The EU's Artificial Intelligence Act — AI Act — is intended to make Europe a global role model for responsible technology development. However, a growing number of voices in the European startup community warn that the law, in practice, acts as a competitive disadvantage, driving capital and talent out of the continent.
Fear of a «digital iron curtain»
The criticism is harsh. In an article published by HackerNoon, the effect of the AI Act is compared to a «digital iron curtain» — a regulatory barrier that isolates European AI development from the rest of the world. The claim is controversial, but it points to a very real debate.
A survey of over 100 AI startups and 15 venture capital firms shows that 16 percent of startups are considering either discontinuing their AI development or moving their operations out of the EU. At the same time, a full 50 percent state that they fear the law will slow down the pace of innovation in Europe, according to the same survey data.
The pressure isn't just about regulation — it's about who can afford to grow fast enough.
Compliance costs far higher than estimated
One of the most concrete objections to the AI Act is the gap between the European Commission's original estimates and reality. The Commission estimated that between 5 and 15 percent of AI systems would fall into the «high-risk» category — with the strictest requirements for transparency, testing, and documentation. New research suggests that over 33 percent of systems will be classified as such, tripling the burden compared to what many startups planned for.
For high-risk AI systems, the law entails requirements for explainable algorithms, transparent data usage, and human oversight. These are demands that large companies with legal departments can handle, but which can become prohibitively expensive for small and medium-sized startups.
Venture capital turns its back on risk
The investor community is already responding. Of 15 VC firms surveyed, 9 state that they expect the AI Act to weaken the competitiveness of European AI startups and that they will shift their investment focus towards low-risk AI systems. This means that the most ambitious and potentially groundbreaking projects may struggle to raise capital in Europe.
Nicoleta Cherciu, a lawyer specializing in technology and venture capital, nevertheless believes that the causal picture is more complex. According to her, the primary challenge is not regulation alone, but access to capital: European companies look to the US because they find larger funds, more favorable commercial terms, and more flexible investment legislation there.
Dragos Tudorache, MEP and one of the key architects behind the AI Act, acknowledges that American competitors typically operate with significantly larger capital injections and thus scale much faster.
The defenders: Trust yields long-term gain
It is important to nuance the picture. Proponents of the AI Act argue that regulatory clarity will, in the long run, increase trust in European AI, attract responsible investors, and open up public sector contracts that require documented compliance. European generative AI funding broke all records in 2024, and early-stage rounds grew significantly — suggesting that capital flows have not dried up.
Additionally, it is worth noting that the AI Act applies to all AI systems offered in the EU market, regardless of where the company is registered. Thus, moving out of the EU does not solve the problem if one still wishes to serve European customers.
What does this mean for Norwegian actors?
Norway is not an EU member, but through the EEA Agreement, it is closely integrated into European regulations. The AI Act has not yet been incorporated into the EEA Agreement, but Norwegian authorities and industry players are closely following the process. If the law is adopted into the EEA, Norwegian AI companies will face the same compliance requirements as their European competitors — without having had voting rights in the process that shaped them.
The debate about the AI Act is thus not just a European affair. It directly affects Norwegian entrepreneurs, investors, and technology companies operating in or targeting the EU market.
The question that remains is whether the EU can balance the consideration for citizens' safety with the need for European companies to actually compete globally — or if the AI Act will, in reality, become a competitive advantage for American and Chinese players operating without similar restrictions.