-AI
technologies
Q With the AI Act being on the horizon, do you consider moving investments?
(Multiple-choice question; N=19)“This is short of a catastrophe. AI solutions are key to addressing many of our societal
challenges in Europe. International talent will go to other markets. If we scare away investments and jobs from our member states we will not be able to develop the solutions
needed”.
- Björn HovstadiusManager International partnerships, AI Sweden
14

Image generated by Dall-E 2 with the prompt:“AI Systems that can adresss societal challenges in Europe are
not implemented because of a lack of funding and talent, flat
illustration in grey blue”

Section 3: Consequences of working on high risk AI Systems

Re-allocation of VC Funds:
high-risk vs low risk AI Systems
Low-Risk AI Startups might see a minor decline of VC interest and anticipate additional
efforts to win deals. A solid rationale for the low risk classification needs to be in place,specifically if the Use Case falls into the category of General Purpose AI.

“It is clear that even low risk AI startups are affected by the proposed legislation. Just
the risk of a startup being classified as high-risk or General Purpose creates uncertainty.
VCs hate uncertainty. They will instead invest in markets outside of Europe with clear
rules. Europe will lose investments and jobs creation.”- Björn HovstadiusManager International partnerships, AI Sweden

Startups developing high risk AI Systems are less attractive toinvestors

AI Startups with low-risk AI Systems have slightly improved access
to VC investments

Q If a startup falls into the “high-risk” Class in the AI Act, how does this affect the valuation

Q If a startup falls into the “low-risk” Class in the AI Act, how does this affect the valuation

and attractiveness of the startup? (N=15)

Same question, inverted scale15

and attractiveness of the startup? (N=15)

Same question, inverted scale

Section 3: Consequences of working on high risk AI Systems

Startup Story: A Healthcare Startup about the Impact of the AI Act
Q

Please describe your use case. What are the central
benefits for the user and the broader society?

A

We are active for around 2 years and develop AI in
the Creative sector (e.g. Music) and in Healthcare.
The former is fun, but the latter saves lives, which iswhere we see the biggest impact.

early and weak signals can be detected using our AI/
ML system that is trained on the basis of biometricdata from the intensive care unit, such as heartrate, blood pressure, and other inputs. The system
alerts the medical team if a high-pressure event is
expected or detected, to enable swift and minimalinvasive intervention.

Case 1
Statistics in Medical Research (in deployment)

Case 3: Prediction of blood bags demand(canceled due to GDPR)

So far, we used statistical methods to support
medical research. For instance, in medical studies
about medical treatments such as post-OP
recovery, where we help surgeons and researchers
to determine the discriminating factors forpatients at risk. Traditional methods often point tocharacteristics like gender, age and weight, but wecan be more specific and capture the relationships
amongst variables, e.g. how a pregnant woman
might react to a treatment x weeks after the surgery.

In Germany, there is a shortage of blood reserves
across hospitals, yet we observed that many bloodbags are being wasted because of short expiration
dates and imprecise planning of when, which typeof blood is needed. One blood bag may cost several
hundreds Euros (e.g. platelet concentrates) andsome hospitals plan their blood purchases with amoving average of some four weeks, when, in fact,many more factors matter, e.g. planned operations
or whether certain physicians are working.

Note from the interviewer: This System would be considered AI
under the broad definition, but might be exempt from the AI Act(?), because it is in the field of research.

Case 2: Brain pressure prediction (underdevelopment)
Patients in intensive care units may experience
increased brain pressure, which, when it occurs,
needs to be reduced to prevent long term damage.
If the pressure is above a certain threshold, only
invasive measures can reduce it, which are risky andcome with side-effects. To prevent such measures,
16

We trained an AI/ML model which showed promising
results for predicting the demand of blood bags on acertain day, which could minimize the waste of blood
donations at scale, but the project was stopped,because the data protection officers at the involved
hospitals had no means to give access to necessary
training data.

“The existing regulation (MDR, GDPR) arealready a struggle, but we cannot stumble anentire Marathon with the AI Act on top”

ImpactQ

How is the upcoming EU AI Act going to affect theway your company develops AI?

