The global race for the AI app layer is still on | TechCrunch

The U.S. is far ahead of Europe in the race for large AI models — but the picture is different for the application layer, with emerging category leaders such as Lovable, the vibe-coding startup, and Synthesia, which makes AI-generated video for the enterprise.

That’s the conclusion made by global VC firm Accel in its 2025 Globalscape report, which focuses on the AI and cloud market. Worth noting: Accel is an investor in both Lovable and Synthesia.

According to Accel, European and Israeli cloud and AI applications have raised 66 cents for every dollar raised by their American counterparts in 2025 so far. “When we started this report 10 years ago, Europe was one tenth of the U.S.,” Accel partner Philippe Botteri told TechCrunch.

Botteri says 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 running for 10 years.”

It’s also a reminder that Europeans and Israelis can do more than just staff Big Tech AI labs — an observation also shared by Jonathan Userovici, a Paris-based general partner at Headline. “Across every vertical, from legal and healthcare to manufacturing and marketing, we’re seeing founders who combine world-class technical talent with deep market expertise,” Userovici told TechCrunch.

This aligns with the findings of the AI Europe 100 report published by Headline earlier this year, which curated AI-native application startups around Europe that the firm sees as having “the potential to become tomorrow’s winners in Europe” thanks to a combination of growth velocity, team, and tech advancement.

That growth velocity is one of the key differences that 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 a matter of years, a feat that used to take decades.

“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 headcount is the highest we’ve ever seen for software companies,” Botteri said. “And that’s happening on both sides of the [Atlantic] ocean.”

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 deeply that they can be considered AI-native, he argued, naming Accel portfolio company Doctolib as an example.

While Europe has kept high hopes for homegrown foundation model companies like Mistral AI, Accel’s outlook for European model companies is less sunny. But Botteri didn’t dismiss it entirely as a space for future leaders to emerge. It could still happen for smaller models but “it is not a very target-rich environment,” he added.

In contrast, VCs are actively competing for investment opportunities in the AI application layer, despite recurring questions about defensibility. According to Botteri, there is still defensibility in building a product-centric offering with fast adoption.

Another false dichotomy is the thought that there is no space outside of models and applications. “We see that most of the market today is chasing models, compute and applications, and we think that data is undervalued at the moment,” said Lotan Levkowitz, a managing partner at Israeli VC firm Grove Ventures. “We strongly believe that companies focused on proprietary data and data flywheels are indeed very lucrative.”