2017 GovTech Investor Landscape

As of 2017, there are over 400 unique investors that have supported GovTech companies through seed funds, series funding, and numerous other mechanisms. Investors continue to play a critical part in the GovTech ecosystem by helping support early and late-stage company growth and expansion. As the GovTech market continues to gain momentum, we have seen the emergence of more focused funds, like the GovTech Fund, designed to support and catalyze new activity only in this space. You can view the 2017 GovTech investor landscape below:

Investors

You can explore the full list of GovTech investors by clicking here.

2017 Distribution of GovTech Companies in the United States

In January 2017, we compiled data from Crunchbase and e.Republic to map the distribution of gov tech companies headquartered in the United States. The snapshot of this analysis (posted below) will allow us to continue to track and benchmark the spread of gov tech companies throughout the United States, as well as identify new regional clusters of market activity.

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To explore the industry in more detail, make sure you check out the GovTech 100 and GovTech on Crunchbase.

State of GovTech Market 2016 Year In Review

In October 2016, we joined forces with Crunchbase, Nasdaq Entrepreneurial Center and the San Francisco Mayor’s Office of Civic Innovation to host a first-of-its-type event on the state of the gov tech market. There has been considerable activity in the market since that event and we are excited to release final year-end numbers for the gov tech market in 2016.

Unpacking The GovTech Market - A VC's Perspective

by Frederick Groce, Storm Ventures

The United States is on the cusp of a much-needed digital transformation. Current legacy systems, paper-based processes, and on-premise infrastructures have become glaring areas of embarrassment and frustration for governments, Civil Servants and citizens alike. And while there are exciting examples of innovation, such as the GSA’s 18F, the majority of State and Local governments have been left waiting for their opportunity to embrace the future. That time is now.

Today, there’s an explosion of startup activity happening in and around the government technology (GovTech) space, and unprecedented interest from Civil Servants at all levels of government. Even investors, like myself, are getting excited about the “$400 Billion market hiding in plain sight”-Ron Bouganim, Managing Partner at GovTech Fund. But how do you as a Civil Servant evaluate potentially transformational startups? How do you as a GovTech company set yourself up for success within government and fundraising?

You have to think like a venture capitalist.

If you’re a GovTech startup, you need to pay attention to the following—doing so will help you not only close accounts, but help you when it’s time to raise venture capital.
• Understand the government buyer. You need to understand how governments make buying decision, how the budget cycle works along with the potential impact that cycle will have on your business. This will help you be empathetic to the inherent risks your customer—government—is taking by working you.
• State and local first. While federal contracts have the allure of high ACV’s, they will distract the product roadmap. Going after State and local will allow you to close more accounts at a faster rate which will allow you to quickly iterate on the product by getting feedback. The long-term impact by starting at the State and local level is increased business acceleration—the key to becoming venture backed.
• Efficient Growth is key. Be mindful of how much cash you’re burning to grow. This is extremely important in the GovTech space because sales cycles are typically longer.
• SaaS is necessary, but not sufficient. There are a lot of low hanging SaaS opportunities in government because Civil Servants have been starved for innovation. But be wary of these “get rich quick” opportunities. Companies that will succeed are those that have a long-term solution that builds greater insights over time by leveraging the unique data that governments aggregate.

If you’re a Civil Servant, use the following to help you evaluate the GovTech startups you’re thinking of working with.

• Startups are at the forefront of Innovation. As an early customer, you’re going to get more than you’re paying for, but it also likely means the product will likely change a lot during the early days. You need to understand that while these changes might be annoying, they are being done with your interest at heart, so be patient and flexible.
• Evaluate a startup on the “time to value.” A smart GovTech startup understands that you as a Civil Servant are taking a risk by choosing to work with them. This means they need to provide you with results quickly. SaaS is about instant gratification, not long deployment cycles.
• Land and expand. Create organizational pathways to quickly adopt and trial new technologies. As you find the right technology fit, expand the account for your organization’s needs.
• Understand your role as a “Champion.” As an early customer of a GovTech startup, they’re bound to be extremely loyal and attentive to your organization’s needs, but keep in mind that this “perk” also comes with a responsibility. It is your job to advocate for the startup. This might mean answering calls from investors, potential customers, or providing quotes for the website.

Regardless of whether you’re a GovTech founder or a Civil Servant looking to work with a startup, you should be talking with investors. Venture Capital is key to ensuring the digital transformation of government becomes long-term sustainable and successful reality. If we want to see an increased activity in the number of GovTech startups, then the lines of communication need to be active and open. Civil servants need to be talking to investors about their frustrations with the status quo and what they want from their technology. Because at the end of the day, venture investors are only as good as the information we have available and both GovTech founders and Civil Servants are key to this.

