The global race for the AI app layer is still on

The global race for the AI app layer is still on

The U.S. is far ahead of Europe in the race for large AI fashions — however the image is different for the application layer, with rising class leaders such as Lovable and Synthesia. That’s the conclusion made by global 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 non-public funding as their American friends in 2025 up to now. “When we started this report 10 years ago, Europe was one tenth of the U.S.,” Accel companion Philippe Botteri told TechCrunch.

Image Credits:Courtesy of Accel

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

It’s also a reminder that Europeans and Israelis can do more staffing Big Tech AI labs — an remark also shared by Jonathan Userovici, a Paris-based basic companion 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 told TechCrunch.

This aligns with the findings of the AI Europe 100 report printed by Headline earlier this 12 months, wherein it curated AI-native application startups round Europe that it sees as having “the potential to become tomorrow’s winners in Europe” because of a mix of development velocity, team, and tech development.

Growth velocity is also certainly one of the key variations that Accel sees between this AI wave and former ones. A 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 said.

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However, 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 non-public corporations, some are integrating AI so fast that they are often thought-about AI-native, he argued, naming Accel portfolio company Doctolib for example.

While Europe has saved high hopes for homegrown basis mannequin corporations like Mistral AI, Accel’s outlook for European mannequin corporations is less sunny. But Botteri didn’t dismiss the area solely as an area for future leaders to emerge, as might still occur for smaller fashions. He said only, “it is not a very target-rich environment.” 

In distinction, VCs are actively competing for funding alternatives in the AI application layer, despite recurring questions about defensibility. For Botteri, there is still defensibility in constructing a product-centric providing with fast adoption.

Another false dichotomy is the thought that there is no area exterior 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,” said Lotan Levkowitz, a managing companion at Israeli VC agency Grove Ventures. “We strongly believe that companies focused on proprietary data and data flywheels are indeed very lucrative.”

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