The global race for the AI ​​application layer is still ongoing

The US is far ahead of Europe in the race for big AI models – but the picture is different for the application layer, with emerging category leaders like Lovable and Synthesia. This is the conclusion reached by global VC firm Accel in its Globalscape 2025 report, which focuses on the AI ​​and cloud market.

Surprisingly, cloud and AI applications in Europe and Israel have attracted 66% more private funding than their US counterparts in 2025 so far. “When we started this report 10 years ago, Europe was one-tenth of the United States,” Accel partner Philippe Botieri told TechCrunch.

For Puteri, the percentage has risen because the region has developed an ecosystem of founders and investors “who really understand how to build great software companies, and this flywheel has been running for 10 years.”

It’s also a reminder that the Europeans and Israelis can provide more staff for major AI labs — an observation also shared by Jonathan Osierovichi, a Paris-based general partner at Headline. “In every sector, from legal and healthcare to manufacturing and marketing, we see founders who combine world-class tech talent with deep market expertise,” Osierovichi told TechCrunch.

This is in line with the findings of the AI ​​Europe 100 report published by Headline earlier this year, in which it curated AI startups across Europe that it sees as having “the potential to become future winners in Europe” thanks to a combination of speed of growth, team and technological advancement.

The speed of growth is also one of the key differences Accel sees between this AI wave and previous waves. A new breed of native AI applications has reached $100 million in annual recurring revenue in a matter of years, a feat that used to take decades.

“They are growing faster than anything we’ve seen in the past, and they’re doing it with an incredible level of efficiency, which means revenue per headcount is the highest we’ve ever seen for software companies. And this is happening on both sides of the world.” [Atlantic] “The ocean,” Putri said.

However, he noted, “existing cloud software companies are not going away.” Accel’s public cloud index is up 25% year over year, and these players are “adding agent capabilities to their products.” As for private companies, some are integrating AI so quickly that they can be considered an AI native, he said, citing Accel’s Doctolib as an example.

While Europe has kept high hopes for local enterprise model companies like Mistral AI, Accel’s outlook for European model companies is less optimistic. But Puteri has not completely dismissed this space as a space for future leaders to emerge, as can happen for smaller models. “It’s not a target-rich environment,” he said only.

In contrast, venture capital firms are actively competing for investment opportunities in the AI ​​application layer, despite recurring questions about its defensibility. For Puteri, there is still a case for building a product-focused offering with rapid adoption.

Another false dichotomy is the idea that there is no space outside of models and applications. “We see that most of the market today is chasing models, computing, and procedures, and we think data is undervalued right now,” said Lotan Lefkowitz, managing partner at Israeli venture capital firm Grove Ventures. “We strongly believe that companies that focus on proprietary data and data wheels are actually very profitable.”