Experts predict that the global artificial intelligence (AI, Artificial Intelligence, AI) market will grow from $148.8 billion in 2023 to $1.1 trillion by 2029 at a compound annual inflation rate of 39.7%. According to Forbes, over 60% of business owners, from healthcare to finance, believe AI can help increase productivity and serve customers much better. Actually, this creates a favorable ground for the emergence and development of startups in this field.

 

Note please! According to the latest available reports, there are already around 67,200 AI companies. A large percentage of these companies and startups are based in the United States (about 25 percent). However, we should not forget that about 90% of startups fail. This figure among AI startups can be even higher due to the very high risks involved. This means that every attempt should be made to mitigate risks and prevent failure.

 

Experts from the Lawrange team have analyzed in detail the question “how to create a startup in the field of artificial intelligence”. We focus on the legal nuances of starting a business to develop AI products and services, as well as on the legal regulation of AI-based technologies and models in the world. A solid legal foundation for an AI startup is the means by which the likelihood of failure can be significantly reduced.

 

The Potential of the Artificial Intelligence Field

Today, we are seeing a variety of sectors of the economy and social life being transformed with the introduction of AI. Let’s look at a few examples. In healthcare, AI tools are being used to analyze medical images better and detect diseases early. In banking, it is used to detect fraud in transactions quickly. In marketing, it is used to process large data sets and develop strategies to promote products on the market.

 

Among the most demanded capabilities of artificial intelligence systems and models:

 

  • Facial recognition to improve safety in buildings and open-to-the-public places;
  • Natural Language Processing (NLP) to figure out the meaning of words and automatically communicate with users;
  • text generation using language models trained on large volumes of textual content;
  • processing large amounts of information to make decisions and predictions.

 

Important! With all the talk of AI reshaping the world, it’s tempting to think it can do everything. But it’s critical to remember that there are still hardware and technological limitations in this field. When planning to launch a startup, you should explore this issue as deeply as possible. In addition, there are also issues to take into account, such as finding funding, attracting talent, and complying with regulations.

 

And in general:

 

  • corporate and venture capital investment in AI startups is continuing to rise year after year, which is motivating new investors;
  • AI models and architectures are becoming more powerful and efficient (particularly language models and computer vision systems);
  • the explainability and reliability of AI to users is improving;
  • access to AI infrastructure, tools, and platforms is increasing;
  • education and training programs are increasing the number of talented AI engineers.

 

These factors combine to create an ideal environment for new AI startups to emerge in a wide range of niches and directions.

 

Choosing Where to Register Your Startup

When choosing a jurisdiction to register an AI startup company, you should consider:

 

  1. the presence or absence of legislative regulation of the sphere of artificial intelligence use;
  2. infrastructure for startups (incubators, accelerators, hubs and so on);
  3. peculiarities of taxation, opportunities for obtaining tax incentives, and reducing the tax burden;
  4. the state of mind of the government in general to the field of innovation and AI in particular.

 

Specialists of AA Lawrange will help to open a company abroad in accordance with the specifics of the project and the wishes of the customer. We continuously monitor changes and trends, both in the field of legislative regulation of business in different countries and in the use of AI. Therefore, our team is able to offer the best option at the moment.

 

Note please! We are currently witnessing polar trends in AI regulatory issues. On the one hand, the EU has signed onto the AI Act, which enshrines strict rules on the use of AI models and systems and comes into force on 1 August 2024. On the other hand, the US is in no hurry to adopt uniform strict rules in this area. Regulatory prohibition of AI use varies from state to state. Outside the “Brussels-Washington” poles, countries have different approaches to the formation of a legislative framework for AI technologies.

 

Let’s look below at the jurisdictions that seem optimal for registering an AI startup right now.

 

UAE

The country is striving to become a world leader in the cultivation of artificial intelligence in a few years. However, the Arab Emirates has not yet adopted a specific law regulating AI. The country is implementing the National AI Program and will soon establish the Council for Artificial Intelligence and Blockchain Technologies. This body will monitor international AI regulatory trends and integrate best practices into UAE legislation.

 

Currently, the UAE’s AI strategy is mainly focused on attracting AI talent and integrating technology into key industries such as energy, tourism, healthcare, and the financial sector. And this is a good base for startups. A team of AI enthusiasts can start a company in the UAE and count on support from the government, among other things. For example, Sheikh Hamdan bin Mohammed Al Maktoum, Prince of Dubai, informed the launch of an AI Technology Centre in June 2023.

 

Conclusion: the Arab Emirates in 2024 is a favorable place to launch an AI startup. At the same time, it is possible to decide on the option of registering a company under it, both “on the mainland” and in one of more than 50 free economic zones. As a “bonus”, you can get the notorious “golden visa” in the Emirates for project participants.

