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The owners of the Lidl supermarket chain are among those investing more than $500mn in German artificial intelligence start-up Aleph Alpha, as it seeks to capitalise on a global rush into the sector.
Schwarz Group, which controls Lidl and is building out a new IT division, is co-leading the deal alongside an AI hub based in the south-west German city of Heilbronn that was jointly set up by a foundation established by Dieter Schwarz, the Lidl founder.
Other investors include the venture capital unit of Bosch, Europe’s largest car parts supplier, according to an Aleph Alpha statement.
Founded in 2019, Aleph Alpha is among the most prominent European start-ups that focus on generative AI, the software that can create sophisticated text, imagery or computer code that mimics human ability.
But the German start-up may struggle to break through in an increasingly crowded generative AI market, with better funded competitors such as Microsoft-backed OpenAI, Google and Facebook parent Meta all investing heavily in the space.
Aleph Alpha, which has about 70 employees, aims to distinguish itself by offering data protection, security and transparent software to clients including in sensitive sectors such as law enforcement and healthcare. It has already raised about €28mn.
“We need to make sure we have a hand on the wheel of how the future will turn out,” Aleph Alpha chief executive Jonas Andrulis told the Financial Times. The company’s clients “have full sovereignty over what’s going on”.
Roughly a quarter of the funding comes via an equity investment, with the remainder composed of research grants and commitments for joint business development that will not dilute shareholders, said people familiar with the deal. They added that Aleph Alpha’s equity would be valued at roughly €500mn in the transaction.
The company did not disclose its valuation.
Schwarz Group, an unlisted and family-controlled giant with €154bn in annual revenue and 575,000 staff worldwide, is best known for its Lidl discount supermarkets. But it has also branched out into food manufacturing, recycling and IT services. In September, it pooled its cloud and cyber security offerings into a standalone unit, Schwarz Digits, which services the rest of Schwarz operations as well as external clients.
Dieter Schwarz this year backed the Heilbronn hub, Innovation Park Artificial Intelligence, which is also funded by the state of Baden-Württemberg and aims to become Europe’s largest AI cluster.
“Cash is necessary, but not sufficient,” said Andre Retterath, a partner at the venture capital firm Earlybird and an Aleph Alpha board member. The partnerships will give the company “access to compute, access to talent, and distribution into the market”, he said. Earlybird led a 2021 funding round for the German start-up.
Aleph Alpha wants to accelerate its expansion as it sees a window over the coming 12 to 24 months during which companies will test and select which AI software they plan to use.
While some of Aleph Alpha’s competitors have developed close corporate relationships with the largest technology groups, the company stressed that it is independent.
Other investors in the consortium include IT business Hewlett Packard Enterprise and German software company SAP, as well as VC group Burda Principal Investments, and existing backers, the statement said. The company has been previously supported by VC groups UVC Partners, LEA Partners, 468 Capital, Cavalry Ventures and Lakestar.
