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It was a short workweek in the U.S., but there was plenty to read and reflect on. For you today, some thoughts on the future of vertical SaaS, what the second half of 2023 might hold for Israeli startups, and founder well-being. — Anna
Industry-specific knowledge
“Vertical AI is the next logical iteration of vertical SaaS,” Index Ventures partner Paris Heymann recently argued on TechCrunch+. In other words, just like companies were buying cloud-based software made for their industry, they will now buy AI applications that leverage foundational models and infrastructure to answer their business needs.
While some business applications of AI will surely be horizontal, “meaning they can be used by customers in any industry,” Heymann predicted that many AI applications will also be vertical, or industry-focused.
Both horizontal and vertical applications can make businesses more efficient. But according to Heymann, “AI-enhanced software applications will be most powerful when they have deep underlying knowledge of end-user workflows and access to valuable industry-specific training data.”
I tend to agree with Heymann’s take, and some of the examples he mentioned are proof that demand is already here for vertical AI. For instance, international law firm Allen & Overy recently announced a partnership with Harvey, a startup backed by the OpenAI Startup Fund that puts AI and LLMs to task on legal work.
“It is a game-changer that can unleash the power of generative AI to transform the legal industry,” an A&O executive declared.
While I’d love to dive deeper into the way AI is transforming specific industries, I am also curious to know who will be behind these vertical AI applications.
TLV Partners principal Yonatan Mandelbaum has a hypothesis: “A new trend I expect to see more often in the coming years are non-technical founding teams succeeding in vertical markets,” he wrote.
Rather than technical expertise, which is less of a pre-requirement thanks to LLMs and generative AI, Mandelbaum expects that these founders might have domain knowledge, having “experienced the pain of their target vertical firsthand.”
This shift would be qualitative, but also quantitative. “The pool of potential founders is going to be increased dramatically and no longer be limited to individuals with a computer science background or people who know others with such a background,” Mandelbaum predicts.
I am sure some of these companies are being created as I write — maybe you are working on one? — and I am looking forward to hearing about them. From legal tech to HR tech and health tech, there are plenty of industries that vertical AI could improve.
Israel’s “worrisome” H1 investment levels
Earlier this week, I looked into a report showing that in the first half of this year, VC investment has declined further in Israel than it has globally. One of the factors at play is the political crisis caused by the government’s controversial plans for a legal overhaul.
Commenting on H1 results, Édouard Cukierman, a managing partner at Catalyst Investments, called this sharp decline “worrisome.”
“However, we are now seeing that already in the month of June, there is a certain recovery in investments in Israel,” Cukierman said. “Unfortunately, the issue of [judicial] reforms will still be a major concern for international investors. We hope that the recovery we see in the public market will positively attract venture funds to invest in high-tech companies in H2.”
Founder well-being
Europe-focused VC firm Balderton Capital launched a Founder Wellbeing and Performance platform to address some of the issues that emerged in a recent entrepreneur survey it conducted. For example, 57% of respondents reported regularly prioritizing work over looking after themselves.
While central aspects of the platform, such as peer support groups and a health and fitness coaching program, will only be accessible to founders whose startups are backed by the VC firm, other resources, including webinars, will be more widely available.
There’s also space for more funds to follow suit: According to Balderton’s survey, 81% of founders think that VCs can help to create a culture where entrepreneurs can look after their well-being, “which directly impacts performance and increases success.”
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