European banks' AI start-up investments soar in 2023

European financial institutions are creating a ripple in the financing of AI start-ups, with their investment share surging to an unprecedented 45% in 2023, according to new data released by Evident, the AI benchmarking and intelligence platform. This upswing comes even as overall global AI deal-making behaviours within the banking sector fell.

The majority of these investments (66%) flowed into AI-based start-ups situated in Europe. Thus, not only are European banks endorsing AI technologies, but they are also actively elevating AI start-ups located within the region, underscoring their commitment to bolstering regional AI capabilities.

Despite a 37% dip in global bank investments into AI start-ups in 2023, reflective of the wider downturn in venture capital activity, noteworthy is that the drop in European bank deal flow was less steep, cumulatively accounting for almost half of the total AI investments made in 2023. This is remarkable considering just eight years earlier, European banks represented less than 10% of AI-focused investments.

In 2023, five European banks featured in the top-ten list of banks leading in terms of AI investments, indicating a steady rise from their count of three in 2021. At the forefront is BNP Paribas, ranking third in overall deal flows and backing Mistral AI, Europe's largest contender to Open AI.

Evident's recent Dispatch shows that leading banks significantly ramped-up their venture investments in AI start-ups over the past decade. A staggering 96% of banks tracked in the Evident AI Index invested in or acquired at least one AI-related start-up during the period from 2010 to 2023, equivalent to over 800 AI venture investments.

Breaking down the data, Citigroup took the lead in AI venture activity last year, accounting for 13% of all AI-focused investments, trailed by Morgan Stanley (10%) and BNP Paribas (8%). A more strategic focus is being adopted by other banks, such as Capital One, who lead the pack with 57% strategic AI investments over the past decade, closely followed by Citigroup (49%) and Wells Fargo (48%). Notably, all three have a dedicated venture arm, a start-up accelerator, or a limited partnership with a venture and growth equity investment firm, signifying centralised AI planning at the organisation level.

Alexandra Mousavizadeh, Co-founder and CEO of Evident, said, "Startup investment is a risky business in terms of direct financial returns. However, our latest data shows that many banks are investing in AI for strategic purposes, namely, to gain front-of-queue access to cutting-edge AI technologies, market intelligence, and expertise."

She added, "Backing innovative AI startups can help banks accelerate on the roadmap to AI maturity, and the growing share of European banks' AI ventures is a positive sign for their long-term AI capabilities."

Mousavizadeh notes that despite the emergence of European banks, the gap between American banks and their European counterparts is substantial, considering AI investments over the past decade. She ended by stating, "We shouldn't expect changes overnight... US banks that have historically dominated the AI ventures field — such as Goldman Sachs and First Citizens — remain well-positioned."