A

The Brain pressure application would be a Class IIa
Medical Device and require a conformity assessment
under the Medical Device Regulation.
That in itself is a huge burden, because thecertification by a notified body costs us some €300400k plus we would have to wait around 12 months
before our application can be assessed, because
notified bodies are a bottleneck to the market.
Unless we pay a “priority fee” to reduce the waiting
time, which is beyond our budget.
The AI Act increases the uncertainty, both, for us andthe hospitals. They do not know the implications andtheir legal departments are conservative, meaning
they rather do nothing before they do something
wrong. On our side, we cannot estimate theadditional effort, expertise, and cost for compliance.
I’ve done my Masters’ degree in Explainable AI andmost models cannot be fully explained, hence I am
not sure what policy makers are expecting. Manyof my fellow graduates are moving to the USA towork for BigTech. Working in a startup I make half of
their salary, which is ok, because with our medical
applications we are making a difference. But looking
at the AI Act, we seriously consider stopping our AI
developments in high-risk areas and focus on theCreative Arts, which is also fun, but it won’t save
lives.

Section 3: Consequences of working on high risk AI Systems

Startup Story: A Healthcare Startup about the Impact of the AI Act

Recommendation

Q

What measures / changes from the EU or national
government would help to minimize the burden andto improve innovation?

A

Policy makers should not only focus on preventing
things that are dangerous, but also enable things
that create value. It is fair to regulate AI, but weshould not forget about the opportunities thattechnology offers to us.
As a startup,we are always collaborating with otherorganizations (hospitals in our case) who are asking
us about AI, how it works, and how we ensurecompliance. This is fine, but the AI Act will raise newquestions, and if we spend all time explaining theregulations to our partners, we have limited time todevelop great technologies, which is our strength.
Hence, we wish for targeted information campaigns
that explain to all relevant stakeholders (e.g.
hospitals) what the AI Act is about and what can andcannot be done.

Image generated by Dall-E 2 with the prompt:“A startup CEO in Healthtech wishing for an information campaign
about the upcomming AI Regulation, because they cannot explain
all the requirements to their partners such as hospitals, Corporate
memphis style in grey blue yellow and white colors”
17Section 4

Accelerating
Compliance
Image generated by Dall-E 2 with the prompt:“Policy makers, startups, corporates and certification bodies
engaging in trial and error of new AI regulations in a regulatory
sandbox, flat illustration in grey blue yellow and white colors”
18Section 4: Accelerating Compliance

Support for AI Startups
Most Startups are looking for expert knowledge throughpractical guidance, case studies or consultation.
76 Startups have a need for additional funding to cope withthe growing compliance cost.

“European Startups and SMEs need help toimplement the AI Act. Without a series of measures,
innovation in Europe will be delayed.”

19

Best practices and additional funding are key drivers for compliance
Q

What kind of support or assistance would you like to see for meeting the requirements and obligations from the
Al Act? (Multiple choice question; N=239)“Startups have a clear opinion about what they wantas support. Most of the aspects are not or only in parts
addressed in the AI Act or the Coordinated Plan.”“The risk of AI-Startups being overwhelmed by the
AI Act is a real possibility, as such the Act must be
applicable and handleable for Startups.”- Chloe Pledel- Andreas Liebl- Jörg Bienert

Chef de projets européens, Hub.France.AI

Managing Director of appliedAI

President German AI Association

Section 4: Accelerating Compliance

Regulatory Sandboxes
AI Startups have clear expectations toward Regulatory Sandboxes
Q

The AI Act foresees the setup of so-called ‘Regulatory
Sandboxes’ which are intended for ‘trial and error’, i.e.
for implementing the AI Act “without being charged”
when things go wrong.
What are your expectations for such a Sandbox in yourcountry? What kind of services, actors or waivers would
you like to see there? Please elaborateA•

Co-creation: Make recommendations on whatneeds to be improved and do not directly impose
regulatory fines or penalties on the founders.

•Interventions: The question is whether the ANSSI(French authority for the security and defence of
information systems) intervenes in the regulationof the sandbox and can create alerts of flaws.The
INRS is also concerned for Health and Safety at
work.

