According to TechCrunch, Accel’s 2025 Globalscape report reveals that Europe and Israel have attracted 66% as much private funding for cloud and AI applications as their American counterparts this year. That’s a massive jump from a decade ago when Europe was just one-tenth the size of the US market. The report highlights emerging category leaders like Lovable and Synthesia, while noting that AI-native applications are now hitting $100 million in annual recurring revenue in just years instead of decades. Accel partner Philippe Botteri attributes this growth to Europe’s developed ecosystem of founders and investors who understand how to build great software companies. Meanwhile, Headline’s AI Europe 100 report identifies startups combining world-class technical talent with deep market expertise across verticals from legal to manufacturing.
Europe’s software flywheel
Here’s the thing that really stands out: Europe’s been quietly building this software momentum for a full decade now. Botteri calls it a “flywheel” that’s been running since 2015, and honestly, that’s exactly what it looks like. We’re not talking about overnight success here – this is the result of sustained ecosystem development where founders actually know how to build real software businesses, not just chase hype cycles.
And the numbers don’t lie. When you go from being one-tenth the size of the US market to two-thirds in just ten years, that’s not just growth – that’s transformation. It suggests something fundamental has shifted in how European tech operates. They’re not just copying Silicon Valley anymore; they’re building their own playbook focused on combining technical excellence with deep vertical expertise.
The application advantage
Now here’s where it gets really interesting. While everyone’s been obsessing over foundation models and whether Europe can produce its own OpenAI or Anthropic, the real action might be happening one layer up. Accel’s report suggests European model companies aren’t exactly thriving – Botteri diplomatically calls it “not a very target-rich environment.” But applications? That’s a completely different story.
Think about it: applications don’t need to beat GPT-4. They just need to solve real business problems better than anyone else. And European startups seem particularly good at this vertical-focused approach. Whether it’s healthcare, legal, manufacturing, or marketing, they’re building solutions that actually work for specific industries rather than trying to be everything to everyone.
Defensibility and data
But wait – isn’t everyone worried about defensibility in the AI app layer? I mean, if you’re just building on top of someone else’s model, what stops them from eating your lunch? Botteri makes a compelling case that there’s still plenty of defensibility in building product-centric offerings with fast adoption. Basically, if you own the customer relationship and solve their pain points better than anyone else, you’ve got a real business.
And then there’s the data angle. Grove Ventures’ Lotan Levkowitz points out something crucial: everyone’s chasing models, compute, and actions, but data is seriously undervalued right now. Companies that focus on proprietary data and data flywheels could be sitting on gold mines. This is where European companies might have another hidden advantage – many operate in regulated industries where data access and quality actually matter more than model size.
What this means going forward
So where does this leave us? First, the growth velocity is just insane. We’re talking about companies hitting $100 million ARR in years instead of decades. That changes everything about how VCs think about returns and timelines. Second, the efficiency metrics are through the roof – revenue per head count is the highest we’ve ever seen for software companies.
And here’s the kicker: this isn’t just a European story. Botteri notes this is happening on both sides of the Atlantic. The real takeaway might be that while the US dominates the model layer, the application layer is becoming genuinely global. European startups aren’t just competing in their backyard anymore – they’re building category leaders that can go toe-to-toe with anyone. The race for the AI app layer is wide open, and Europe’s definitely in the running.
