The U.S. vs. Europe in AI Development: Insights from Accel’s 2025 Globalscape Report
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 and Synthesia. That’s the conclusion made by global VC firm Accel in its 2025 Globalscape report, which focuses on the AI and cloud market. (Accel is an investor in both Lovable and Synthesia.)
Surprisingly, cloud and AI applications in Europe and Israel have attracted 66% as much private funding as their American peers 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.
Image Credits:Courtesy of Accel
Botteri notes a significant change in the landscape: Europe has cultivated an ecosystem of founders and investors over the last decade who are adept at building impactful software companies. “That flywheel has been running for 10 years,” he explained.
There’s also a notable increase in top-tier talent, as regions like Europe and Israel bolster Big Tech AI labs. Jonathan Userovici, a Paris-based general partner at Headline, points out, “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.”
This insight aligns with findings from the AI Europe 100 report published earlier this year by Headline. The report identifies promising AI-native application startups across Europe that are positioned to become future market leaders due to their rapid growth, strong teams, and advanced technology.
Accel’s report highlights another key distinction: today’s AI-native applications are achieving remarkable growth velocity. Newly minted companies have reached $100 million in annual recurring revenue within just a few years, a milestone that historically took decades to reach. “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,” Botteri noted.
Despite this rapid growth within emerging companies, Botteri emphasized that existing cloud software companies are not disappearing. He pointed out that Accel’s Public Cloud Index is up 25% year-over-year, with established players integrating AI features into their products. Examples like Doctolib showcase how quickly some private companies are adapting to become AI-native.
Although Europe has high hopes for homegrown foundation model companies, such as Mistral AI, Accel’s outlook remains cautious for the emergence of European model companies. Botteri mentioned, “It is not a very target-rich environment,” while still acknowledging potential opportunities for smaller models to gain traction.
Contrastingly, investors are fiercely competing to secure opportunities within the AI application layer, albeit concerns about defensibility persist. For Botteri, defensibility can still be achieved through product-centric offerings with swift adoption rates.
Additionally, the notion that AI development is entirely about models and applications is misleading. As Lotan Levkowitz, a managing partner at Israeli VC firm Grove Ventures, pointed out: “We see that most of the market today is chasing models, compute, and actions, and we think that data is undervalued at the moment.” He strongly believes that companies that focus on proprietary data and effective data flywheels hold promising financial prospects.
For further insights, you can read the full report Here.
Image Credit: techcrunch.com