Frederick Groce is an analyst at Storm Ventures in Menlo Park, California.

Announcing the GovTech 100 for 2017

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Government Technology magazine has released its second annual GovTech 100, a compendium of 100 companies focused on and making a difference in — and selling to — state and local governments. GovTech has earned recognition as its own market segment through the work of a growing number of companies — and the investors that back them — in helping governments do their work more effectively in serving their communities. These companies are active in one or more market segments: administrative, service delivery, intelligent infrastructure, and civic tech focus areas.

Check out the 2017 GovTech 100 at GovTech.com. and make sure to read the January editorial feature about this growing market segment.

GovTech Market Event

On October 27th, we will be hosting the first State of GovTech market conversation in collaboration with the City and County of San Francisco, Crunchbase and the Nasdaq Entrepreneurial Center. For more information or to request an invite, please contact Dustin Haisler at dhaisler@erepublic.com.

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Defining the GovTech Market

Last week, I had the privilege of attending the Smart City Startups Summit in Miami, Florida. By bringing together startups, government, investors and philanthropists, it was an incredible demonstration of the health and maturity of the government technology (GovTech) market. During the event, we released the first round of research out of e.Republic Labs regarding the state of the GovTech market as it pertains to startups. Up to this point, there have been numerous definitions and market sizing figures that have been used by different groups within the space – but there was no clear definition to reconcile the differences. Months back, we began a journey to develop a framework to reconcile the differences and describe the GovTech market in its entirety.

This is what we discovered:

GovTech companies are firms that have state, local and federal government as their primary market focus and derive the majority of their revenues from the public sector. GovTech companies can be categorized among four domains: (1) administration, (2) service delivery, (3) civic tech and (4) smart infrastructure.


 


This early research is designed to fill a knowledge gap with the market as well as initiate a larger  conversation regarding how we analyze and describe market activities. We encourage you to reach out with feedback and questions so we can collectively accelerate the pace of knowledge transfer and change within this exciting space. Also, if you’re a startup in this emerging market, we want to hear from you- jump to this form so we can include you in future research.

The Time is Right for Civic Innovation

The following blogpost is from Will Semmes,  who brilliantly captures the energy that is happening within the government technology market and the opportunity for massive changes in one of the most resistant structures of change – our government. 

There’s a revolution happening right now, and California state government needs it badly. That revolution is the civic innovation revolution, which is the process of using new technologies and design methods to bring efficiency to government and power to citizens. The civic innovation revolution was born from massive productivity gains in the private sector leveraged by a burgeoning civic technology industry that is already bringing those gains to some governments, mostly at the city level.

The success of this revolution in California, and in other states and the federal government, will depend upon a new generation of people who are trained, willing and able to bring change to even the most sclerotic of bureaucracies. To prepare this new generation, we created a first-of-its-kind Masters in Business Administration that specializes in teaching students what they need to know to lead the civic innovation revolution both inside and outside government. The new MBA in Civic Innovation at California College of the Arts in San Francisco will teach future leaders how to combine design, innovation, leadership and technology to bring our government into the 21st Century.

We expect many of our graduates to answer Accela CEO Maury Blackman’s recent, valiant call to serve on strike forces of the US Digital Service (USDS) and a future California Digital Service – which, I agree, should be established now. The USDS was created out of the ashes of the HealthCare.gov debacle to match private sector technology and productivity with government agencies in need of change. Maury called on civic-minded technologists to lend their expertise to the people already in government who are trying to change the status quo and create the conditions necessary for the civic innovation revolution to take root.

Unfortunately there’s a lot blocking this revolution inside much of our government, especially in California state agencies. Fundamentally, some do not seem willing to change — hierarchical “siloed” bureaucracies often just try to survive as management fads and political interests come and go. Entire organization charts are arranged to accommodate individuals and civil service requirements, not to perform functions. The inertia against change is compounded by archaic civil service rules and union protection, complex procurement regulations that put the fabled Gordian knot to shame, low rates of data literacy among government workers and politicians, and few programming and app development skills in most agencies. Recently, the California Bureau of State Audits reporteda series of large IT project failures — costing hundreds of millions of taxpayer dollars — which indicate that the problems are serious and systemic.

