LONDON, (Reuters) - An influx of artificial intelligence (AI) startups is heating up the battle for technical talent in Europe, leaving companies like Google DeepMind to choose between paying big or losing out on the region's best minds.

The runaway success of OpenAI's ChatGPT has energised investors, who have been pouring money into promising AI startups, eager to uncover the next overnight success.

Riding the investment wave, a crop of foreign AI firms - including Canada's Cohere and U.S.-based Anthropic and OpenAI - opened offices in Europe last year, adding to pressure on tech companies already trying to attract and retain talent in the region. 

Founded in 2010 and acquired by Google in 2014, London-based DeepMind made its name applying AI to everything from board games to structural biology.

Now the firm faces a host of well-funded rivals flooding its territory, while a growing number of its employees have quit to launch their own ventures.

Recent high-profile exits include co-founder Mustafa Suleyman, who left to set up California-based Inflection AI alongside LinkedIn billionaire Reid Hoffman, and research scientist Arthur Mensch, now CEO of Mistral AI.

Both companies have received multi-billion dollar valuations in the short time they have been active.

In an apparent effort to discourage staff from joining other companies or starting their own, DeepMind gave a handful of senior researchers access to restricted stock, worth millions of dollars, earlier this year, according to a source familiar with the matter.

"It's a competitive space for sure," a DeepMind spokesperson told Reuters, adding that the company "continues to do well in attracting and nurturing talent".

CLOSING THE GAP

According to executive search firm Avery Fairbank, there has been an "exponential increase" in pay for C-suite staff at AI companies in Britain over the last year.

"The entrance of foreign AI giants such as Anthropic and Cohere into London's market will further escalate the competition for AI talent," said Charlie Fairbank, the firm's managing director.

Executives on base salaries of around 350,000 pounds have seen pay packets jump between 50,000 and 100,000 pounds, he said.

Cohere, which designs in-house chatbots and other tools for its customers, hired Phil Blunsom, a lead researcher at DeepMind for seven years, as its chief scientist in 2022. Sebastian Ruder also joined Cohere from DeepMind in January.

"It's rare to find a company building a massive business from scratch, with many of the leading minds in the industry," he told Reuters. "When that kind of chance comes along, you take it."

Ekaterina Almasque, a general partner at venture capital firm OpenOcean, said DeepMind was no longer the "distant leader in the field".

"All these companies are competing for the same pool of talent, and with the AI skills shortage, that's increasingly more of a pond than an ocean."

Suleyman recently began recruiting London-based technical staff for Inflection AI, while Mensch's Mistral has fast become one of the buzziest startups on the continent, raising $415 million in venture funding in December.

Mistral declined to comment and Inflection did not respond to a request for comment.

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OpenAI opened its first international office in London last year followed swiftly by a second in Dublin - "just the first steps", said the company's Vice President of People Diane Yoon, as it plans to continue expanding into other countries.

Cohere opened its UK office last year and CEO Aidan Gomez told Reuters he is now splitting his time between his native Toronto and London, where the firm plans to double its headcount to 50.

"We go where the talent is, and there's a lot in London and across Europe," Gomez said.

The talent war means workers are increasingly well-placed to make demands of their prospective employers.

London-based AI audio firm ElevenLabs is offering new hires stock options, generous salaries and fully-remote working, although most advertised roles stipulate that employees should be based in Europe.

Having recently raised $80 million in funding from venture capital firms like a16z and Sequoia, the company told Reuters it would soon double its total headcount to 100.

Paris-based startup Bioptimus, also founded by former DeepMind staff, raised $35 million in February.

Thomas Clozel, an early investor in the company said startups were looking to recruit talent from Big Tech like Google by offering them more influence over a company's direction.

"Google is one of the best at what it does and produces some of the best talent," he said. "At a smaller startup, you have a unique opportunity to remain true to the work you are passionate about and have a stake in the success of the company."