Aleph Alpha: What’s behind the record deal for the AI ​​company

analysis

The choreography of Aleph Alpha’s announcement already suggests that this is a matter of national interest: At the press conference for the new round of financing on Monday, in addition to the founder and investors, Federal Minister of Economics Robert Habeck also took the lectern.

An appearance with symbolic power: a sitting vice-chancellor personally congratulating a start-up on its funding has never happened before in Germany. The exception may be due to the amount of financing and the prominence of the investors, but certainly due to the topic: artificial intelligence.

The Heidelberg start-up Aleph Alpha is the best hope so far for a powerful artificial intelligence “Made in Germany”. Its voice AI Luminous is considered the German answer to ChatGPT. With one crucial difference: Aleph Alpha’s servers are located in Bavaria – and therefore promise independence from American providers.

Financing from Lidl parent, Bosch and SAP

This has apparently also convinced some well-known investors. The current financing round raised more than 500 million US dollars, the equivalent of around 466 million euros. This makes it one of the largest rounds of financing that a German start-up has raised in 2023.

It is noteworthy that almost exclusively German companies took part in the deal, including the Schwarz Group (Lidl, Kaufland), the mechanical engineering company Bosch with its investment arm Bosch Ventures, the software giant SAP, the media group Burda with its subsidiary Burda Principal Investments and the Berliners Consulting firm Christ&Company Consulting. Hewlett Packard was the only foreign investor who joined.

Aleph Alpha has sovereignty as its business model

For most investors, the investment is likely to be of a strategic nature. Artificial intelligence is considered a key technology for a competitive economy, for example with regard to automated factories or intelligent chatbots. The demand for corresponding solutions is great, but the distrust of American providers such as OpenAI, Microsoft or Google has so far been greater.

This is also shown by the timid handling of ChatGPT: Many DAX companies have banned the voice AI from the American provider OpenAI from their offices – there is apparently too great a concern that sensitive data could leak. In times of war, crises and delivery difficulties, people would prefer to keep the value chain for their own data in Europe.

This is exactly where Aleph Alpha comes in with its voice AI Luminous – and promises data protection and security according to European standards. In contrast to ChatGPT, the AI ​​should also work comprehensibly and transparently.

“AI will shape the future. And it is important that we have this future in our own hands,” says Aleph Alpha founder Jonas Andrulis. The industrial engineer returned from Silicon Valley in 2019, where he had worked for Apple, and founded the start-up together with Samuel Weinbach. Today the company has 60 employees.

Efficiency boost for the economy

Sovereignty as a business model – this idea also connects Aleph Alpha with one of its largest investors: the Schwarz Group. The Neckarsulm-based group wants to move from a staid retail giant to a digital company. There is now a separate division, Schwarz Digits, that wants to place cloud and cybersecurity solutions for industry and medium-sized businesses on the market. Aleph Alpha’s AI fits this “perfectly,” says Rolf Schumann, Co-CEO of Schwarz Digits.

In the future, artificial intelligence will also be used in all divisions and areas within the Schwarz Group, from administration and trading processes to food production and recycling.

Co-investor Bosch also already has clear ideas about what use a strategic alliance with Aleph Alpha could do. The two companies are currently working on their own chatbot called BoschGPT, which is based on the in-house knowledge database and is intended to help employees with questions.

However, the ideas about what Aleph Alpha’s language model could achieve go much further. Applied to industrial data from medium-sized businesses, AI could help increase efficiencies or even develop completely new products. According to experts, there is still a major competitive advantage here, because the raw material for such models – proprietary industrial data – cannot easily be found on the Internet.

Competitors have deep pockets

But is all of this enough to survive in international competition?

Aleph Alpha’s $500 million funding round is a significant achievement. However, compared to the capital resources of American competitors, the sum seems quite small: Microsoft invested $10 billion in the ChatGPT maker OpenAI this year alone – and Google recently invested $2 billion in the AI ​​start-up Anthropic, among many other investments.

Money is crucial in the race for the leading AI models, because ultimately building the technology based on it is a battle of materials. The following applies: Bigger is better. The more graphics processors you can afford, the better the starting position. The best AI high-performance computers from Nvidia currently cost around $200,000 each. For an AI supercomputer you need at least several hundred. In addition, there are horrendous electricity costs.

Aleph Alpha wants to compensate for the material disadvantage with efficiency. Whether this will succeed is difficult to judge from the outside. Test results published so far for its AI Luminous suggest that the start-up can certainly keep up with market leader OpenAI. And even if not, a second or third best solution might still be better than no alternative at all.