 

Switzerland

In recent years, Switzerland has sought to become a thriving center for AI companies. Businesses and startups can utilize the country’s strong research infrastructure and skilled workforce to advance their pioneering work and develop strategic partnerships with academic institutions. Switzerland is already the birthplace to world-renowned AI technology companies, emphasizing the country’s position as one of the leaders in innovation in this field.

 

Opening a company in Switzerland can be a very solid foundation for an AI startup, as this jurisdiction has always enjoyed prestige in the global community. However, Switzerland is not part of the European Union, so the AI Act does not apply here. Still, the influence of the AI Act’s fundamental principles of AI regulation will surely be reflected in Swiss legislation. In addition, Switzerland’s strict data protection laws are also a plus, as data breaches and privacy issues are becoming an increasing challenge for AI projects.

 

Conclusion: Switzerland is one of the most highly regarded and solid options for establishing an AI startup company. The country is attractive because of its ready ecosystem for high-tech projects and qualified staff. However, you should prepare for substantial costs, both for startup and further support.

 

Portugal

More than 35% of companies in Portugal have already implemented AI-based technologies, and this figure is steadily increasing. This trend once again confirms the respect for innovation in the country. As we remember, Portugal was and still is one of the most cryptocurrency-friendly jurisdictions in the world. However, since Portugal is a member of the EU, the entry into force of the Law on Artificial Intelligence is relevant for it, and this is a rather strict regulation of the relevant sector.

 

Conclusion: it is worth opening a company in Portugal for an AI startup if you have no doubts about your ability to follow strict European rules. In return, you can count on a startup-friendly atmosphere in the country, government support, and tax incentives under certain conditions.

 

Spain

As a member of the EU, Spain, too, will follow the provisions of the AI Act. Even before its adoption, though, the local government was already taking some steps to regulate the use of artificial intelligence. Back in 2020, the National AI Strategy was adopted. It is also about the adoption of Royal Decree 817/2023. That said, Spain has been and continues to be a country with a well-developed infrastructure and availability of skilled labor. For example, the University of Granada has recently been graduating Masters in Artificial Intelligence.

 

Conclusion: Spain is another promising jurisdiction for an AI startup. The country is characterized by a favorable environment for business in general and for promoting innovation in particular. Registration of a company in Spain is suitable for projects with the prospect of scaling and large growth.

 

Georgia

Over the past few years, Georgia has seen significant growth in the IT sector. International technology companies have come to the country. While previously, the government did not prioritize the web industry and gave little support, the situation is now changing. A company that belongs to the IT sector (including AI startups) can count on tax incentives – the government introduced them in 2020.

 

Conclusion: registering a company in Georgia for an AI startup is an unobvious but quite promising solution. If certain conditions are met, the company can obtain international status, which exempts it from VAT and dividend tax and permits it to pay only 5% corporate tax. In Georgia, it is quite easy to find and hire local specialists, and not necessarily under a labor contract; you can work with them as individual entrepreneurs.

Order a consultation

 

Steps to Launch Your Own Startup

Like any other startup, an AI project must go through five stages of development:

 

  1. pre-seed – an idea is generated, market research is conducted, a business plan is developed, a prototype and MVP – minimum viable product – are created, and funding is sought;
  2. seed – the prototype and MVP are verified, i.e., feedback on the product is collected from the target audience, beta-testers, and, most importantly, from investors; unfortunately, most startups do not go further than this stage;
  3. launch – after funding is obtained, the product is brought to the market, and marketing promotion programs are implemented;
  4. growth – business processes are established, and the project starts to bring profit;
  5. exit – the transformation of the startup into a stably functioning business.

 

The peculiarity of projects in the field of AI is the great variability in the costs. Such a startup can be created without high initial costs using open-source frameworks, relevant libraries, and tools. However, suppose we are talking about development from scratch. In that case, it is a different matter, and you need to please solvent investors.

 

Market Research and Niche Identification

Firstly, it is necessary to determine the scale of the project, i.e., answer the question of what will be created: an application, a platform, or a whole infrastructure. Secondly, if it is an application, it is necessary to determine the industry where it will be used. For example, it can be Fintech, healthcare, robotics, customer service, cybersecurity, education, and e-commerce.

 

When selecting a niche with the help of market research, you need to find answers to questions such as:

 

  • what problems an AI-based product can solve for customers; what will be the value proposition;
  • who the target audience is;
  • what are the prospects for using the product in the short and long term.

 

Assessing the Competitive Landscape

Competitors have had time to do a lot of things because they entered the market early. There are thousands of companies, as we mentioned. Therefore, it is necessary to immediately clearly define what the competitive advantages of the product are and how the risks will be managed in the very difficult conditions of the modern market.

