GovTech (Industry I like)

Government Technology at the State/Local Level: Includes administration/finance, health/human services, public safety/justice, transportation, public works, education, environment/natural resources, physical infrastructure, software infrastructure.

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Market Size: Projected to be $400 Billion

Summary: Governments have always been known to be inefficient. Whether it unnecessarily complicated forms, waiting times at the government offices or managing budgets – they could all be improved. In 2016 $100 billion was spent on IT across 89,000  state and local government agencies, which follows the upward trend of previous years. This substantial budget and increased focus on the space by the previous and current administration has caused a new resurgence in government technology investing.

To be a government technology company means that your company has federal, state and local governments as your primary market focus and that you derive the majority of your revenue from the public sector. It is clear that there are a very broad range of potential areas for improvement and I really like how this info-graph below divides the space into four sectors – Smart Infrastructure, Administration, Civic Tech and Service Delivery.

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Large, Slow, Expensive and It’s Not Going Away

  1. Government organization have every component that an investor looks for when evaluating if an industry is ready to be disrupted including its massive size, its slow response to new technology, the amount of money it wastes and that it is never going away.
  2. The government is also unique in that it constantly receives money from taxpayers and other then budget cuts, the agencies have a steady amount of money to work with.
  3. There are so many opportunities for improvement, that is is almost challenging for an innovator to decide where to start.

Trump Administration Launches, by Executive Order on 5/1/2017, The American Technology Council

  1. Although the Silicon Valley, with the exception of Peter Thiel, dislikes Trump, there is no question that one of his major objectives is to improve government technology and cut costs.
  2. With the launch of The American Technology Council, Trump is solidifying his promise and I believe this creates an even greater opportunity then ever before for government technology to be implemented.
  3. Trump is a strong proponent of public-private partnerships because he believes that private organizations have efficiency the government could benefit from.

Fragmented

  1. As I pointed out before there are 89,000 government agencies all of which use different antiquated systems and processes. Some of the regional organizations work together, but a lot of them lack unity in software/services used.
  2. Decision makers are scattered throughout all of the small organizations, but at the end of the day it is up to the city or state official to determine whether or not to adopt a service. By proving the value-add of the product in small city markets, it could provide enough validation to be adopted throughout a state.
  3. Integrating these agencies together within states and between states could provide for cost-reducing.

 

2016 Key Acquisitions: GovDelivery (Vista Equity Partners), Granicus (Vista Equity Partners), Urban Engines (Google), 2FA (Identity Automation), Opower (Oracle Corporation)

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Conclusion: The flow of money into the industry has been on a linear incline the past few years, but seems to have plateaued at around $330 million for the past two years. I am curious if money will increase in future years or begin a decline. No matter what the industry thinks, I believe that the opportunity still remains massive and that current startups in the market have not solved the greatest issues facing government.

I believe that if you are able to find a startup that has good traction with government agencies using their product/service that it could make an attractive investment opportunity. I also believe that if you are able to find founders who have backgrounds in government that it would be valuable because of their connections for sales purposes considering that is one of the highest barriers for startups.

When you look at how fragmented, large, slow, expensive and necessary the government is combined with Trumps agenda for change I believe that government technology becomes one of the most attractive opportunities at this time.

So what companies would I invest in? Big, Medium, Small…

Big #1: OpenGov –  The world’s first integrated cloud solution for public sector budgeting, reporting, and open data. Used by over 1,300 public agencies in the rapidly growing OpenGov Network, OpenGov’s industry-leading technology streamlines the budget process, improves outcomes, and builds trust with the public.

Big #2: Socrata –  Is the market leader in Cloud-based Data Democratization solutions for Government agencies. Socrata provides a software-as-a-service (SaaS) data platform and cloud applications exclusively for city, county, state and federal government organizations, allowing government data to be discoverable, usable, and actionable for government knowledge workers and the citizens they serve.

Medium: Remix Software – It is only a two year old company and it has already partnered with over 200 cities around the world to optimize public transit routes and provide exportable data for analysis. I really like the potential and think it is valued very low for the traction it has already created.

Small #1: ProudCity – Is a web platform that lets municipalities easily launch and manage government digital services all in one place. They empower government to proudly serve residents, businesses and visitors and build a stronger sense of civic pride.

Small #2: Cleargov – Develops and provides a financial transparency and benchmarking platform for local governments and residents. The company offers information on financial statements into an interactive infographics serving customers in California, Connecticut, Massachusetts, and New York. The company’s software enables Government institutions to communicate financial performance and policy accountability to their citizens. The company raised a $1.2M seed round 3/2017, so they are not likley going to raise capital in the near future.

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