TLDR: Software > Infrastructure | Israel shows where the wind is blowing | Framework for identifying AI software winners
“There are many applications yet to be built over the coming decade using AI technology. Almost by definition, applications built on top of AI infrastructure have to be more valuable than the infrastructure itself, since they need to pay the infrastructure and technology providers.” – Andrew Ng
One of the toughest challenges for VC investors these days is how to invest in AI software.
I suggest looking to Israel for some initial clues, as there are already plenty of signs pointing to where the wind is blowing.
While the Israeli tech ecosystem largely missed most of the action in AI infrastructure (chips, data centers, LLMs), Israeli entrepreneurs are agile and innovative enough to set the tone in software-based AI solutions.
Therefore, I categorized Israeli companies into several key groups (some of which I just created). This serves as a thinking framework that helps me navigate a rapidly changing reality and spot the early winners in one of the biggest technological revolutions in history.
The Categories:
1. Autonomous AI Agents (Shapes, Panax, Moonshot AI): Automation for complex processes like e-commerce website optimization, employee performance and compensation evaluation, and complete control over cash flows. These solutions already provide access to valuable insights and knowledge while significantly reducing labor costs.
2. Modern Code (Backslash, Qodo, Lightrun): Writing code is the most common and significant use of AI tools today. This creates a need for automatic error correction, securing machine-generated code, and validating that code does exactly what the developer intended.
3. Finding the Right Target (Onfire, Vi): One of the most important functions in Israeli intelligence units is quality target identification, or “target bank.” It’s not surprising that Israeli companies excel at identifying high-quality targets in civilian applications as well, from direct access to the ideal customer to finding the right patient for a clinical trial.
4. Access to Data (Bright Data, Vetric): Data is the foundation for training AI models, and data quality determines output quality. Moreover, access to unique data creates competitive advantage, so it’s no wonder there are Israeli companies offering quality data to many different
5. Fighting Disinformation (Brinker, VineSight): Today it’s easier than ever to deceive, defame, and harm with the click of a button. Of course, the way to deal with the scale of this challenge is through AI.
6. Advanced Simulation (Fortellix, Hiveware): There are expensive and complex technologies like chip development where simulation costs are high. This creates a need for tools that shorten processes and cut costs. Similarly, autonomous vehicles cannot afford mistakes, as human lives are at stake. Therefore, there’s a need to train vehicles through the artificial creation of countless scenarios.
7. Medical Diagnosis with AI (Ibex Medical, Aidoc): One of AI’s greatest promises. Israeli companies are already improving processes and successfully detecting and diagnosing cancer, heart problems, and brain issues—sometimes better than humans.
8. Preventing Fraud (IVIX, Forter): Israeli companies help fight fraud and detect tax evaders, protecting transactions in real-time.
9. Urban Management (Zencity, Darwin): Urban management is becoming more complex than ever, and few things impact quality of life in a city as significantly. These companies provide tools to understand what’s happening in the city, what works and what needs improvement, while also offering tools to address problems.
10. Disrupting a Giant Industry (Lemonade) : In my view, Lemonade is the prime example of a company that set out to fundamentally transform a massive industry that hasn’t changed in decades. The company demonstrates consistent progress across all key KPIs by building an almost entirely autonomous system, serving far more customers with fewer people.
In summary, I believe Israel is well-positioned to set the tone in AI world-class innovation, and exciting times lie ahead of us.