Answers (direct words from respondents):
Access & Utility:•

Leadership: Extremely clear and transparent
structures, neutral leadership (not through politics orcompany representatives or connected•

Access:--A simple interface so you don’t have to spend
excessive development time to use thesandbox.

Funding: Additional funding to meet extra efforts.

•

Commercialisation:

-

•

•

I can’t imagine how this is going to work. The AI
solution needs paying customers. They exist in
the real world and not in sandboxes.
(Potential) customers are very insecure anddon’t dare to do anything with AI for the time
being, because they could be prosecuted for itvery soon.

Flexibility: Accessibility, adaptation to individual
needs

through such sandboxes, help reduce the time forcompliance in all ways possible. Probably easy fixes
can be offered through static code analysis and soon. Acts against data monopoly.
•

Intellectual Property: It’s very complicatedwithout risking disclosure of how a company solved
technical problems or provided data sets for testing,especially when intellectual property rights are
involved.

Quality Data-

Common test datasets (learning, evaluation andbias detection). Evaluation grid.

-Protected area with synthetic data forcomprehensive testing (quality assurance)-

Doubtful about the feasibility for the insurance
field, despite a very high interest in the subject,which would benefit from being treatedon a national scale. Detailed anonymised
statistical data from the French could certainly
help improve insurance products and theirrecommendation.

Testing & Quality•

It should be available as soon as possible. Fastand secure regulatory implementation.

•

-

20

Legal Aspects:

Scope: it should be possible to carry out any typeof experimentation, including on borderline cases(military, biotech, cyber, etc.), even if it means
having a specific level of monitoring.

•

Test Users: It would be ideal if there were somevolunteer users you could book to see the results asan objective third reference.

•

Audits: Regulatory sandboxes should aim atconducting holistic audits of prioritzed use caseswith high-risk AI systems that include all relevant
stakeholders such as use case owners, auditors,
auditing tool providers and regulatory authorities.
Legal advice. Unclear to date.

•Continuous Compliance: Stay up to date withthe laws automatically, Provide actionable points
on warnings and errors while running the system

Expertise Building•

Education: Training and education opportunities•

Best practice: Have concrete examples or even ademonstration.

•

Compliance know-how: (...) knowledge aboutother regulatory processes like that of medical
device certification.

•

Sectoral Experts: Strong availability of sectoral
experts (CV, ....) for compliance in case of failure via
a tool such as: Chat “. A/B testing, always useful.

•Individual consulting: Feedback on our solution
with specific advice on how to mitigate/fix parts thatwould not comply with the regulation. If it is done bypoliticians... then there are a lot of problems

Section 4: Accelerating Compliance

Recommendations by VCs to AI Startups

Recommendations by VCs to Policy Makers

AI Startups should address the AI Act proactively, be awareof the own risk-class, and explore new opportunities

Policy makers should critically reflect on the need to regulate earlystage AI startups and implement measures to accelerate theircompliance

Q

What is your recommendation to EU-based AI Startups?

Q

What is your recommendation to the policy-makers writing and voting on the AI Act?

A

Answers (direct statements) :A

Answers (direct statements) :“Prepare a dedicated Q&A on how the AI Act will impact your business before
fundraising”“Let’s educate ourselves - AI education for everyone first before making regulatory
pushes”“Avoid the high-risk sector / consider compliance from the beginning /invent more
solutions to monitor AI, manage it and help enterprises to be compliant.”“Try to help European StartUps. They will suffer more from this than Google & Meta
(who can easily afford the best lawyers and certification consultants)”“new regulations might open so far unknown opportunities; address them”“Don’t regulate too early! Technology and use cases are still too volatile andAI technologies tend to be just a part of the products. Early regulation will hurt
disproportionately and create an additional competitive hurdle for European
companies.”“Keep building - with enough utility for the user, technology will win over the long run”
“Risk mitigation: Be prepared for an AI Act audit of a VC, i.e. assess the risk as best
you can (and ask for help from large VC/startup organizations) and identify ways toaddress or work around AI Act restrictions.”“There is a reason for China and the US to wait to regulate it, don’t want to kill
innovation to soon to be the most competitive. No significant AI has come from EU andnone will come if we are the first to regulate it.

