KI-Hope - Aleph Alpha's alleged 500-million financing and the background
The story seemed perfect: Jonas Andrulis, former Apple manager and AI expert, is building in Germany the great hope for generative Artificial Intelligence, aiming to be a European champion who can compete with dominant US players. Reliable, robust, performance-strong.
A exclamation mark set off the company when it announced at the end of last year a funding round over 500 Million Dollars, gathered from who's who in the German economy: among others, Lidl owner Dieter Schwarz through his newly founded AI center Ipai, software conglomerate SAP, and industrial giant Bosch. This fit perfectly with Andrulis’ story: a German AI challenger, tightly connected to the German economy, financed with German capital.
There's only one hitch in the story: A funding over 500 Million Dollars has never flowed in. Instead, the company received significantly less capital than the half a billion dollars that Aleph Alpha and media reported. Internal documents, which Capital obtained, prove that in the funding round, less than 110 Million Euros were injected into the startup. This is evident from the unpublished annual report 2023. At the end of 2023 – shortly after the funding round – around 108 Million Euros were on the startup's account, an increase of 6 Million Euros compared to the previous year. The balance does not reveal any other traces of the remaining money.
Capital-Investigations harbor suspicions
According to a presentation for investors in the aforementioned funding round, which Capital also obtained, Aleph Alpha was actually only looking for 100 Million Dollars. Thomas Knuwer, a blogger, expressed first doubts about the bold announcement at the end of June. Capital-Investigations now harbor suspicions.
The company refuses to comment on the obvious discrepancy. Instead, a company spokesperson refers to two newspaper articles that provide information on the "peculiarities and composition of the financing round": On the one hand, it is a "Handelsblatt" article from the previous summer reporting on a cooperation between Aleph Alpha and the Heilbronn Ipai Center, in which it was mentioned that "over the next ten years, more than 300 Million Euros will be invested, which Aleph Alpha will indirectly benefit from." However, other companies could also profit from these common research results, as all joint research findings were to be made public.
On the other hand, it is an article from the British "Financial Times" about the actual financing round in November, in which it was already mentioned then that only a quarter of the money was equity capital – the rest consisted of research grants and commitments for joint business development, which the shareholders would not dilute. It was already known at that time that the great Aleph-Alpha funding was not really about 500 Million Dollars in new capital. Nevertheless, the company spread the narrative of half a billion dollars.
"Large PR Stunt"
Under startups, especially in the booming AI sector, it is not unusual to present one's own funding a bit larger – for example, when computing power is traded for shares. The training of one's own language models is extremely costly, as AI providers need computing power that they have to buy or receive in exchange for shares.
In the case of Aleph Alpha, it appears that very ambitious calculations were made, as shown by the example of the Ipai cooperation. "One seemed to want to demonstrate here unconditionally that we can bring AI megaprojects together in Germany," says tech expert Philipp Klöckner about this. The company reportedly added up "all financial resources, sales and licensing agreements, performance promises and other funding" for "a big PR stunt." However, as Klöckner notes, this showed "exactly the opposite: Namely that it is not possible to mobilize such funds in Germany."
The CEO of Aleph Alpha insisted on the official statements about the 500-million-round at the beginning of the year: "The money will flow completely and is not limited or artificially inflated, for example, by computational power or similar," Andrulis told the "Frankfurter Allgemeine Zeitung." "But we didn't have nothing on the account at that time either." It seems that Aleph Alpha is now distancing itself from this statement, as the spokesperson's reaction indicates.
Revenue Goals Far Off
With the inflated announcement, the company has meanwhile raised its own success pressure and must now measure up to it. Currently, it seems to be a problem. According to several media reports, many users are not satisfied with the quality of Aleph Alpha's Luminous language model. This apparently also shows up in the financial figures: According to internal documents, the company aimed for a revenue of 6 million dollars (5.5 million euros) for the current year and 20 million dollars (18.5 million euros) for 2024. According to the previous year's balance sheet, Aleph Alpha did not even reach the 1 million euro mark, with around 18.9 million euros in losses.
Aleph Alpha – in contrast to OpenAI and its freely available ChatGPT product – relies solely on paying customers. Now all expectations rest on the presentation of a new language model that Aleph Alpha has been announcing for a long time. Additionally, the company is working on a business model overhaul: Since recently, it wants to connect language models from other providers in addition to its own AI named Luminous.
Despite the funding round announcement of over 500 Million Dollars at the end of last year, internal documents prove that only less than 110 Million Euros were injected into the start-up, Artificial Intelligence company Aleph Alpha. This discrepancy has raised suspicions from Capital-Investigations, with some suggesting that the company's bold announcement was indeed a "Large PR Stunt" to demonstrate their capabilities in Germany's booming AI sector.
