Why Cohere meets Aleph Alpha

Canadian AI startup Cohere is taking on Germany-based Aleph Alpha with the backing of Schwarz Group (parent company of grocery chain Lidl). With the blessing of their governments, the companies intend to offer an alternative to businesses in the AI ​​space owned by American players.

As major language modeling companies, Aleph Alpha and Cohere have been hometown stars, while still lagging behind OpenAI and global popularity. But similarities aside, this is not an alliance between equals. Valued at $6.8 billion, Cohere will lead a new venture that will include Aleph Alpha, subject to regulatory and shareholder approval.

The Schwarz Group, one of the largest shareholders of Aleph Alpha, has already fully entered into this agreement. The retail giant will now become a strategic supporter of the new business with structured funding of 500 million euros (about $600 million) – and it is expected to use STACKIT, the dominant cloud service of its IT division Schwarz Digits.

As part of its investment, the Schwarz Group is also acting as Cohere’s lead investor in the Series E financing – and is already setting the price tag. According to the German business news agency Handelsblatt, the name sheet guarantees an estimated value of $20 billion.

This would be a significant jump that combined income alone cannot justify. While Cohere reported $240 million in annual recurring revenue by 2025, Aleph Alpha had previously generated less revenue and greater losses. But investors are betting that the merger will improve their chances.

They may not be alone in their thinking. Elon Musk’s AI startup XAI has reportedly discussed a three-way partnership with France’s Mistral AI and Cursor, which SpaceX recently got an option to buy. But it is not clear whether the French company would be interested in risking to undermine this position as an alternative to the American technology that has boosted its revenues.

Cohere, too, hopes to find tailwinds from companies looking for alternatives to AI providers that may not meet their needs when it comes to privacy and autonomy. The new venture plans to target highly regulated industries – including defence, energy, finance, healthcare, manufacturing and telecommunications – as well as the public sector.

Aleph Alpha has also developed specialized language models targeting businesses and public institutions in Europe, such as the PhariaAI suite. The subsequent pivot and departure of its founder and CEO Jonas Andrulis made its strategy and leadership more transparent, but its 250-person team and talent still can’t keep up with Cohere.

“Their focus on small language models, European languages ​​and tokenizers is really complementary to ours, which is very focused on large language models,” Cohere CEO Aidan Gomez said at a press conference announcing the plans on Friday.

The press conference lineup was also telling. Instead of Aleph Alpha’s CEOs, it was co-founder Samuel Weinbach who joined Gomez on stage and Schwarz Group’s chief digital officer Rolf Schumann. German digital minister Karsten Wildberger and his Canadian counterpart Evan Solomon were also present at the event.

Amid growing tensions with the United States, Canada has been keen to sign bilateral efforts with various partners, including Germany. With shared concerns about privacy and security, the two countries recently launched the Sovereign Technology Alliance to “strengthen the great potential of AI and reduce strategic technological dependence.”

The question remains whether European organizations will view a campaign involving Canada as independent enough, or whether they will trust that the alliance will remain transatlantic in the long run. According to Gomez, “Cohere will be a Canadian-German company.” But ownership may soon become clear if an IPO is on the cards.