“Don’t worry. Focus on buidling.”“Fight against early regulation.”“Keep a close eye on regulatory requirements and how that will impact the cost ofdevelopment in the early stages.”“Create a parent company in the US that holds all the IP or risk getting impact by yourown countries.”“Avoid having to deal with this regulation if at all possible.”21“Our first investment in a significant high risk AI startup from EU we decided to do flip itto the US just for the risk of this kind of regulations.”“It is an important goal that only AI that safeguards the security and fundamental
rights of EU citizens is developed and used in the EU, and it is good that a regulatoryenvironment is being created for this. However, this framework must be balanced
and must not restrict the innovative strength of Germany/EU as a business location.
In my opinion, VCs will have to carry out much more precise checks and the burden
will be immense, especially for very young innovative start-ups, so that in my opinion
less private capital will flow into young companies. Politicians need to develop a more
precise understanding of what early-stage start-ups can do and what restrictions arereally necessary to achieve the above-mentioned goal. If you look at the results of thesurvey of start-ups on the AI Act, this has obviously not been achieved.”

Policy Recommendations
Measures to protect, nourish and accelerate European AI Startups

1
2

Keep European Competitiveness in the center of the
discussions
Reduce amount of high-risk cases: Narrow the High-Risk
Criteria to get closer to the anticipated 5%-15% of affected
AI-Systems

3

GP AI: Consider the role of Startups as GP AIs provider inthe light of GP AI Obligations

4

Foresee bottlenecks and systematically debottleneck theme.g. in the area of 3rd party conformity assessments to not
additionally slow down innovation

5

Conceptualise Regulatory Sandboxes as drivers forinnovation in a protected, but attractive environment.

6

Update the Coordinated Plan and take the needs ofEuropean AI Startups into account, specifically in areasthat are considered very difficult or costly. Reduce cost ofcompliance.

Image generated by Dall-E 2 with the prompt:“Policy makers, startups, corporates and certification bodies engaging
in trial and error of new AI regulations in a regulatory sandbox, photo
realistic”

22Authors

Limitations

Our study represents only a share of the AI Startup community in Europe. There are no official numberson the total population of AI Startups in Europe, but proxies are ranging from ~500 AI Startups in 2020 inFrance, Germany and Sweden1 to 1600 AI Startups across Europe (incl. UK) in 20192.

Dr. Andreas Liebl

Dr. Till Klein

Dr. Andreas Liebl is Managing
Director of the appliedAI Initiative
GmbH and the appliedAI Institutefor Europe gGmbH. Bothfollow the purpose to “ShapeEurope’s innovative powerin AI” to maintain European
competitiveness by tackling thevery operational challenges thatcome with the application of AI.
He serves as steeringcommittee member in the Global
Partnership on AI and is part on
the working group on innovationand commercialisation of AI.
He was Managing Director of
UnternehmerTUM, has worked
for McKinsey and did his PhD
at the Technical University of
MunichDr. Till Klein, Team Lead for
Trustworthy AI at appliedAI andmember of OECD.AI, isdriving the acceleration of AI
by co-creating methods, tools
and insights in the field of AI
Regulation and Governance toenable compliance and trust
by adopters. He has several
years of industry experience inthe regulatory roles, including
Medical Devices, Drones, andas Quality Management System
Auditor. Till is an Industrial
Engineer and did his PhD on
the evolution of collaboration
networks in the context oftechnology transfer.

a.liebl@appliedai.det.klein@appliedai.de

Our study does not control for the level of proficiency about the AI Act. We did provide guidance material
in the questionnaire, e.g. about the criteria for risk classification, but it is unknown to what extent the
respondents are really familiar with the AI Act.

