The U.S. is leading the charge in developing large AI models, but the situation looks different when it comes to applications. Emerging players like Lovable and Synthesia are making waves in Europe, according to a new report by global VC firm Accel that focuses on the AI and cloud markets.
In fact, private funding for cloud and AI applications in Europe and Israel has reached 66% of what’s available in the U.S. for 2025. “When we started this report a decade ago, Europe accounted for only one-tenth of the U.S.,” said Accel partner Philippe Botteri in an interview with TechCrunch.
Image Credits:Courtesy of Accel
Botteri attributes this increase to a burgeoning ecosystem of founders and investors in the region who are adept at building successful software companies. “That flywheel has been running for 10 years,” he noted.
Moreover, it highlights that Europeans and Israelis are stepping up to staff major AI labs. Jonathan Userovici, a Paris-based general partner at Headline, echoed this sentiment. “Across various sectors, from legal and healthcare to manufacturing and marketing, we’re witnessing founders who marry top-notch technical skills with deep market knowledge,” Userovici told TechCrunch.
This perspective is corroborated by the AI Europe 100 report released earlier this year by Headline. It showcases AI-driven startups across Europe that have the potential to emerge as future leaders, driven by growth velocity, strong teams, and technological advancements.
Accel sees growth velocity as a crucial distinction between the current AI wave and past ones. A new generation of AI-native applications has rapidly hit $100 million in annual recurring revenue, a milestone that used to take decades.
“They’re growing faster than anything we’ve seen before, and they’re achieving this with unprecedented efficiency—the revenue per employee is the highest we’ve recorded for software companies. This trend is evident on both sides of the Atlantic,” Botteri explained.
However, he pointed out that “existing cloud software companies are not fading away.” Accel’s Public Cloud Index has risen by 25% year-over-year, and these established firms are increasingly integrating new capabilities into their products. Some private companies are moving so quickly with AI that they can now be considered AI-native, like Accel portfolio company Doctolib.
While Europe has high aspirations for foundation model firms like Mistral AI, Accel’s outlook for European model companies isn’t overly optimistic. Still, Botteri isn’t dismissing the sector entirely, noting that there could be opportunities for leadership to emerge among smaller models. He remarked, “It’s not a very target-rich environment.”
On the contrary, venture capitalists are vigorously competing for investment opportunities in the AI application space, even with ongoing questions about long-term viability. Botteri believes there’s still defensibility in creating product-centric offerings that can quickly gain traction.
Another misconception is the idea that there’s no room beyond models and applications. “We see that most of the market is currently focused on models, compute, and actions, and we believe data is underappreciated right now,” stated Lotan Levkowitz, a managing partner at Israeli VC firm Grove Ventures. “We strongly contend that companies centered on proprietary data and data flywheels can be very profitable.”
