Last year, the global cloud market hit a wall, with a massive $1.6 trillion wiped off the public market cap and a 40% nosedive in private funding. While innovation continued to emerge across Europe’s and Israel’s cloud ecosystem, the tech world held its breath as everyone wondered how far things could keep falling.
Today, a new normal is beginning to emerge in the cloud landscape, and a tentative SaaS recovery is underway, with Accel’s data showing that the bounceback is happening faster than post-2000. The Nasdaq Index took 14 years to return to 80% of its peak. Today, it’s taken just 18 months to reach the same milestone due to solid balance sheets, the exponential growth of AI, and the resilience of the U.S., European, and Israeli cloud ecosystems.
At Accel, we recently launched our 2023 Euroscape Report, an annual in-depth analysis of the top companies and trends in the SaaS market across Europe and Israel. This year’s report — Generation AI — reveals that the SaaS ecosystem may recover following last year’s market reset, driven by the growth in generative AI (GenAI).
So, what is the roadmap for software founders now? Let’s dive into the data.
GenAI has fueled the market’s recovery
The latest data paints a clear picture: We’re returning to the market pulse of 2019, carving out a steadier state in the process.
The latest data paints a clear picture: We’re returning to the market pulse of 2019, carving out a steadier state in the process.
The global Euroscape multiples are reverting to the 10-year pre-COVID average. Venture capital is being invested at 2019’s pace, with private cloud companies across Europe, Israel, and the U.S. attracting $31 billion in investments this year — not far from 2019’s $27 billion mark. The birth of cloud unicorns is keeping pace with the past, too, with 11 unicorns created in H1 2023, nearly matching the 12 from the first half of 2019.
GenAI is not just part of the landscape; it’s driving it. About 60% of the new cloud unicorns created over the past 12 months are GenAI native, with power players like Synthesia, AI21 Labs, and Stability AI at the helm. Investment trends are just as telling, with over 20 hefty rounds of over $100 million in the GenAI space across Europe and Israel and nearly 40 in the U.S. Nvidia’s jump into the trillion-dollar valuation club? That’s GenAI at work, too.
So, while the figures are reminiscent of those seen in 2019, the driving force for innovation and recovery has been the rise of GenAI.
Europe and Israel cloud keeps pace with the U.S.
Europe and Israel maintain their relative strength against the U.S. ecosystem, with the total European and Israeli venture funding in SaaS in 2023 at 53% of that in the U.S. This positioning sees the region continue its climb, securing 36% of U.S. cloud VC financing in 2019 and 46% in 2020.
Yet, when the spotlight turns to GenAI, the U.S. flexes its financial muscle. America’s GenAI giants saw $14.1 billion in investments, towering over the $0.9 billion invested in Europe and Israel. Clearly, the U.S. is playing to its strengths in foundational models, with industry pioneers like OpenAI, Inflection, and Anthropic taking the lion’s share of funding.
And yet, GenAI is a secular trend, and we’re still in the early innings. Europe’s deep GenAI talent pool continues to shine through, with Stable Diffusion springing out of Ludwig Maximilian University of Munich and promising startups such as Mistral and Synthesia being created across the region. In addition, European talent has produced 50% more AI journal publications than the U.S., with a similar citation rate.
As the tide turns toward specialized models aimed at specific sectors (think construction, pharma, and legal), the forecast is clear: Expect Europe and Israel to start evening the score in the funding game with the U.S.
The future of software is already being transformed by GenAI
Over the last 12 months’ return to reality, GenAI has been the trend to watch. It’s transforming the software paradigm and unleashing previously unimaginable opportunities. We’re seeing a dramatic impact across three key areas:
Enterprise automation: This is proving the best path to deliver on the promise of AI. GenAI is pushing the boundaries of automation, enabling enterprises to automate incredibly complex processes. For example, companies like UiPath, which has been using AI to deliver enterprise automation at scale, are now incorporating GenAI into their platforms to provide even greater impact to their customers.
Media creation: GenAI is drastically reducing both the cost and time taken to create digital media and new use cases. Take, for example, Synthesia. The company’s platform can reduce video production time by 95%, making it a cost-effective solution. It also improves engagement by replacing text with avatars and enabling instant video creation for communication and learning. Assembly.ai enables companies to build AI applications with voice data and turns voice calls into text to categorize calls, analyze sentiments, or redact confidential information.
Cybersecurity: Cybersecurity continues to be a key trend, with the five fastest-growing Euroscape companies dominated by cybersecurity: SentinelOne, CrowdStrike, Zscaler, Snyk, and Cyera. With cloud exploitation growing by 95% in 2022 (CrowdStrike’s Global Threat Report) and key challenges securing human and machine identities and the software supply chain, this looks to continue. Now GenAI is being incorporated into cybersecurity solutions to improve their capabilities. Snyk, the leading developer security company, uses GenAI to analyze code vulnerabilities and suggest fixes. Cyera, an early leader in cloud data security, uses AI to precisely identify the contents of cloud data stores and earmark sensitive data.
As our data shows, Europe and Israel are well positioned to take advantage of the rise of AI with multiple research and talent hubs across the region. The cloud is gaining momentum again, and we look forward to seeing what next year will bring.