How Tech Can Help Rebuild

January, 2024

Noa Bloch
Senior Associate

My Whatsapp today is starkly different to four months ago. There is the group dedicated to volunteer opportunities in Tel Aviv, a “buddy system” to support displaced families, as well as the group supporting Israeli startups. All are grassroots, and a small microcosm of the thousands of civilian-led initiatives that have flourished in Israel since October 7.

This has reinforced for me the uniqueness of the Israeli spirit. I am inspired by my fellow Israelis’ resilience and proud that in my industry, where roughly 15-20% of all startup employees were called up to military reserves, the ecosystem galvanized around its founders, and well over $1B was raised by startups since the start of the war, with the majority coming from investors outside of Israel.

During COVD-19, Marc Andreessen bemoaned the failure of Western institutions to adequately prepare. As he put it, “…part of the problem is what we didn’t do in advance, and what we’re failing to do now. And that is a failure of action, and specifically our widespread inability to build”.

Less than three years since COVID-19, Israel faces adversity which is again highlighting major global challenges. Many want to blame a specific person or institution. To be clear, that is not my intention. Instead, I want to focus on these gaps and the role tech can play in solving them, in the hope that my peers do what they do best: back innovators with the courage to build.

In my view, this war has put an even brighter spotlight on four key markets that are in desperate need of innovation. Again, these challenges are not uniquely Israeli and are felt globally.

1. Supply Chain: The Houthis’ attacks in the Red Sea, where roughly 12% of the world’s trade passes, is a new pressure point. But there is also the drying up of the Panama Canal, U.S.- China relations, and other supply chain challenges. Since 80% of today’s global trade is moved by sea, delays in critical shipping arteries can potentially add billions in supply chain costs.  This is not the first time we have faced a supply chain crisis.

After COVID-19 brought global supply chains to a standstill, VCs poured ~$40 billion into the industry between 2018 and 2022. This enabled first movers such as Flexport and Freightos, famous for introducing data and SaaS to traditional supply chain processes. But while COVID-19 illustrated the need to build more resilient supply chains, the past few months have proven they need to be more agile, to quickly pivot and avoid a global supply crunch. Our portfolio company, Wiliot, is one example of an attempt to create more agile supply chains, enabling customers to monitor produce freshness and temperature and make interventions. Additionally, with advancements made in generative AI and computer vision over the past 12-18 months, I expect to see more attempts to integrate autonomous vehicles, particularly in freight and warehousing.

2. Misinformation: On October 17, the New York Times and BBC published unverified claims by Hamas officials that Israel was responsible for the explosion at Al Ahli Arab Hospital and the death of 500 civilians. Within hours, this was proven false. This was still met with skepticism even after this was verified by the U.S. The proliferation of misinformation, supercharged by AI and bots, has real-world consequences.

It was recently recognized by Davos as the most immediate risk to the global economy, with the potential to erode democracy, as demonstrated by Russian attempts to influence U.S. electoral results via social media. As such, we could see a growing demand for solutions like Cyabra (which helps companies identify malicious content) and our portfolio company Activefence (which protects online platforms from malicious content). Additionally, we are likely to see a new wave of cyber technology, specifically targeting and correcting misinformation.

3. Government Technology: Others have already argued that Israel is well-positioned to build best-in-class defensive technology. It has the homegrown talent, expertise, and real-world experience. For more on this, see this article by Yonatan Mandelbaum of TLV. But defense is only one example of technology improving governments. Leveraging the Palantir playbook, success with one government department can lead to work with others, opening up a huge TAM since in 2022 alone, the U.S. Government committed almost $700B to contracts. It goes without saying that this market poses several unique risks, such as slower sales cycles and significant CapEx, which is a partial explanation for why there have been so few winners to date. But this is changing. Anduril has already secured a program of record with the DoD and reached scale faster than Palantir and SpaceX.

4. Mental Health: Israel, which boasts one of the best public health care systems, may face a mental health crisis. According to Haifa University, 60% of Israelis who are not directly impacted by the war have developed severe acute stress disorder, which can lead to PTSD. This doesn’t account for the families of the 1,400+ dead or held hostage, or 10,000 wounded, and the mental health challenges associated with their losses.

Unfortunately, Israel is not unique. The National Council for Mental Wellbeing in the US found that more than 2/3 of behavioral health professionals reported increased caseloads in 2023, causing 90% to be concerned that new patients wouldn’t have access to care. Clearly, supply struggles to match demand. We are already seeing companies like Eleos, which leverage technology to automate repetitive workloads and free up clinicians’ capacity. In the coming years, we are likely to see innovation to improve accessibility to care and improve patient mental health outcomes.

While clearly there has been some innovation in each of these sectors, we are still in the early innings. This uniquely positions startups, agile by their very nature, to disrupt them and should also be a wake-up call to VCs to take bigger swings and double down on these emerging markets.

Most importantly, I believe Israeli founders are well-positioned to take big swings. Since Israel’s mandatory draft is often cited as a major stimulus for innovation, I am confident that the current and unprecedented civic engagement in grassroots initiatives and military reserves will trigger an even greater wave of entrepreneurship. Israelis understand better than anyone the need to innovate in these markets.

What does this mean for startups in Israel and globally? Living in Israel, it is clear to me that we will feel gaps in these four sectors, which will increase the appetite and need for innovation. Additionally, with family spread across the globe, I know these gaps exist elsewhere. Therefore, now is precisely the time to build in GovTech, Supply Chain, Health Care, and combating Misinformation.

If you are investing or building in these markets, please reach out. The landscape is constantly evolving and the only way we can tackle these challenges head on is if we collaborate and learn together.

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