How is it possible that the NSA can track my every move and listen to every phone conversation I have, yet we still have to wait in line at the DMV, and government agencies just 100 miles from Silicon Valley can’t get important IT projects done? And then, on March 18, California was graded an F for financial transparency. So, as taxpayers, we can’t begin to make sense of it from the outside. And the California Legislature gets similar grades for its own transparency.

Thankfully, there are people in California state government now who are working hard to change the inertia and open data to the public so the revolution can take place there and scale. What we realized is that they need help, and it is our duty as citizens to respond.

When governments embrace civic innovation, it can change everything — costs go down, speed goes up, quality improves and new information is uncovered every day.  With the revolution in place, public services can respond to evolving needs in flexible and predictive ways — everyone wins.

I was excited by Maury’s rallying cry and was reminded of my own call to join the civic innovation revolution when I was appointed by Gov. Arnold Schwarzenegger to be co-Director of the California Performance Review in late 2003.

The California Performance Review (CPR) was the Governor’s sweeping assessment of California state government productivity and a bold plan for reform. To implement CPR, we brought in 250 senior civil servants from around California state government, selected from more than 3,000 applicants from the executive, legislative, and judicial branches. At CPR, we knew the political risks we were taking, so we worked non-stop for seven months and published a huge document with hundreds of comprehensive recommendations for reform and bold ideas to re-arrange the way government was organized so that form would follow function. Yet because there was, and remains, so much stacked up against significant change, CPR was DOA.  While some of the recommendations were implemented over time, the real excitement for reform, the kind that comes with societal changes and major events, had left Sacramento. There was something missing in our recommendations and at the time we didn’t know what it was.

After CPR, I served in other departments where I saw hundreds of experienced civil servants working tirelessly against a lot of odds just to do their jobs. This frustrated me to no end — it seemed like government was set up to make it difficult to do the simplest things. It was only after I left state government in 2009 that I was able to see it from the outside and realize what was missing — civic technology and the energy and possibilities generated by the civic innovation revolution.

It’s hard to believe that eleven years ago, when we published the CPR report, the technology we now take for granted either did not exist or we in state government were unaware of it at the time. The first iPhone wasn’t launched until 2007, AirBNB didn’t start until 2008, and Code for America wasn’t established until 2009. Ultimately, the technology we needed to make CPR a reality just wasn’t available to us. Back then we saw the possibilities with Adobe forms and large Enterprise Resource Planning systems but, most of the time, state government was not able to translate those possibilities into regular practice. The huge IT failures we are seeing in state government today are solutions that were designed and budgeted five or more years ago. For perspective, five years ago, Uber was barely a year old, and it was called UberCab.

This is where timing comes in. The civic innovation revolution is happening now because of rapid technology development and a newfound willingness to look at old problems in new and creative ways. This timing is precisely why it is imperative that California state government establish its own digital service, and it’s precisely why the timing of CCA’s MBA in Civic Innovation is so important.

I know there is a generation of people who desperately want to make a difference but don’t know how. When I got out of college I wanted to make a difference so I became an infantry officer in the U.S. Marine Corps. Through my military service, I felt like I earned my citizenship. Yet military service is not for everyone. I believe low voter turnout is directly related to the fact that we don’t see ourselves as participants in our own governance — and we just don’t know how to get involved. But that is changing!  The timing is finally right to bring it all together — design, innovation, leadership and technology. The civic innovation revolution is making it all possible. With open data from government and civic technology, people are building the tools to participate and improve our democracy.

In Officer Candidate School, I wondered which of my classmates would go on to make a difference. With CCA’s MBA in Civic Innovation, I wonder which one of our graduates will be a future director of a California Digital Service? Which one of our graduates will go on to run for office and serve the civic innovation revolution from the Oval Office or Congress or City Hall? I can’t wait to find out.

Originally posted on GovTech.com

GovTech-as-a-Market

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Yesterday the government technology market was abuzz regarding the announcement of the Govtech Fund. The GovTech Fund is a 23 million dollar venture capital fund established to provide investment funding for startups within the government technology market.  Raising capital for companies that build solutions for government is no easy task, but this announcement shows that the market is in the midst of a major transition. Over the past year, there are been an increasing number of notable investments in government technology companies, starting with a 15 million dollar investment by Andreessen Horowitz in OpenGov. As the market continues to expand, the Govtech Fund’s specialized-focus will lend it to being an invaluable resource for startups that set their sites on building technology to solve problems for government.

Read more about our coverage of the Govtech Fund here.

Developing a Realistic Innovation Strategy

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If innovation could be summed up in ten simple steps every organization would already be doing it. That is not the case, although many articles will try to explain it that way. This is not one of them. Innovation is a complex topic and contrary to popular belief, is not the undertaking of a single individual. Innovation is not some mysterious quality that only a gifted few have. We are all naturally innovative if given the opportunity.

