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.

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