U.S. model upgrades are pushing AI startups to move fast – it’s unclear if Europe can keep up

Artificial intelligence companies are the hottest ticket items in today’s startup ecosystem but the pace of change is dominated by developments at OpenAI and Anthropic. For startups building on top of their models, it’s sink or swim. 

With the U.S. currently surging ahead in the large language model (LLM) race, which demands huge checks, Europe’s opportunity lies in building tools that make AI useful, which is known as the application layer.

“That’s also where we think most of the profit will be made in the future,” Robert Lacher, a founding partner of Visionaries Club, told CNBC’s “Squawk Box Europe” earlier this year. 

Generative AI companies clinched $49.2 billion in venture capital (VC) investment in the first half of 2025, surpassing 2024’s $44.2 billion across the whole year, according to consultancy EY. The U.S. is responsible for the majority of that, accounting for 97% of deal value and 62% of volume; Europe represented just 2% of value, but 23% of volume. 

Risk appetite among VC investors on the continent is typically lower than in the U.S., while market fragmentation has long caused challenges for startups looking to scale quickly. Hungover from the 2021 tech boom and amid an economic downturn, steady growth and sound business metrics have also come back into focus in Europe. AI is still drawing eyeballs but it pales in comparison to the U.S. 

Now, frequent updates of AI models like OpenAI’s ChatGPT and Anthropic’s Claude are pushing companies built on top of them to iterate faster or risk falling behind.

Europe does have its own LLM company – Mistral, the French startup that has raised 1.7 billion euros ($2 billion) in capital so far, including from Dutch chipmaker ASML – that is positioned as an open-source competitor to OpenAI, but there’s still a lot of ground to cover.

“The speed of innovation, speed of product velocity, speed of distribution, actually ends up winning over everything else,” Bryan Kim, a partner at VC firm Andreessen Horowitz, told CNBC’s “Squawk Box Europe” on Thursday from Italian Tech Week.

Sweden’s Lovable, a “vibe-coding” platform that enables others to build apps and websites with AI, and AI agent startup Sana are examples of such companies putting AI to use. Meanwhile, London’s AI video generation startup Synthesia and synthetic audio company ElevenLabs, also have specific AI applications. The latter did, however, later build its own LLM. 

But “what does it mean when the product and technology you’re actually relying on changes every month. How do you move any slower than that and expect to win the game?” Kim said.

“What I came around with is, actually, momentum is the moat at this current juncture of AI development. Maybe we’ll get to a point where the model layer stabilizes it a little bit, and then we could talk about other things, but, right now, momentum is the only moat that I see,” he added.

Momentum – and the ability to constantly iterate – often comes down to bagging cash to scale.

“If you look at the Europeans, we are revolutionary, we are romantics, we are resourceful,” Jean La Rochebrochard, managing director at Kima Ventures, told “Squawk Box Europe” on Thursday. However, “it’s hard to compete with a country where the appetite for risk is way higher, where the amount of capital is way higher as well, and the talent,” he said, referring to the US and speaking about AI generally.

La Rochebrochard is still optimistic that Europe can be home to the next big winner. For him, founders who have built outside of Europe and return to start up another venture are ones to watch. 

“We do all hope that Mistral will become one of these behemoths, one of these $100 billion companies in Europe, just like Revolut did in the UK. If Revolut, Mistral and Spotify are doing it, why not another 10, 20, 50 others?” the investor added.

Indeed, British AI cloud company Nscale just nabbed $433 million in new funding, hot on the heels of a $1.1 billion Series B – the largest in Europe – announced just days ago. However, like Mistral, Nscale is an AI infrastructure play rather than application layer – a timely development as AI sovereignty continues to grab political and investor attention. 

For Lovable CEO Anton Osika, it’s much more simple. “The only thing we need to do in Europe is change our mindset that it is possible,” he told “Squawk Box Europe” on Tuesday.

“Traditionally it has been more of a constraint with access to the amount of technical talent, of access to capital, that is not the bottleneck anymore,” he argued. 

Osika’s own company, for example, can act as a CEO’s technical cofounder if they need one. Meanwhile, Lovable is also luring top talent from the U.S. to Sweden to work at the startup, Osika said. 

He added: “It’s much faster for us to hire in Europe than it is to do so for U.S. counterparts, where there’s 1,000 more companies like Lovable, so it is a competitive advantage to be building from Europe.”