Innovation broken down to its simplest definition is the introduction of new ways to handle situations or problems that provide a better result than the current methods. This can be as simple as taking an unnecessary step out of an everyday process or as complex as creating a new product or service that enhances the lives of everyone it touches.

The question is not “how do we be innovative” but instead “how can we be more innovative?” Innovation is already taking place in every organization but the level of innovation varies from organization to organization. The beauty is that there is no such thing as too much innovation, therefore, every organization can benefit by being more innovative.

The question then becomes, how do we be more innovative? The answer lies in an innovation strategy. There are four major components to an innovation strategy outlined in this article. For many organizations this will be a significant pivot from the way they currently do business. No matter how many books you read on innovation and how many creative thinkers you hire, you will not reach your full potential without implementing these top strategies first.

Creating a Culture of Innovation
Innovation is an organizational mindset. It requires that you trust your employees, reward their accomplishments and allow them to be human. There are many things you can do to help foster a culture of innovation but trust, recognition and training opportunities are at the top of the list.

The Importance of Trust
The most important characteristic you will find in every highly innovative organization is trust. This is also the most overlooked component in an innovation strategy. Individuals have to feel like they are trusted by leadership to do the right things and thereby allowed to make reasonable mistakes. If your employees have to justify everything they do, every resource that they need and worry about repercussions on every error that they make, then there is a lack of trust in the organization.

Problems with trust vary from organization to organization but it is the responsibility of the leadership to find and alleviate them. You have to find a way to give employees the ability to speak up and make manageable errors. These are requirements for rapid innovation. Innovation is a process of trial and error and by giving individuals the freedom to speak up and make mistakes they are able to fail and learn from those mistakes more quickly.

Recognize Your Innovators
Recognizing innovators can be tricky because most of the time they do not see themselves as innovators. Many people that classify themselves as innovators are actually just disrupters. Disruption is a different topic and can be positive if done correctly but it is not synonymous with innovation.

Chances are that you are not going to have visibility into the details of everything that goes on inside of an organization. Therefore, you have to rely on individuals to identify innovation and determine the appropriate recognition. Building trust and promoting strong relationships within the organization will go a long way to identifying who is doing the innovative things. If someone does not feel threatened they are much more likely to share good things about others.

When innovation is spotted, recognition can be as simple as a half day off, a thank you or even additional responsibilities. The important thing here is the recognition. It can really hurt morale if an employee feels like he or she is going above and beyond their duties and it is not appreciated. It seems simple, but remember, the people that are doing the innovation may not even realize it. They may not be outspoken about their accomplishments or feel that they helped in only some minor capacity and don’t deserve the credit. That is why you have to take a proactive approach to identifying innovation.

Provide Training Opportunities
Transforming a business process or implementing a new program or service usually requires that the person doing the transforming have a good understanding of what is involved. Training is important because it opens up the doorway to actually achieving innovation. You can have an idea on how to change the world but without the proper knowledge to be able to make those changes happen, it is just an idea.

Training also sparks creativity because the mind is thinking about all of the possibilities of the new found knowledge. Training on one subject can lead to innovation in a completely unrelated area because it can form a new frame of thought around an already existing situation. Cross-training can be extremely beneficial because it provides an outside perspective and allows for dialog.

There are many ways to reduce training costs but still train your employees on a variety of topics. There is cross-training, train-the-trainer approaches and the ability to partner with other organizations to host training to share costs. Providing training can also build trust and relationships with employees, so it is something you want to consider seriously.

Don’t Rush Innovation
Sustainable innovation happens in small manageable bites. You cannot change the entire organization in a day and you cannot become extremely innovative without progressing through the lower stages of innovation. The important step is to start.

Defining the Innovation Advocate
Up to this point we have talked about day-to-day innovation that mostly happens internally. While I believe that day-to-day innovation makes the real difference, there is still room for large scale innovation projects and innovation that comes from external stakeholders. To handle this type of innovation you need an innovation advocate or an innovation team that can manage the innovation. This advocate will also play a big role in the recognition and promotion of the innovation program. Below is the role of this individual or team in the innovation process.

Gather Ideas
The process of gathering ideas is fairly straight forward but can be as simple or complex as you want to make it. When trying to solve a problem through innovation you have to be very clear on the problem you are trying to solve and be open to new ideas that may need to be nurtured into a viable solution.

