The global race for the AI app layer is still on

The US is well ahead of Europe in the race for big AI models – but the picture is different for the application layer, with emerging category leaders such as Lovable and Synthesia. That is the conclusion of global venture capital firm Accel in its report Global landscape 2025 report, which focuses on the AI ​​and cloud market. (Accel is an investor in both Lovable and Synthesia.)

Surprisingly, cloud and AI applications in Europe and Israel have attracted 66% as much private funding to date as their US peers. “When we started this report ten years ago, Europe was one-tenth the size of the US,” Accel partner Philippe Botteri told TechCrunch.

For Botteri, 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 turning for a decade.”

It also reminds us that Europeans and Israelis can dedicate more staff to Big Tech AI labs – an observation also shared by Jonathan Userovici, a Paris-based general partner at Headline. “Across every industry, from legal and healthcare to manufacturing and marketing, we see founders combining world-class technical talent with deep market expertise,” Userovici told TechCrunch.

This is consistent with the findings of the AI Europe 100 report published earlier this year by Headline, in which it curated AI-native application startups across Europe that it believes have “the potential to become tomorrow’s winners in Europe” thanks to a combination of growth speed, team and technological advancements.

Growth rate is also one of the key differences Accel sees between this AI wave and previous ones. A new breed of AI-native applications has reached $100 million in annual recurring revenue in just a few years, a feat that used to take decades.

“They’re growing faster than anything we’ve seen in the past, and they’re doing it with an incredible level of efficiency, meaning per capita revenue is the highest we’ve ever seen for software companies. And that’s happening on both sides of the world.” [Atlantic] ocean,” Botteri said.

However, he noted that “existing cloud software companies are not going away.” Accel’s Public Cloud Index is up 25% year-over-year, and these players are “all adding agentic capabilities to their products.” As for private companies, some are integrating AI so quickly that they can be considered AI-native, he argued, citing Accel portfolio company Doctolib as an example.

While Europe has high expectations for domestic model companies like Mistral AI, Accel’s prospects for European model companies are less rosy. But Botteri hasn’t completely dismissed the space as one where future leaders can emerge, as could still happen for smaller models. He just said, “It’s not a very target-rich environment.”

In contrast, venture capital firms are actively competing for investment opportunities in the AI ​​application layer, despite recurring questions about resilience. For Botteri, there is still defensibility in building a product-centric 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 power and actions, and we think data is currently undervalued,” said Lotan Levkowitz, managing partner at Israeli venture capital firm Grove Ventures. “We believe that companies that focus on proprietary data and data flywheels are very lucrative indeed.”