1 source: www.ai-startups-europe.eu
2 source: https://medium.com/mmc-writes/the-disruptors-unique-insight-into-europe-s-1-600-aistartups-part-1-d30f7b1967a1

23

Initiator & publisher

appliedAI Initiative Gmbh
www.appliedai.de
Freddie-Mercury-Straße 580797 Munich, Germany

appliedAI is Europe’s largest initiative for the application of leading edge trustworthy
AI technology with the vision to shape Europe’s innovative power in AI. appliedAI wasformed as trustworthy initiative that acts both as enabler and innovator. Based on our
ecosystem we strengthen the value creation building global AI champions.

Entrepreneurship Centres

DTU Skylabwww.skylab.dtu.dk

Agoranov
www.agoranov.com

UnternehmerTUM GmbHwww.unternehmertum.deCentrifugevej 374, 2800
Kongens Lyngby, Denmark

96 BIS boulevard Raspail
75006 Paris, France

Lichtenbergstraße 685748 Garching near Munich, Germany

DTU Skylab is DTU’s (Technical University of Denmark)living lab for innovation and entrepreneurship. We matchstate of the art technology and science with an ambitious
and open community, where students, researchers andcorporate partners meet to exchange knowledge anddevelop visionary solutions for real world challenges.

Agoranov is an incubator for innovative startups. It has
already incubated more than 450 startups, including 5“unicorns” (valued at over one billion dollars), as well as
many successful companies, such as Ÿnsect or DNA Script.
Incubated startups have already managed to create morethan 12,500 jobs and have raised over 2.5 billion euros fromprivate funds.

At UnternehmerTUM, visions turn into value. Our teams
empower innovation enthusiasts to take entrepreneurial
action. Together with start-ups and established companies,
we drive tech ventures forward - from first idea to market
leadership. In collaboration with the Technical University of
Munich (TUM) and entrepreneur Susanne Klatten, we’vebeen promoting future-forward start-ups such as Celonis,
Konux, Lilium, inveox, and Isar Aerospace since 2002.

24

Contributors

KI-Bundesverband
www.ki-verband.de
Schiffbauerdamm 40,
10117 Berlin, Germany

Germany’s largest AI network: We connect
Germany’s most innovative AI anddeep tech companies with establishedbusinesses and politics. With more than
400 AI companies, we are the largest AI
network in Germany.

NL AI Coalitie
nlaic.com
Bezuidenhoutseweg 122594 AV The Hague
The Netherlands

Daniel Abbou
Managing Director

Jos van der Wijst

daniel.abbou@ki-verband.dejos.vanderwijst@nlaic.com

AI Austria
aiaustria.com
Wollzeile 24/12
1010, Wien
office@aiaustria.com

Clemens Wasnerclemens.wasner@aiaustria.com

25

AI Austria is an independent think-tank
and sees itself as a platform for theexchange of ideas on Artificial Intelligence.
Through targeted networking, coordinationand promotion of players from science,business, education and society, wewant to contribute to the targeted andsustainable application of AI in Austria.

AI Poland
aipoland.org
Piotr Mieczkowski
Managing Director,
piotr.mieczkowski@
digitalpoland.org

The Netherlands AI Coalition is a publicprivate partnership in which the government,
the business sector, educational andresearch institutions, as well as civil society
organisations collaborate to accelerate andconnect AI developments and initiatives. The
ambition is to position the Netherlands at
the forefront of knowledge and applicationof AI for prosperity and well-being. We arecontinually doing so with due observance ofboth the Dutch and European standards andvalues. The NL AIC functions as the catalyst
for AI applications in our country.

Paris, France
www.hub-franceia.fr

The Digital Poland Foundation, thanks to the
AI Poland initiative, wants to make Poland
one of the leading global hubs of digital
innovation.

AI Sweden
www.ai.se

Chloé Plédel
European Project
manager

The Hub France IA is an association underthe 1901 law that aims to federate theactors of the AI ecosystem to allow thedevelopment of proposals and concrete
solutions.

chloe.pledel@hub-franceia.fr

Françoise Soulié,
Scientific Advisor

Lindholmspiren 11,417 56 Gothenburg,
SwedenMikael Ljungblom
mikael.ljungblom@ai.se

AI Sweden is the Swedish National Center
for Applied Artificial Intelligence, supportedby the Swedish government and a wide
range of partners representing academia,
the private and public sector. AI Sweden’s
mission is to Accelerate the use of AI for the
benefit of our society, our competitiveness,and for everyone living in Sweden.

