A recent report from global venture capital firm Accel indicates that Europe and Israel are attracting significant private funding in the artificial intelligence (AI) application layer, narrowing the gap with the United States. While the U.S. maintains a lead in large AI models, the application sector in Europe and Israel has secured 66% as much private funding as its American counterparts in 2025 so far, according to Accel’s 2025 Globalscape report.
This marks a substantial shift from a decade ago, when Europe's funding in this sector was approximately one-tenth of the U.S. total, Accel partner Philippe Botteri stated in an interview with TechCrunch. Botteri attributed this growth to the development of an ecosystem of founders and investors in the region who possess a deep understanding of building software companies.
The report aligns with observations from other venture capital firms. Jonathan Userovici, a general partner at Headline, noted that founders across various industrial verticals, including legal, healthcare, manufacturing, and marketing, are combining technical talent with market expertise. Headline’s own "AI Europe 100" report earlier this year identified AI-native application startups in Europe with potential for leadership, citing growth velocity, team strength, and technological advancement as key factors.
Accel's research highlights a new trend in AI-native applications, which are reportedly reaching $100 million in annual recurring revenue (ARR) within years, a pace significantly faster than previous software waves. "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 said, noting this trend is global.
Despite the rapid growth of new AI applications, existing cloud software companies continue to integrate AI capabilities into their products. Accel's Public Cloud Index has risen 25% year-over-year. While the outlook for large European foundation model companies is less optimistic, smaller models still present a potential area for future leaders, according to Botteri. VCs are actively pursuing investment opportunities in the AI application layer, with Accel identifying defensibility in product-centric offerings that achieve rapid adoption.
Lotan Levkowitz, a managing partner at Grove Ventures, also emphasized that data is an undervalued segment. "We strongly believe that companies focused on proprietary data and data flywheels are indeed very lucrative," Levkowitz stated, suggesting that the market's current focus on models, compute, and actions overlooks critical data infrastructure.
