The worldwide race for the AI app layer remains to be on | TechCrunch

The U.S. is much forward of Europe within the race for giant AI fashions — however the image is totally different for the applying layer, with rising class leaders reminiscent of Lovable and Synthesia. That’s the conclusion made by world VC agency Accel in its 2025 Globalscape report, which focuses on the AI and cloud market.

Surprisingly, cloud and AI functions in Europe and Israel have attracted 66% as a lot personal funding as their American friends in 2025 thus far. “When we started this report 10 years ago, Europe was one tenth of the U.S.,” Accel accomplice Philippe Botteri informed TechCrunch.

For Botteri, the ratio has elevated as a result of the area has developed an ecosystem of founders and buyers “who really understand how to build great software companies, and that flywheel has been running for 10 years.”

It’s additionally a reminder that Europeans and Israelis can do extra staffing Large Tech AI labs — an commentary additionally shared by Jonathan Userovici, a Paris-based common accomplice at Headline. “Across every vertical, from legal and healthcare to manufacturing and marketing, we’re seeing founders who combine world-class technical talent with a deep market expertise,” Userovici informed TechCrunch.

This aligns with the findings of the AI Europe 100 report printed by Headline earlier this yr, by which it curated AI-native utility startups round Europe that it sees as having “the potential to become tomorrow’s winners in Europe” due to a mix of progress velocity, workforce, and tech development.

Development velocity can also be one of many key variations that Accel sees between this AI wave and former ones. A brand new breed of AI native functions has reached $100 million in annual recurring income in a matter of years, a feat that used to take a long time.

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

Nevertheless, he famous that “existing cloud software companies are not going away.” Accel’s Public Cloud Index is up 25% year-over-year, and these gamers are “all adding agentic capabilities to their products.” As for personal firms, some are integrating AI so quick that they are often thought-about AI-native, he argued, naming Accel portfolio firm Doctolib for instance.

Whereas Europe has stored excessive hopes for homegrown basis mannequin firms like Mistral AI, Accel’s outlook for European mannequin firms is much less sunny. However Botteri didn’t dismiss the house solely as an area for future leaders to emerge, as might nonetheless occur for smaller fashions. He mentioned solely, “it is not a very target-rich environment.” 

In distinction, VCs are actively competing for funding alternatives within the AI utility layer, regardless of recurring questions on defensibility. For Botteri, there may be nonetheless defensibility in constructing a product-centric providing with quick adoption.

One other false dichotomy is the thought that there is no such thing as a house outdoors of fashions and functions. “We see that most of the market today is chasing models, compute and actions, and we think that data is undervalued at the moment,” mentioned Lotan Levkowitz, a managing accomplice at Israeli VC agency Grove Ventures. “We strongly believe that companies focused on proprietary data and data flywheels are indeed very lucrative.”