 

Answers to the following questions are important:

 

  • whether there have already been attempts to enter the market with such (or very close in essence) concept;
  • if there have been such attempts, how are the competitors doing.

 

Business Plan Development

If we consider the preparation of a business plan in the context of a startup, it is far from being a formal document. On the contrary – attracting funding depends on its credibility, quality, and completeness. That is why it is advisable to use the help of professionals, for example, from the AA Lawrange team.

 

Note please! A startup business plan is a roadmap for developing a cutting-edge product that relies on iterative experimentation to reduce uncertainty. What matters to a startup is not an extensive, “flexible” business development plan that can be modified based on customer reviews and then re-evaluated at regular intervals until it reaches market potential or fails.

 

Choosing the Legal Form of the Business

For micro startups and solo founders, a sole proprietorship or partnership may be suitable. Among the advantages of these business forms are easy customization and quick iteration on a small scale. However, in most cases, a legal entity form, namely a limited liability company (LLC), is optimal for an AI startup.

 

Note please! Depending on the jurisdiction where the company is established, the LLC form may have its own peculiarities. The most prevalent and critical thing is the absence of liability with personal assets for the company’s business obligations.

 

Company Registration and Legal Compliance

Due to worldwide trends in the fight against money laundering and tax evasion, the requirements for business registration are becoming stricter. Regardless of the jurisdiction, the list of such requirements includes disclosure of ultimate beneficiaries, having a physical office in the country of incorporation, and so on.

 

Moreover, AML/CFT legislation is constantly being modernized, and countries are also introducing rules to regulate the use of artificial intelligence. It is very important to keep abreast of all these changes in order not to make mistakes and waste time at the very start.

 

Preparation of the Necessary Documents

Often, the indicative list of documentation for the founders (shareholders) and directors of a legal entity includes:

 

  • copies of passports/identity cards;
  • proof of the address of registration: e.g., a recent utility bill or bank statement;
  • founding documents (memorandum of association, articles of association, etc.);
  • optionally, a business plan.

 

Note please! Before launching a startup in the field of artificial intelligence, it is also necessary to prepare internal policies and rules. In particular, it is a question of organizing internal compliance in the AML/CFT area.

 

Payment of Fees and Taxes

The administrative fees directly for company registration are small. However, it should be borne in mind that some activities will require a license. For example, if it is an AI startup in the Fintech sector, it will be necessary to obtain the appropriate license for it. It will then be necessary to renew such a license regularly, which means paying the appropriate fee.

 

Taxation and corporate tax rates vary from jurisdiction to jurisdiction. Tax on withdrawn capital (when dividends are paid) and other taxes must also be taken into account. Taken together, taxes can be a significant burden on a business. Fortunately, many countries have favorable tax regimes. We advise you to open a company where tax preferences are most likely to be available.

 

Opening a Bank Account for an AI Company

Opening a bank account for innovative and high-risk projects is always difficult. However, there are ways out of the situation, but not many people know about them. Specialists of AA Lawrange work in this area on a regular basis and have already provided account openings abroad for many clients from various business areas. We are ready for challenges, have an extensive network of partners from all over the world, and constantly follow the news in the field of legislation and finance, so we always offer the most favorable options.

 

Intellectual Property Protection

In the context of artificial intelligence, the subject of intellectual property rights can be either the technology or the products or services supported by the technology. Robust intellectual property protection can be a major competitive advantage. However, inadequate protection is one of the main risks of AI startup failure.

 

An intellectual property lawyer can help you determine which intangible assets should be protected. In addition, such a specialist will draft a top-of-the-line quality non-disclosure agreement that employees will have to sign.

 

Team Building

Even the most brilliant idea is not enough for the successful development of an AI startup. You need to come up with a team of talented specialists who are inspired by the idea and will be able to realize it. At the same time, there is still a severe shortage of staff in the field of AI technologies in the market. Therefore, in order to attract talent, you should be flexible about the terms of cooperation.

 

For example, a specialist can be attracted as a co-founder, an employee, or a freelancer. A very important link will be the director of the company, from whom not so much knowledge in the field of AI as leadership qualities are required. One should not forget about the correct legal registration of employees, as mistakes in this regard can turn into big losses.

