The global AI race is far from over, and the battleground has shifted to the application layer—a space where Europe and Israel are surprisingly holding their own against the U.S. But here’s where it gets controversial: while the U.S. dominates in large AI models, emerging leaders like Lovable and Synthesia are proving that the application layer is anyone’s game. This is the bold conclusion from Accel’s 2025 Globalscape report (https://www.accel.com/globalscape), which reveals that European and Israeli cloud and AI applications have secured 66% as much private funding as their American counterparts this year—a staggering leap from a decade ago when Europe trailed at just one-tenth of U.S. levels.
Accel partner Philippe Botteri credits this shift to a thriving ecosystem of founders and investors who’ve mastered the art of building world-class software companies. “That flywheel has been running for 10 years,” he told TechCrunch. And this isn’t just about funding—it’s about talent. Europeans and Israelis are increasingly staffing Big Tech AI labs, a trend echoed by Jonathan Userovici of Headline. “We’re seeing founders who blend technical brilliance with deep market expertise across industries like healthcare, legal, and manufacturing,” Userovici noted.
Headline’s AI Europe 100 report (https://headline.com/blog-latest/article-latest/ai-europe-100) doubles down on this, spotlighting startups poised to dominate Europe’s AI landscape thanks to their growth velocity, stellar teams, and tech innovation. Speaking of velocity, this AI wave is unlike any before. A new generation of AI-native applications is hitting $100 million in annual recurring revenue in just a few years—a feat that once took decades. “Revenue per head count is the highest we’ve ever seen,” Botteri added, emphasizing efficiency on both sides of the Atlantic.
And this is the part most people miss: while AI models grab headlines, the application layer is where VCs are fiercely competing, despite debates over defensibility. Botteri argues that product-centric offerings with rapid adoption can still carve out a strong niche. Meanwhile, existing cloud software giants aren’t going anywhere—Accel’s Public Cloud Index is up 25% year-over-year, with players integrating agentic capabilities. Even private companies like Doctolib are evolving so quickly they’re practically AI-native.
Europe’s hopes for homegrown foundation models like Mistral AI (https://techcrunch.com/2025/05/05/what-is-mistral-ai-everything-to-know-about-the-openai-competitor/) remain high, but Accel’s outlook is cautious. Botteri admits it’s “not a very target-rich environment,” though smaller models could still emerge as leaders. Yet, the real untapped opportunity might lie in data. Lotan Levkowitz of Grove Ventures points out, “Data is undervalued today. Companies focused on proprietary data and data flywheels are incredibly lucrative—a fact many are overlooking.”
So, where does this leave us? The AI application layer is a hotbed of innovation, with Europe and Israel closing the gap on the U.S. But as the race heats up, here’s a thought-provoking question: Are we underestimating the power of data in the AI ecosystem? And could this be where the next big winners emerge? Let’s discuss in the comments—I’m curious to hear your take.
About the author: Anna Heim, a freelance reporter at TechCrunch since 2021, covers startups, AI, fintech, SaaS, and global VC trends. Fluent in multiple languages and a former startup founder, she’s moderated panels at major tech conferences like TechCrunch Disrupt and VivaTech. Reach her at annatechcrunch [at] gmail.com or explore her work at https://techcrunch.com/author/anna-heim/.