Appendix A: Questionnaire for Startups
Are you....*

Prohibited (e.g. real-time biometric identification, social scoring, predictive policing,
subliminal techniques that may cause physical or psychological harm; Art. 5)•

High-Risk (see Annex II or Annex III, linked above; Art. 6)•

Developing a technology service independent of function or industry (e.g. video
analysis, CV tool, anomaly detection solution)

Information Obligation (if your AI System is interacting with natural persons/humanbeings; Art. 52)•

Low / Minimal Risk (in case your AI System is none of the above)

Providing a tool for AI development (e.g. MLOps, Model library, explainability tool)•

I am not sure

Developing a solution for a specific industry (e.g. a healthcare app)•

Developing a solution in a specific functional area (e.g. Marketing tool, Production
optimization)•

In a nutshell, the AI Act will regulate the development, marketing and usage of AI in Europe following a risk-based approach, meaning, the higher the risk of a AI System (lowrisk, high-risk, prohibited) the stricter the regulatory requirements. High-risk AI covers
safety-related applications across industries such as cars, airplanes, medical devices,or toys, but also certain areas of usage, including education, employment, law enforcement or critical infrastructure. High-risk AI needs to undergo a conformity assessment tomeet requirements, e.g. on data governance, explainability, accuracy, cybersecurity andhuman oversight. Developers of high-risk AI face comprehensive obligations, too.
Have you heard about the AI Act before?
•

Yes

•

No

Is your company working on the development of AI System(s)?
An AI Systems that26

See Annex II and Annex III of the AI Act as reference to determine if your AI is consideredhigh-risk.
•••

Considering the flag-ship Use Case of your Startup/company, in which risk class of the AI
Act is it going to fall?

-uses machine learning and/or logic- and knowledge based approaches-

operates with a certain level of autonomy-

produces outputs such as content (generative AI systems), predictions,recommendations or decisions

•

Yes

•

No

•

I am not sureIf you are not sure, what information is missing on your side? What is unclear or ambigious?
Please describe.

High-risk AI Systems have to comply with several requirements as a precondition for usage.
Please rate how difficult / easy you consider the implementation of these requirements.
Scale: Very difficult - Somewhat difficult - Indifferent - Somewhat easy - Very easy•

Risk management (Risk Mgt. along the ML Lifecycle, mitigate risk until acceptable)•

Data and data governance (Use high-quality training, validation and testing data, bias
monitoring)•Technical documentation (document the AI system before placing on the market)•

Record-keeping (logs-tracking, post-market-monitoring, person involved in theverification)•

Transparency and provision of information to users (User shall understand thesystem, provide instructions for use, metrics, limitations for usage)•

Human oversight (feature a human-machine interface, avoid automation bias, “stopbutton”•

Accuracy, robustness and cybersecurity (quality assurance, accuracy to be in
instructions for usage, resilience against unauthorised access)If your organization is developing AI, you are likely to fall into the role of a so called‘provider’ in the AI Act. Providers of high-risk AI Systems face comprehensive obligations.
Please review the obligations below and indicate how difficult / easy you rate theirimplementation:
Scale: Very difficult - Somewhat difficult - Indifferent - Somewhat easy - Very easy•

Have a Quality Management System in place•

Create technical documentation about the AI System•

Control and keep logs of the AI System e.g. for reproducability•

Conduct a conformity assessment before putting the AI System on the market•

Register the AI System in an EU Database•

Implement corrective action should the AI System become non-conform after placing
it on the market•

Affix the CE-Mark to the AI System•

Collaborate with competent authorities to demonstrate compliance to the AI Act

The AI Act is going to pose obligations on the providers/developers of AI Systems, e.g.
regarding risk management, data governance, robustness and transparency in the caseof High-Risk AI Systems (see chapter 2 for details). What impact do you foresee for yourcompany and how are your going to respond to those obligations?
•

Positive impact: We embrace the new obligations and believe they add value for us•

