W
elcome to the Exchange, a weekly startups-and-markets newsletter. It’s inspired by the daily + column where it gets its name. Want it in your inbox every Saturday? Sign up here.
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 +. 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.