The first part of gathering ideas is to create a submission process. That could be as simple as an email or as sophisticated as a rewards based voting system. Once an idea is received it needs to be vetted and discussed to determine its viability. If the idea makes it through this stage then you can progress to the next stage – selling the idea to the rest of the stakeholders.

Sell Ideas
One of the main reasons it is important to have an innovation advocate is because ideally, that person would have a good understanding of the organization and the relationships to keep things moving forward. When selling an idea you need to focus on the need that the idea fulfills and the benefits it provides. You must also have a plan to take the idea from conception through implementation. Selling ideas can be difficult in an organization that is change adverse but if the things above do not work you can also try explaining the opportunities that are lost if you do not move forward.

Assist in Idea Implementation
Implementing an idea usually falls back on the business unit but the innovation advocate still has some responsibilities during this process. First, they need to continue to build excitement about the idea and communicate the status of the ongoing implementation. It is also important to recognize short-term wins throughout the implementation so that excitement and motivation persist throughout the project. Lastly, you will want to make sure and document any stories or case studies that come out of implementing the new idea. These can be used later when you are trying to sell future ideas.

Partner With Technology
Not all innovation is technology focused, but in today’s world technology plays a significant role. This has led to many organizations trying to align technology with the business. This approach treats technology as a tool to accomplish innovation. Technology is not just a tool to achieve innovation, it is a catalyst for innovation. By partnering with your technology group you turn it into a value center instead of a cost center and this is required in a highly innovative organization. Partnering with technology may require a few adjustments but it is mostly changes in mindset, not business structure. Here are some ways that you can partner with technology.

Seat at the Executive Table
The reach of technology in most organizations is already large and seems to be growing every day. This makes it a requirement that technology leaders have a holistic view of everything that is going on in the organization. Technology is also transforming many areas of business at a rapid rate. Without a view into the high-level initiatives, objectives and problems the organization is facing, technology cannot be used effectively as a resource.

Involvement in Planning
If your technology leader is given a seat at the executive table then they will probably already be involved in planning. The importance of involving technology in planning is to stay aware of current trends in the industry, uncover hidden costs and understand resource constraints. They can also provide valuable input on the timeframe of future initiatives. Sometimes there is redundant initiatives that can be done together or projects that can be shifted around to cut costs and simplify implementation. The technology professional can provide a different point of view that can be beneficial in your planning process.

Project Involvement
Projects make and brake people’s careers. Therefore, it is understandable that project owners often keep them close to their chest. When it comes to projects that involve technology, this can do more harm than good.

If a product is already picked, a budget set and a schedule defined before your technology group is involved, you are setting yourself up for delays and overruns. When considering a technology project, you have to consider support, infrastructure, system integration, backup, disaster recovery, retirement of old systems and not to mention the people to actually do the work. If you get your technology group involved early on, you can define these things up front so that there is less chance of problems later.

This seems like a simple step but it is often the exception not the rule. Every organization that has a formal project approval process should require a project sponsor from the technology group on every project that has a technology component.

Understand Technology
Claiming to be technology illiterate used to be acceptable, but with the level of impact technology has on an organization, individuals no longer have that luxury. Top organization leaders make the effort to at least understand technology at a basic level. Most big technology trends are broken down into layman terms and delivered in formats geared towards non-technical leaders. I am sure that the technology group in your organization would be happy to point you towards some good resources.

Formalize Your Innovation Program
If you diligently implement the procedures outlined above, you will start to see increased innovation take place in your organization. The innovation program is just a way to formalize the process and continue to monitor the level of innovation.

An innovation program makes sure you stay consistently innovative even when leadership changes. To accomplish this you need to create the necessary policies and allocate the appropriate resources to support the program. You also need to formalize your innovation advocate role through changes in job descriptions, titles or committee roles and responsibilities. The program needs to be reviewed regularly by executive leadership so that adjustments can be made as needed.
The way to achieve consistent innovation is to instill these innovation strategies and make them a part of the everyday culture of the organization. Innovation is here to stay and as government leaders we cannot afford to sit back and let these opportunities pass us by.

Originally published in Texas Towns and Cities magazine

Tim Howell is a local government thought leader and frequent writer and speaker on technology, innovation and leadership. He has helped transform local government organizations through creative uses of technology and challenging the status quo.

Tim graduated from Bellevue University with a Bachelors of Science in Technical Project Management and is a Certified Government Chief Information Officer (CGCIO) graduate. He served as the President of the Texas Association of Governmental IT Managers (TAGITM), on the State of Texas Information Technology Strategic Advisory Committee and various other committees both in the public and private sector.