 

Product Development

A wide variety of products and services can be associated with artificial intelligence today. The development and implementation of the business model largely relies on its features. Consider a few options:

 

  1. A niche, specialized AI-based product – Micro-SaaS (e.g., writing assistant, predictive analytics plug-in, automated reporting tool). Such a product empowers individual founders or small teams to quickly validate ideas and start generating revenue without complex engineering and funding right away.
  2. A horizontal or industry platform, on the contrary, is a large-scale project, bringing together SaaS, databases, machine learning models, and professional services into an integrated offering.
  3. A data aggregator is a business model for monetizing databases, for training artificial intelligence. It is about commercializing access to unique and valuable datasets that can power AI.
  4. The release of AI chipsets and quantum hardware – the next generation of components and hardware under AI. Today, the computational requirements of neural networks run up against the limitations of even the most advanced hardware. In addition, startups related to meromorphic computing, photonic systems, and quantum machine learning can be identified as innovative and ultra-ambitious. They are generally characterized by high risk and bold hopes for unique returns.
  5. AI consulting – selling advisory services, implementation, and management strategies for companies that do not have in-house AI specialists. For example, it can be about validating the company’s readiness to implement AI systems, developing internal policies, and so on. The advantage of such a model compared to pure product companies is faster revenue generation.

 

Order a consultation

Marketing and Promotion

At first, it is necessary to highlight the unique characteristics and competitive advantages of the product. Based on this, a marketing strategy is developed, which includes modern promotion tools such as SEO, content marketing, SMM, email marketing, PR, and so on. During the development of a startup, the next steps may be to work on improving its reputation by receiving awards and certificates, placing publications in the media, and so on.

 

Trends and the Future of AI Startups

Venture capitalists are often now intimidated by the exorbitant valuation of startups against the backdrop of relatively modest revenues. AI developers are asking for huge amounts of capital to build machine learning systems. However, this is a very risky investment. On the other hand, local failures do not cancel out the fact that the future lies in AI-based technologies. Therefore, someone will get funding and realize their projects.

 

There are fears that the AI market may be subordinated to a few large corporations. Such as Microsoft and Google, which are actively investing in and buying AI startups. This could lead to a few big players dominating the market. However, it still stays to be seen whether this will actually be the case.

 

Note please! The big future is prophesied for so-called AI agents – AI-based systems that can act autonomously, making decisions based on the environment and pursuing specific goals. For example, an AI agent automatically books airline tickets for an upcoming trip without the need for human input. To do this efficiently, the agent needs to look at the user’s email or calendar, learn when and where they are traveling, remember individual preferences (aisle or window, red-eye or daytime flight), retrieve personal and payment information, and use the airline’s reservation system to purchase tickets.

 

AI agents can be thought of as personal assistants. The concept of such assistants has been featured in science fiction books and films for decades. Meanwhile, previous generations of startups tried and failed to create software that could automate the work of an executive assistant or personal assistant. Now, artificial intelligence provides a real possibility for creating such assistants.

 

In addition, AI agents can be used for software development, auditing company compliance, customer support, and many other tasks. Even more, customer support is one of the most prominent areas where AI agents are already at work and creating real value for businesses today.

 

The Impact of Regulatory Changes on AI Startups

Legislation to regulate artificial intelligence is still in its beginning stages, even in the most advanced jurisdictions. The European Union has been a trailblazer in this regard with the adoption of a comprehensive AI law. However, it will come into force in stages over several years. Moreover, it is possible that changes and amendments will be adopted during this period. Most countries do not yet have generalized AI legislation.

 

This uncertainty becomes one of the risks for any company using AI, and even more so for a startup. We recommend that at the startup phase of a project, you enlist the support of a reliable lawyer who will keep track of all legal developments in this area. It is also necessary to pay due attention to AML/CFT and data privacy compliance.

 

In the future, compliance with regulatory requirements that pertain to the use of AI will be critical to ensuring the growth and development of businesses related to this industry. That said, legal requirements are likely to differ from continent to continent, and we will see a fragmentation of the global AI ecosystem into specific jurisdictions.

 

Organizations will need to conduct exhaustive audits on the use of AI to gather information and identify areas of risk. Particular attention should be paid to scenarios involving personal data, automated decision-making, or significant legal and financial implications for individuals.

 

Lawrange’s Help in Building an AI Startup

In 2024, building an AI startup offers great opportunities but comes with considerable risks. Artificial intelligence is rapidly evolving and integrating into a wide variety of industries. At the same time, the AI startup landscape sees many challenges related to finding funding, hiring specialists, and bringing a product to market. In addition, legal uncertainties in the AI industry are among the major risks.

 

The involvement of experienced and reliable lawyers of AA Lawrange ensures the minimization of this group of risks. We constantly monitor legislative changes in the field of artificial intelligence and the relevant law enforcement practice. For each of the most promising jurisdictions, we can offer a roadmap for the AI startup’s funder on the current legalization of the business.

 

Our services extend to legal support for negotiation and conclusion of agreements with investors, development of cooperation arrangements with highly qualified personnel, and so on. If necessary, our law firm also provides assistance in obtaining a license, as well as other permissive documents, to ensure the full operation of the company.

 

Book a consultation

Popular services