While the US is far ahead of Europe in the race for large-scale AI models, the picture is different at the application layer, with emerging category leaders such as Lovable and Synthesia emerging. This is the conclusion reached by global VC firm Accel in its 2025 Globalscape report, which focuses on the AI and cloud market.
Astonishingly, cloud and AI applications in Europe and Israel have so far attracted 66% more private funding than their US peers by 2025. “When we started this report 10 years ago, Europe was one-tenth the size of the US,” Accel partner Philippe Bottelli told TechCrunch.
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Bottelli said the ratio has increased because the region has developed an ecosystem of founders and investors who “really understand how to build great software companies,” and that flywheel has been running for a decade.
It's also a reminder that Europeans and Israelis can better staff Big Tech's AI labs, a view shared by Jonathan Uselovich, general partner at Paris-based Headline. “In every field, from law and healthcare to manufacturing and marketing, we're seeing founders who combine world-class technical talent with deep market expertise,” Usorovich told TechCrunch.
This is in line with the findings of Headline's AI Europe 100 report published earlier this year. This report selects AI-native application startups across Europe that we believe have the potential to be tomorrow's European winners due to their combination of growth speed, teams, and technology advancements.
Growth speed is also one of the key differences Accel sees between this wave of AI and previous waves of AI. A new breed of AI-native applications has reached $100 million in annual recurring revenue in just a few years. It's a feat that previously took decades.
“They're growing faster than any company we've seen in the past, and they're doing this with an incredible level of efficiency. I mean, their revenue per employee is the highest we've ever seen for a software company. And that's happening on both the corporate and enterprise sides.” [Atlantic] The ocean,” Bottelli said.
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However, “existing cloud software companies are not going away,” he said. Accel's Public Cloud Index is up 25% year over year, and these companies are “all adding agent capabilities to their products.” As for private companies, he argued that some companies are integrating AI so quickly that they are considered AI-native, citing Accel portfolio company Doctolib as an example.
Although Europe has high expectations for homegrown basic model companies like Mistral AI, Accelerator's outlook for European model companies is not so bright. But Bottelli did not completely dismiss this space as a space for future leaders to emerge. This can happen even with smaller models. He simply said, “It's not an environment with many goals.''
In contrast, VCs are aggressively competing for investment opportunities at the AI application layer, despite repeated questions about defensibility. For Botteri, there is still defensibility in building product-centric products and deploying them quickly.
Another false dichotomy is the idea that there is no space outside of models and applications. “We see that most of today's market is chasing models, computing, and action, and we think data is undervalued at the moment,” said Lotan Lefkowitz, managing partner at Israeli VC firm Grove Ventures. “We strongly believe that companies that focus on proprietary data and data flywheels can indeed be very lucrative.”