Neutral impact: The cost for compliance outweigh their benefits•

Not affected: Our AI is not in the scope of the AI Act•

Slow down: The obligations will impede our development activities•

Shutdown: We will stop developing AI solutions•

Relocation: We relocate our AI activities to outside the EU

The EU conducted an Impact assessment of the AI Act and estimated the cost forcompliance for an enterprise of 50 employees for one high-risk AI Product (covering therequirements for the AI System and the obligations for the company, e.g. introducing a
Quality Management System (QMS)); see this report, Section 5.
- If the company has no QMS, “the set-up of a QMS and the conformity assessment process
for one AI product is estimated to cost between EUR 193,000 and EUR 330,050.”
27- If the company has an existing QMS, it would roughly “pay EUR 159,000-EUR 202,000 for
upgrading and maintaining the QMS, and bringing one AI product to market.”If you consider all efforts to comply with the requirements mentioned above, what cost ofcompliance do you estimate for your company?

Do you assume the AI Act will help you in the global competition (e.g. through more trust in
your solution) or will help the competition outside the EU (Solution providers outside Europe
have to comply too, when offered in Europe)?
•

Helps the startups / AI developers in Europe•

Helps startups / AI developers in countries outside of Europe•

Helps the large cloud providers like Google or Amazon offering the developmet
infrastructure•

Other:

Do you consider your AI System to be of ‘general purpose’ according to this definition:“General purpose AI system’ means an AI system that is able to perform generally
applicable functions such as image or speech recognition, audio or video generation,
pattern detection, question answering, translation or others; general purpose AI system may
be used in different contexts and may be integrated in a range of other AI systems.”
Background: Providers of General Purpose AI would have to foresee, if the user (e.g. acustomer) uses the AI System for a purpose that might be considered high-risk, and if so,
provide the necessary information to the user to be compliant with the AI Act (e.g. conduct a
conformity assessment).
•

Yes

•

No

•

I am not sure

What kind of support or assistance would you like to see for meeting the requirements andobligations from the AI Act?*•

Training & education offers•

Consultation or coaching•

Technical tools to achieve compliance e.g. on data-related topics•

Best practice methods and templates e.g. guidance documents•

Case studies of how other companies apply the AI Act•

Reliable (binding) Q&A or references for specific questions•

Exchange with other companies, similar to yours•

Direct communication with policy-makers•

Additional funding to cope with the additional efforts•

other (please elaborate below)

If you selected “other”, please describe what kind of support on implementing the AI Act you
are wishing for:

The AI Act foresees the setup of so called ‘Regulatory Sandboxes’ which are intendedfor ‘trial and error’, i.e. for implementing the AI Act “without being charged” when things
go wrong. What are your expectations for such a Sandbox in your country? What kind ofservices, actors or waivers would you like to see there? Please elaborate

If you could change one thing in the AI Act. What would it be?

28

Would you like to receive the results of this survey?
•

Yes

•

No

Please enter your email address, if you’d like to receive the results.

Appendix B: Questionnaire for VCs(optional) What €-amount are you planning to invest in 2023?
Dropdown:•< €10M•€10 - €50M•

€50M - €100M•€100M - €250M•€250M - €500M

Do you think EU-based AI Startups are globally competitive?
•

Absolutely - The vast majority is globally competitive•

Somewhat - More than the half are globally competitive•

Rather not - Less than the half are globally competitive•

No way - Hardly any is globally competitive

What share of the startups you hold equity in is using AI as part of their offering?

