Opinion
Why Israeli SaaS must unite or die
"The 2026 resolution for Israeli SaaS leaders shouldn't be 'add more AI features.' It should be having the courage to transform business models around AI-native value creation through coalitions, even when uncomfortable," writes Nili Goldberg.
Israel's 3,000+ SaaS startups, backed by hundreds of millions in investment, face an existential reckoning. The numbers from Nasdaq tell a brutal story: while the S&P 500 rose 17.6% in 2025, the SaaS index fell 6.5%. Israel's software giants, Nice, monday.com, and Wix, lost tens of percent of their value. Wix plummeted 66% in one year to $4.2 billion. Monday.com crashed 60% in six months to $5.2 billion. Chip companies like Tower Semiconductor and Nova have replaced enterprise software firms in the top Israeli companies on Wall Street.
This isn't a market correction, it's a category crisis accelerated by AI faster than any revolution before it. Yet most startups' instinctive response, expanding their core offerings like CRM platforms that offer lead generation tools and data enrichment companies that offer lead generation and Automated SDR tools all powered with AI features. This may show that they are busy and moving forward but given the velocity of the change, is precisely the wrong way to go.
The true magnitude and cause of the stress factor
Based on Startup Nation Central, roughly 2,571 of Israel's 8,000 active tech companies are SaaS-based. Market analysis shows 40-45% serve SMBs and solopreneurs, approximately 1,000-1,200 companies competing for the world's smallest businesses. Including McKinsey's "dark matter" of informal ventures operating below radar, the real number approaches 1,500-2,000 companies fighting for the same limited market.
The age factor compounds the stress. Over 50% launched 5-10 years ago, meaning investment timelines are reaching boiling point. The pressure to scale, dominate, and exit is mounting. But public markets offer no refuge. While seven Israeli companies went public in 2025 for $14.6 billion total valuation, eToro, Via, and Navan all trade below IPO prices. The cautionary tale is SentinelOne: went public in 2021 at $9 billion peak valuation, now trading around $5 billion.
The stock market is treating software companies as legacy industry rather than digital growth engines, with investors increasingly favoring deeptech and hardware over software in the AI era. And the panic intensified even more with the Claude Code release, an AI agent capable of completing technical tasks that previously required dedicated developers. Stories circulated of a former Amazon executive building a functional CRM system over a single weekend, work that traditionally took teams months. And today, we are already witnessing serial entrepreneurs like Nimrod Lehavi who launched the "Inevitable AI group," who are gathering solopreneurs to build tens of companies that will either comply or replace the current SaaS ecosystem.
Startups are running in circles because even after a decade of serving SMBs they still misunderstand the fundamental shift. SMB customers don't wake up wanting software, they wake up with problems: insufficient revenue, excessive manual work, inability to scale without hiring.
Six forces are reshaping SMB expectations:
The "Good Enough" Threat: When AI agents handle 80% of what you offer for $20/month, $99/user becomes indefensible.
Platform Consolidation: SMBs want integrated ecosystems, not 47 different tools.
The Trust Deficit: 70% of SaaS companies claim AI features; only 36% have AI at their core. Buyers are losing trust.
Seat Compression: AI inverts "more users = more revenue." More value now means fewer seats, creating existential pricing crisis.
Data Quality Paradox: 72% of organizations struggle with disconnected data. If your product can't handle messy SMB data, customers will churn.
Margin Squeeze: AI infrastructure costs erode 80% SaaS margins while price-sensitive SMBs refuse to absorb costs.
Companies most stressed lack inside teams who actually know what owning a business means.
The Coalition Strategy: Building Together
The strategic answer is coalitions. Instead of spreading from each startup's core value companies should double down on their strength while partnering with those owning other value chain steps - data enrichment, lead generation, financial empowerment, content creation, and productivity.
Moreover, given each SMB based startup developed their own customer base and fans real partnerships can rapidly expand revenue for many players and maybe even form a big significant movement that SMBs trust and commit to. This allows our ecosystem to outsmart marketplaces with one core offer and varied-quality add-ons. Consider Shopify: ecommerce remains core while marketplace apps vary wildly in quality. Israeli SaaS could build true coalitions through partnerships or acquisitions where 1+1 equals 3.
HiBob exemplifies this. Their HR management value chain includes payroll (acquiring Pento) and financial planning (Mosaic.tech), an integrated platform where HR data, payroll, and financial planning communicate seamlessly.
Imagine a Lead Gen coalition: combine startups for data enrichment, lead scoring, and automated SDRs into one stack. This grows customer base 10x without new marketing spend, rising above ecosystem noise.
Every company with $100M+ revenue in 2025 obsessed over expanding their offer. Yet the technology they needed usually sat in another startup's office blocks away. CRMs wanting better leads don't need to develop data enrichment themselves.
The 2026 Challenge
The 2026 resolution for Israeli SaaS leaders shouldn't be "add more AI features." It should be having the courage to transform business models around AI-native value creation through coalitions, even when uncomfortable. Usually this discomfort is purely ego-driven.
In 18 months, companies that transform will be the only ones standing. They won't just survive the AI transition, they'll generate significant ROI, serving our investment potential and leading to more value and funds into our ecosystem.
Here's to building something extraordinary in 2026.
Nili Goldberg is a tech entrepreneur, marketer and author.
