DeepSeek: A Game Changer for Europe's AI Race

The surprise success of Chinese AI startup DeepSeek has forced a strategic rethink among some of Europe's leading AI startups, according to more than a dozen founders and VCs on the continent. DeepSeek spooked investors when it released its high-performing, low-cost R1 chatbot last week, raising questions over why OpenAI and others needed so much cash to achieve seemingly similar results.
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At the same time, a common complaint among European startups was the capital required to compete with their American peers, effectively forcing them to sign deals with bigger companies across the Atlantic. Just last week, European founders and investors urged the EU to match Donald Trump's $500bn AI investment plan.
But has reality caught up with the investment cycle?
Bigger versus better
Rahul Tyagi, CEO and founder of quantum computing company SECQAI, tells Sifted that DeepSeek's shock arrival has served as a "reality check" for European startups, and could mark a turning point, inspiring confidence in the region’s ability to produce cutting-edge AI solutions.
"On the flip side, Europe’s existing struggles in the AI race — fragmented funding, slower tech adoption and brain drain — may prevent it from capitalising on these lessons," he says. "There are deep investment pockets in China to fund AI projects and DeepSeek’s breakthrough could represent another missed opportunity for Europe."
A recurring theme among those Sifted interviewed was the renewed importance of developing AI at the application layer. DeepSeek's R1 is available to developers today at less than a tenth the price of OpenAI's comparable models, making it cheaper than ever to build out AI applications.
You don’t need many billions of dollars to produce a state-of-the-art model.
“It’s a bit like at the beginning of the internet, when we thought that the big business model would be to make websites," says Thomas Wolf, chief science officer and cofounder of French-American AI company Hugging Face.
"The big takeaway is that the recipe to AI is easy, lots of teams can do it. There is no moat around the skillset required to create high-quality foundational models," he says. "The gigantic business model in AI won’t be building LLMs, but building companies that use LLMs."
Jonas Andrulis, CEO and cofounder of German AI darling Aleph Alpha, agreed. “Nothing really changes too much in my opinion,” he says. “Don’t get me wrong: a great model … but [Meta's] Llama4 will also be great, and in 12 months both will be obsolete.”
Friendly competition
For some, the kind of innovative competition on display from DeepSeek is a source of inspiration.
"Overall this is very positive for Europe and provides a ray of hope to our AI industry," says Andreas Goeldi, partner at B2venture, which counts AI translation startup DeepL among its portfolio. “It demonstrates you don’t need a giant GPU data centre for many billions of dollars to produce a state-of-the-art model.”
The challenge posed by DeepSeek may reinvigorate Europe's AI scene, according to William Tunstall-Pedoe, the founder and CEO of London-based deeptech UnlikelyAI. A pioneer in voice technology, Tunstall-Pedoe's last company, Evi, was acquired by Amazon in 2013. He joined the company as a leading member of the team that built its virtual assistant, Alexa.
"The much lower cost of foundation models and the move towards open sourcing are catalysts for more innovation and greater choice, which can only be a good thing for startups building AI technology with these models," he tells Sifted.
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If we’re serious about addressing the issues with AI as it currently stands – from bias and inaccuracies to a lack of transparency and trust – this is exactly the kind of competition we need, to ensure the sector keeps thriving and progressing.”

In conclusion, DeepSeek's breakthrough has sparked a new wave of optimism among European AI startups and investors. By demonstrating that cutting-edge AI can be developed on a smaller budget, DeepSeek has challenged the notion that massive investment is necessary for success in the AI race. As European companies continue to innovate and collaborate, they have the potential to catch up with their American and Chinese counterparts and make a significant impact on the global AI landscape.