AI App Layer Race: A Global Overview

AI Development: A Transatlantic Comparison

The United States currently maintains a significant lead over Europe in the development of large AI models. However, a different dynamic is observed within the application layer of artificial intelligence, where new companies are emerging as frontrunners.

Emerging Leaders in the AI Application Layer

Companies such as Lovable, a startup specializing in vibe-coding, and Synthesia, a provider of AI-generated video solutions for businesses, exemplify this trend. This assessment originates from Accel, a global venture capital firm, as detailed in their 2025 Globalscape report focusing on the AI and cloud market.

Notably, Accel has invested in both Lovable and Synthesia. The report indicates that European and Israeli cloud and AI applications have secured 66 cents in funding for every dollar raised by their American counterparts thus far in 2025.

A Growing European Ecosystem

Accel partner Philippe Botteri explained to TechCrunch that this ratio has improved considerably over the past decade. Initially, Europe represented only one-tenth of the U.S. market in this sector.

Botteri attributes this growth to the development of a robust ecosystem comprised of founders and investors possessing a strong understanding of building successful software companies. This positive cycle has been in motion for ten years.

Beyond Staffing Big Tech

This observation is echoed by Jonathan Userovici, a general partner at Headline based in Paris. He emphasizes that European and Israeli contributions extend beyond simply providing personnel for large technology companies’ AI labs.

Userovici stated to TechCrunch that founders across various sectors – including legal, healthcare, manufacturing, and marketing – are demonstrating a unique combination of advanced technical skills and in-depth market knowledge.

AI Europe 100 Report

These findings align with the AI Europe 100 report, published by Headline earlier this year. This report identified AI-native application startups throughout Europe with the potential to become future market leaders.

Rapid Growth and Efficiency

A key distinction between this current AI wave and previous ones is the speed of growth. New AI-driven applications are achieving $100 million in annual recurring revenue within just a few years, a timeframe that previously took decades.

Botteri highlighted that these companies are expanding at an unprecedented rate, while also maintaining exceptional efficiency. Revenue generated per employee is the highest ever recorded for software companies.

The Role of Existing Cloud Software

Despite the rise of new AI-native companies, existing cloud software providers are not being eclipsed. Accel’s Public Cloud Index has increased by 25% year-over-year, with these established players integrating agentic capabilities into their existing products.

Some private companies are incorporating AI so comprehensively that they can be classified as AI-native, such as Accel portfolio company Doctolib.

Foundation Models: A More Cautious Outlook

While Europe has expressed optimism regarding homegrown foundation model companies like Mistral AI, Accel’s perspective on European model companies is more reserved. However, Botteri suggests that opportunities may still emerge for smaller models.

He added that the landscape for large-scale model development is “not a very target-rich environment.”

Defensibility in the Application Layer

Despite ongoing concerns about defensibility, venture capitalists are actively seeking investment opportunities in the AI application layer. Botteri believes that building a product-focused offering with rapid user adoption remains a viable strategy.

The Undervalued Role of Data

A common misconception is that opportunities are limited to models and applications. Lotan Levkowitz, a managing partner at Grove Ventures, argues that data is currently undervalued. He believes that companies focused on proprietary data and data flywheels represent a significant investment opportunity.

Levkowitz strongly advocates for investing in companies that leverage unique data assets.