How to Spot AI Winners in Today’s Rapidly Shifting Market: Insights from IL Ventures

Artificial intelligence is reshaping every corner of business, forcing investors to rethink how they identify promising startups. The rules of the game have changed: what seems groundbreaking today can become a commodity tomorrow. Yoni Heilbronn, Managing Partner at IL Ventures, and Elad Ziklik, their AI Strategic Advisor and former Global Head of AI at Oracle, share fresh perspectives on what it takes to spot AI companies that can truly thrive amid fast-paced innovation and fierce competition.

the VC AI Survey with IL Ventures

IL Ventures, founded in 2021, focuses on early-stage investments across AI, logistics, supply chain, robotics, energy, and smart manufacturing. When asked about AI’s impact on their fund, Yoni Heilbronn and Elad Ziklik emphasized that AI has become a crucial decision-support tool, accelerating processes like due diligence and market analysis.

Unlike traditional sectors, evaluating AI startups today demands recognizing the rapid pace of innovation. A startup that takes dozens of people years to build can now be replicated by a handful within months or weeks. This compression of time means timing is everything—innovations can be quickly commoditized by larger players or newer entrants. Therefore, investors must look beyond product-market fit and execution to see if a team is innovating sustainably, can adapt quickly, and has defensible advantages beyond just the AI model.

Traditional metrics like ARR are losing their predictive power in AI, as switching costs for customers are almost nonexistent. Users can jump from one AI product to another as soon as a better or cheaper alternative appears. As such, stickiness comes from proprietary data loops, integrations, or unique workflows rather than just the interface.

Financial evaluation combines core SaaS metrics (retention, LTV/CAC, gross margins) with AI-specific indicators like inference cost per user and infrastructure scalability. Startups reliant on third-party AI APIs face dependency risks—price hikes or usage restrictions could suddenly upend their economics.

On the regulatory front, AI raises concerns around explainability, bias, and data privacy, adding layers of complexity to commercialization, especially in regulated industries like healthcare or finance. Notably, recent moves like Cloudflare restricting AI bot crawling could limit access to critical web data unless companies pay fees.

IL Ventures doesn’t limit itself to a particular AI subdomain but invests broadly in technologies disrupting traditional industries. They see huge potential in AI-powered industrial automation, logistics, and manufacturing. Israel, while strong in deep tech, lacks top foundational AI models but excels in vertical AI tools for insurance, logistics, precision medicine, and safety/privacy solutions.

A key gap in Israeli AI startups is a lack of product-led, UX-focused founders. Many founders are engineering-centric, and scaling often depends on bringing in external leaders for sales and marketing. IL Ventures looks for teams that blend AI expertise with design and go-to-market strength, focusing on long-term defensibility and domain-specific understanding. The best founders tend to be second-timers or domain experts paired with top AI talent.

What Undercode Say:

The IL Ventures perspective sheds light on a fundamental truth about AI investment: speed and adaptability are paramount. Unlike traditional sectors where innovation unfolds over years, AI innovation cycles now happen in months or weeks. This forces a radical rethink of how investors assess risk and potential.

One of the most striking points is the erosion of the ARR metric’s reliability. In SaaS, ARR often signals customer loyalty and steady revenue. But in AI, where products can be easily swapped, ARR without stickiness is a mirage. This means investors must dig deeper into qualitative factors like proprietary data capture and integration into user workflows.

Another crucial insight is the dependency risk on large AI providers like OpenAI or Google. The AI ecosystem is still fragile in this respect: startups leveraging these foundational APIs might see their entire business model threatened by pricing changes or usage limits. This precariousness encourages startups to innovate on inference efficiency and infrastructure scalability—factors that will separate sustainable players from those perpetually dependent on external platforms.

IL Ventures’ focus on Israeli AI startups’ engineering-heavy culture reveals a nuanced challenge. The strength of Israel’s technical talent is undeniable, but success in AI commercialization increasingly requires blending tech with exceptional user experience and market savvy. This aligns with a broader trend in AI where winning products don’t just work; they delight users and embed themselves into daily workflows.

Furthermore, regulatory uncertainty looms large, especially as AI touches sensitive sectors. Startups that build privacy, explainability, and safety tools will likely gain a competitive edge, not just because regulations demand it, but because these features foster trust and long-term adoption.

The verticalization of AI also stands out. Rather than building generic models, focusing on niche industries where domain knowledge is rich—like logistics, insurance, or precision medicine—can create moats that a general-purpose AI cannot easily breach.

Finally, IL Ventures’ emphasis on founder profiles—combining domain expertise with AI fluency and go-to-market muscle—reflects the complex skills needed to build defensible, lasting AI companies today. Pure technical prowess is no longer enough; startups must master product design, user engagement, and rapid learning to outpace commoditization.

Fact Checker Results ✅

IL Ventures was founded in 2021, focusing on early-stage AI investments. ✅
Dependency on third-party AI APIs poses a significant financial risk for startups, as seen with recent price fluctuations in the market. ✅
Israeli startups tend to have strong engineering skills but lag in product-led growth and UX focus. ✅

📊 Prediction

The AI startup landscape will continue to accelerate in pace, with product cycles shrinking from years to months or even weeks. Startups that survive and thrive will be those that build robust, proprietary data flywheels and optimize inference efficiency to reduce dependency risks. Meanwhile, regulatory pressures will fuel demand for explainability and privacy-focused tools, creating a new frontier for AI innovation. Israel’s AI ecosystem is likely to produce a wave of niche, vertical-specific startups that blend deep domain expertise with AI technology, moving beyond foundational model development toward practical, industry-transforming applications. Investors who spot teams combining technical depth with product excellence and fast adaptability will lead the pack in identifying tomorrow’s AI winners.