Why Israeli Startups Are Betting on ‘Services as Software’ and How AI Is Closing the Last Mile
For years, enterprises managing cash flow, compliance, cybersecurity, and customer support relied on consulting firms, outsourcing providers (BPOs), or system integrators, as their needs seemed too complex for generic SaaS platforms. Now, with AI at the core, new startups are finally breaking through these barriers.
At Grove Ventures, we’re mapping a surge of Israeli startups building AI-driven products that replace legacy service providers, disrupting a market of $6T.
The Rise of “Services as Software”
We’ve identified 7 distinct categories of companies addressing this market opportunity:
- Financial Operations: solutions that streamline collections, payments, treasury, and financial reporting.
- Customer Support: technologies to improve response, service, and interaction with customers.
- Security and IT: tools that protect enterprise systems and information from technological threats and help manage them.
- Risk and Compliance: systems that monitor regulatory adherence and safeguard organizational activity.
- People Operations: automation and optimization of sourcing, recruiting, and managing employees.
- Go to Market: platforms that support product launches, digital marketing, and sales.
- Business Operations: a focus on workflows and improving organizational operations.
A Surge of Talent and Capital
This opportunity is drawing repeat founders and experienced operators. Startups such as Wonderful, Reindeer, Real Dev, Harmony, Torq, and Tenzai are already defining the contours of the market. Their vision has attracted the backing of world-class investors like Lightspeed, Greylock, Index, Battery, and Bessemer.
In just the past two years, companies in this emerging category have raised over $1.5B, a figure that speaks to both the promise of the market and the urgency of the opportunity.
Why Now? AI Changes the Math
AI doesn’t just automate processes; it transforms the economics of entire industries:
- Gross margins rise from BPO-style 20–40% to SaaS-level 70–90%.
- Annual Contract Values (ACVs) expand as AI platforms replace full consulting contracts, not just isolated tools.
- Automated solutions mean shorter, faster sales cycles and stickier revenue.
Historically, software sat alongside consultants. Now, AI is credible enough to replace them, combining automation, customization, and integration into a unified solution.
The Birth of a New Category
This isn’t simply the next SaaS product wave. These startups are competing with the global services industry, such as consultants, integrators, and BPO vendors.
The key breakthrough? AI closes the “hand-holding gap”: the personalization and trust consultants historically provided. With AI, those qualities can now scale globally, at SaaS economics.
The implications are profound: labor-intensive services are turning into recurring software revenue, creating massive new Total Addressable Markets (TAMs) and defensible, high-margin franchises.
Challenges on the Road Ahead
The opportunity is real, but execution is demanding. Startups must solve for:
- Organizational design – keeping product teams close to customer needs while maintaining speed.
- Trust and adoption – breaking into conservative enterprise procurement cycles.
- Budget reallocation – shifting spend from consulting hours to SaaS subscriptions.
- Go-to-market models – balancing scalable sales with solution engineering.
In practice, these companies must deliver the full consultant experience: defining problems, scoping solutions, mining processes, integrating systems, and providing ongoing support.
Startups emerging now have the potential to reshape how enterprises buy, budget, and operate. This isn’t a feature market. It’s a multi-trillion-dollar transformation. The winners will be the enduring software companies of the next decade.
Authors:
Lotan Levkowitz
General Partner
[email protected]
Or Git
Investor
[email protected]
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