While the US continues to lead the race for large-scale AI models, the situation is different at the application layer. New leaders such as Lovable and Synthesia are emerging. These conclusions are published in Accel’s Globalscape 2025 report, a global venture capital firm that analyzes the AI and cloud technology market.
In 2025, private funding for cloud and AI apps in Europe and Israel will reach 66% of US levels, which was a surprise to the industry. “When we started this report 10 years ago, Europe was one-tenth the size of the United States.”
“When we started this report 10 years ago, Europe was one-tenth the size of the United States.”
That flywheel has been spinning for a decade, Bottelli said, as the region creates an ecosystem of founders and investors who “really understand how to build large software companies.”
It also supports the view that Europeans and Israelis can strengthen the talent pool for Big Tech’s large AI labs. Jonathan Yuzerovici, partner at Paris Headline, said: “We have founders in every field, from legal services and healthcare to manufacturing and marketing, who combine world-class technical talent with deep market understanding.”
“We have founders in every field, from legal services and healthcare to manufacturing and marketing, who combine world-class technical talent with deep market understanding.”
This is in line with the findings of Headline’s AI Europe 100 report published earlier this year. There, a collection of European AI applications has the potential to “become tomorrow’s European winners” through a combination of growth, teams and technological advances.
The pace of growth is one of the key differences between this AI wave and previous AI waves. A new wave of AI-native applications will emerge, reaching US$100 million in annual recurring revenue within a few years, whereas previously it took years.
“They’re growing faster than any company we’ve ever seen, and they’re growing with incredible efficiency. This means they have the highest revenue per employee for software companies. And this is happening on both sides of the Atlantic,” Bottelli added.
But, he said, “existing cloud software companies are not going away.” The Accel Public Cloud Index is up 25% year over year, and these companies are “adding agent capabilities to their products.” When it comes to private companies, some are integrating AI so quickly that they are considered AI-native, such as our portfolio company Doctolib.
Although Europe continues to place high hopes on local basic model companies like Mistral AI, the outlook for the European model market is not necessarily bright. But Bottelli hasn’t completely written off the industry. Future leaders may emerge from within smaller models, but “this is not a very targeted environment.”
In contrast, venture investors are aggressively competing for investment opportunities at the AI application layer, despite repeated defense concerns. According to Botteri, building product-centric services with rapid deployment still requires protection.
Another misconception is that there is no room to go beyond models and applications. “We believe that data is currently undervalued as we see that most of today’s market is driven by models, compute and action,” said Lotan Lefkiewicz, Managing Partner at Grove Ventures. “We believe that companies that focus on their data and the data flywheel are indeed very profitable.”
In summary, the AI application layer race continues to gain momentum. While the region thrives on local ecosystems, data and talent, demand for high-quality data and speed of integration remain key to success in global markets.
