The United States is far ahead of Europe in the race for large AI models. However, the picture is different for the application layer, where emerging category leaders such as Lovable and Synthesia are appearing. This is the conclusion made by global venture capital firm Accel in its 2025 Globalscape report, which focuses on the AI and cloud market.
Surprisingly, cloud and AI applications in Europe and Israel have attracted sixty-six percent as much private funding as their American counterparts so far in 2025. An Accel partner noted that when the report started ten years ago, Europe was only one tenth the size of the US market. He stated the ratio has increased because the region has developed an ecosystem of founders and investors who understand how to build great software companies, and that flywheel has been running for a decade.
This is also a reminder that Europeans and Israelis can do more than staff Big Tech AI labs. This observation was shared by a Paris-based general partner at Headline, who said that across every vertical, from legal and healthcare to manufacturing and marketing, founders are combining world-class technical talent with deep market expertise. This aligns with the findings of a separate AI Europe 100 report published by Headline earlier this year, which curated AI-native application startups seen as having the potential to become tomorrow’s winners in Europe thanks to their growth velocity, team, and tech advancement.
Growth velocity is a key difference that Accel sees between this AI wave and previous ones. A new breed of AI native applications has reached one hundred million dollars in annual recurring revenue in a matter of years, a feat that used to take decades. These companies are growing faster than anything seen in the past, and they are doing so with an incredible level of efficiency, meaning that revenue per head count is the highest ever seen for software companies. This is happening on both sides of the Atlantic.
However, it was noted that existing cloud software companies are not going away. Accel’s Public Cloud Index is up twenty-five percent year-over-year, and these players are all adding agentic capabilities to their products. As for private companies, some are integrating AI so fast that they can be considered AI-native, with Accel portfolio company Doctolib named as an example.
While Europe has held high hopes for homegrown foundation model companies like Mistral AI, Accel’s outlook for European model companies is less sunny. An Accel partner did not dismiss the space entirely as an area for future leaders to emerge, as could still happen for smaller models, but stated that it is not a very target-rich environment. In contrast, venture capitalists are actively competing for investment opportunities in the AI application layer, despite recurring questions about defensibility. For Accel, 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. A managing partner at an Israeli venture firm said that most of the market today is chasing models, compute, and actions, and that data is currently undervalued. He stated a strong belief that companies focused on proprietary data and data flywheels are indeed very lucrative.