In a nutshell, the AI Act will regulate the development, marketing and usage of AI inEurope following a risk-based approach, meaning, the higher the risk of a AI System(low-risk, high-risk, prohibited) the stricter the regulatory requirements. High-risk AI
covers safety-related applications across industries such as cars, airplanes, medical
devices, or toys, but also certain areas of usage, including education, employment, law
enforcement or critical infrastructure. Moreover, General Purpose AI Systems (AI usedin diffent “contexts”) might be classified as high risk (e.g. any Computer Vision startup
that can apply their models to different use cases). High-risk AI needs to undergo aconformity assessment to meet requirements, e.g. on data governance, explainability,
accuracy, cybersecurity and human oversight. Developers of high-risk AI facecomprehensive obligations, too. When we asked startups, ~38% answered, they will behigh risk and another ~17% answered they could potentially be considered as high risk.
Have you heard about the AI Act before?
•

Yes

•

No

The AI Act is anticipated to result in additional costs and benefits, see below:
Costs stem from the additional regulatory obligations and requirements:• Need to conduct a Risk Classification per AI System•

Strict requirements for “high-risk” AI Systems (e.g. accuracy, robustness,cybersecurity, transparency, documentation, etc);•

Providers / Developers of•“high-risk” AI Systems need to establish a Quality Management System, conduct
a Conformity Assessment, and afix a CE-Mark to the AI System•

Some AI applications are prohibited in the EU (e.g. social scoring, predictive
policing)•

Low risk AI is hardly/not regulated

Dropdown:

29•

10-20%•

20-30%•

30-40%•

40-50%•

50-60%•

60-70%•

70-80%•

80-90%•

90-100%Benefits stem from the increased level of trustworthiness:• Compliant AI Systems bear a CE-Mark, recognized across Europe•

Higher Quality of the AI Systems in terms of accuracy, robustness, cybersecurity,etc.

•

AI Development with the goal to protect health, safety and fundamental humanrights•Higher user acceptance due to improved transparency, human oversight andexplainability

How is the AI Act likely to change the global competitiveness of EU-based AI Startups?
•

Significantly increase•

Somewhat increase•

Remain about the same•Somewhat decline•

Significantly decline•

Other:

Section: Investment behavior
As the AI Act is going to affect AI developments in the EU, in this section ask how it mightchange your investment behavior too.

Investment strategy: How is the AI Act going to influence what kind of AI innovation by
EU-based AI developers will receive private investments?
With the AI Act, more investments will go into...

The risk class does not play a role in our view•

We have not (yet) familiarized ourselves with the risk classes and their implications on
our investment decisions

With the AI Act being on the horizon, do you consider moving investments?
•

Invest more into AI startups in Europe•

Invest more into AI startups outside Europe•

Invest more into other (non-AI) startups in Europe•

Other:

Section: Risk and Return Profile of European Startups
If a startup falls into the “high-risk” Class in the AI Act, how does this affect the valuation andattractiveness of the startup?
Scale: Significantly increase - Somewhat increase - No change - Somewhat decline significantly decline•

Likelihood of investment•

Investment amountHigh-Risk AI Systems in with high-value in specific areas (Critical Infrastructure, Law
Enforcement, Education, Employment)•

Effort and transaction cost around Due Diligence•

Overall long-term return potential from investment•

Large Foundation models and General Purpose AI (Language Models, Computer
Vision Models, etc)•

Valuation of the startup•

Incremental Innovations with a defined use case (Adopters of AI Models, e.g.
Marketing Startups with AI)•

Tool providers (e.g. data generation ) or development infrastructure providers (e.g.
MLOps)•

Other:•

Potentially disruptive AI Solutions with very unclear risk category (Reinforcement
Learning, Advanced ML for BioTech, etc.)•

There are two major risk categories in the AI Act, which are assigned per AI Use Case /Application: High-risk (significant obligations) and Low-risk (little-no obligations). How do
you consider the risk category in your investment decision?

30•

If a startup falls into the “low-risk” Class in the AI Act, how does this affect the valuation andattractiveness of the startup?
Scale: Significantly increase - Somewhat increase - No change - Somewhat decline significantly decline•

Likelihood of investment•

Investment amount•

Effort and transaction cost around Due Diligence•

We would focus our investments on low-risk AI startups•

Overall long-term return potential from investment•

We your focus our investments on high-risk startups e.g. because it often comes withhigh-value•

Valuation of the startup

Section: Recommendations
What is your recommendation to the policy-makers writing and voting on the AI Act?

What is your recommendation to EU-based AI Startups?

Are you interested in receiving the results of this survey?
•

Yes

•

No

If “yes”, please provide your email address:31