🇺🇸 The Promise of GovTech

The world of government is expansive. Like technology, government touches most aspects of daily life - local, state, and national governments are more omnipresent than we care to consider. This piece explores inspiring efforts focused on improving government, as well as challenges and gaps that remain. It is the second piece in The Promise of… series (the first was The Promise of Stripe Press), which explores companies, themes, and industries that I find burgeoning and exceptional. 

GovTech & Civic Tech

I liked this graphic defining the difference between Civic Tech and GovTech by CitizenLab. This article will focus on both areas.

Problem

Because the government represents so many services in our daily lives, there is much to be said about what it does incredibly well, and what it could do significantly better. The Time Tax articulates this elegantly.

In my research on companies working to reduce the time tax for citizens and government workers, I compiled a list of venture-backed startups. The companies on this list bring new, innovative approaches to government and society. Atlys (backed by a16z, South Park Commons, and others) is a good example of this - it simplifies the travel paperwork process. Right now it’s focused on reducing the time required to apply for a visa. Check out the list here👇

This list is intentionally scoped as to not be overwhelming. It is organized alphabetically and focused on US-based, venture-backed software (as well as a handful of hardware + software) startups. There are a number of fundraising platforms, policy-focused organizations, community engagement, budgeting, city planning, and other organizations that are not included in the scope of this analysis.

Market Dynamics

Market Size

One oft noted, and less promising aspect of GovTech is the upper bound on total addressable market. From Does GovTech Have an Identity Crisis by Nick Bowden: 

There are approximately 19,000 cities, 3,000 counties, and hundreds of state and federal agencies. Of those 19,000 cities, approximately 90% have populations under 25,000. Think about that for a second. The entire GovTech market in the United States only has 23,000 potential customers.

For the TAM in the GovTech and Civic Tech markets to grow beyond this, many companies also seek to sell to private sector entities (like Hadrian and OpsLab). That said, governments don’t lack spending power. According to Elle Hempen, co-founder of The Atlas:

State and local governments in the United States spend $3.7 trillion per year. That’s almost 20% of GDP.

Consolidation

Stronger Together: Acquisitions are a Common Outcome 

Regardless of stage, companies are acquiring to stay current in GovTech and Civic Tech.

Exits in this space frequently take the form of acquisitions by PE-backed incumbents like Accela (founded in 1981, raised over $200M and owned by Berkshire) and Granicus (majority-owned by Vista Equity). Tyler Technologies, another frequent acquirer with 36 acquisitions per Crunchbase) is a public company founded in 1966. It recently spent $2.3 billion to acquire NIC (provider of digital solutions, specifically payments, for government). 

GTY is a GovTech rollup composed of Questica (budgeting), Sherpa (budgeting), CityBase (digital services) eCivis (grants), OpenCounter (permitting), and Bonfire (procurement).

Late-stage GovTech companies like Via (founded in 2012) acquired mapping startup Remix (founded in 2014) for $100M in early 2021. Remix’s CEO and Co-Founder is now onto a new company, Felt, a collaborative mapping startup that serves a wide range of use cases, from sketching out a hike with friends, to communicating next steps to a wildfire response unit. Another late stage GovTech company, OpenGov, has acquired several companies in the last few years, including ProcureNow, ClearRec, and ViewPoint. 

Government Software Market Map provides additional robust analysis on the state of this space. 

What’s Next?  

It feels like disruption will come from the exciting startups detailed in the Airtable. These companies are relatively new entrants (all founded within the last nine years). Many of them are working on the paradigm-shifting ideas that will prompt real change. Frequent funders of these startups include institutional investors such as 8VC, a16z (particularly with recent hire Katherine Boyle), Founders Fund, Shield Capital (Raj Shah’s (formerly managing partner at DIU) firm), and Academy Investor Network. As a16z continues eating the world, I have no doubt they will continue to put firepower behind this space, helping it catapult into the VC vernacular. This will change the exit dynamics and acquisition strategies of GovTech and Civic Tech companies for years to come. 

There are also firms that invest and provide added value around accelerating the path to government like DIU, In-Q-Tel, Harpoon, and Dcode (accelerator). 

💭 Observations

TLDR: Centralization is needed both on the company side, and from a workflow perspective (whether it’s public notice, visas, tax credits, or bills). Siloed operations are the achilles heel of initiatives in this space.

• Lack of company centralization: There are efforts aplenty in the broader GovTech and Civic Tech spaces beyond startups. Nonprofits and large companies are also dedicated to improving government. On one hand, it’s great to see so many people doing this work. On the other, this has led to duplicative efforts - many of which converge to focus on similar topics like permitting and licensing, or community engagement. 

  • This will probably lead to continued consolidation as large GovTech and Civic Tech companies become more acquisitive. 

• Digitizing paper-based processes (lack of workflow centralization): This has been a topic of discussion for decades, yet we are still working on it. The crop of companies outlined in the Airtable may be the companies to finally automate some of these complex workflows.

• Go big: Big ideas + meticulous execution take the cake in GovTech and Civic Tech. The spaces are difficult to understand and succeed in, thus paradigm-shifting companies have to command the market such that they leave governments no option but to buy from them.

  • Risk aversion stymies adoption of new solutions in government. Unless a technology is substantially better, or a government buyer is forward-thinking, new technologies have to cross a wide chasm.

• The new wave: B2C, (in this context, business to citizen) companies focused on reducing the time tax for citizens (as well as for government users) will improve life for all stakeholders. Private sector ingenuity and rapid pace of innovation will continue to fill public sector gaps that cannot or will not be addressed by slower-moving government entities.

Prior Art

Prior art includes the GovTech 100 list and Navigating the Field of Civic Tech - see accompanying Airtable of civic tech companies by Derek Poppert. My intention here is to build on this excellent existing work, with a twist. Other instrumental resources include the Scaling Civic Tech report on civic tech business models and ecosystem. 

Quantifying Impact

Quantifying the impact of government’s work on society is an impossible task. The enormous government apparatus works to keep us safe, and most of us take this for granted. My husband and I nerdily talk about these topics a lot at home - see his piece - Whose Job is it Anyway? As I put my proverbial pen down, I’m heartened by the work taking place, but recognize government still has a long way to go.

I’m sure I missed some amazing GovTech & Civic Tech companies. Email mmahlock@alumni.stanford.edu to share any companies I should add 🙃. Thanks for reading, and Happy Holidays 🕎🎄!!!