The Government Technology Pitch

Luke Fretwell is the founder of GovFresh. He is also co-founder and CEO of ProudCity and advises civic leaders and businesses on how to best leverage digital strategies to create more effective, collaborative governments. 

Crisis has a history of dictating government technology disruption. We’ve seen this with the anticipation of Soviet Union aerospace and military dominance that sparked the emergence of Defense Advanced Research Projects Agency, as well as with the response to 9/11 and subsequent establishment of the Homeland Security Department.

And, of course, there’s the ongoing, seemingly invisible crisis around security expediting an infusion of public-sector funding, particularly in the wake of the Office of Personnel Management breach that exposed the personal records of millions of federal employees and government contractors.

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The HealthCare.gov launch debacle is the most recent and referenced example of crisis spawning government technology progress. The federal government woke to the issues surrounding outdated digital practices—from procurement to technical—and quickly launched two startups of its own: 18F and the U.S. Digital Service.

The failings of HealthCare.gov and subsequent creation of 18F and USDS has inspired others—such as the state of California, large cities and local governments—to fund a surge in attention to digital—from web to data to security—to address outdated technologies powering the technological infrastructure that runs our governments.

But innovators don’t wait for crises.

They imagine a different path, whether it’s a new approach to solving an old problem or a moonshot that leapfrogs business as usual. They observe the world, realize potential and fund and build engines of change—and forward-thinking, optimistic entrepreneurs and investors are starting to do this with government technology.

“Think right now,” 1776 co-founder Evan Burfield said in an a16z podcast. “Who’s is the most iconic entrepreneur in Silicon Valley, the one all the kids these days are aspiring to? It’s Elon Musk. Every one of his businesses is based on a regulatory hack.”

With the need to do more with less, to address an aging workforce, and more and more pressure to recruit and retain the next generation of public-sector leaders, government is being forced to adopt quicker than ever before. We’re at a pivotal moment with government technology infrastructure, much of it built on older technologies, with little mobile functionality and proper security protocol, all compounding the need for innovation.

And customers are starting to demand it. According to an Accenture 2015 digital government report: 

• 86 percent of those surveyed “want to maintain or increase their digital interaction with government.”
• 73 percent are “neutral” or “not satisfied” with digital government services.
• Percentage who want online transactions for licenses/permits (66 percent), taxes (45 percent), fines/tickets (39 percent), report nonemergency issues (38 percent).
• Mobile: 32 percent want to use tablets to access digital government services; 38 percent a mobile phone (51 percent for ages 18-44).

This is the opportunity for innovators.

While the government digital services trend has taken hold, it doesn’t adequately address the needs of the 20,000 cities across the United States. Services costs quickly add up and don’t scale, but software-as-a-service does, and this is where private-sector entrepreneurs are re-imagining how government works.

As Marc Andreessen said, “software is eating the world.” Its appetite for government is beginning to get bigger, and interest from accelerators to venture funds is piquing.

Govtech Fund, specifically focused on government enterprise technology, aims to “harness the power of transformers, technology and capital to help government become more efficient, responsive and better able to serve society.” To date, Govtech Fund founder Ron Bouganim has raised $23.5 million to help make this happen.

 “VCs historically ran for the hills whenever they heard the word ‘government’ and for good reason: software sales cycles were measured in years, governments often required a ton of product customization and a byzantine structure of prime and sub-contractors made it impossible to actually deploy solutions even after a deal was won,” Bouganim wrote.

“However, in the past couple of years, a number of trends including government adoption of the cloud, budget constraints, a massive government personnel retirement cycle and an open data movement have coalesced to create an openness on the part of government agencies to embrace new technologies and a dramatically shortened sales cycle—our portfolio companies’ average is just 86 days.” (Bouganim says this has since shortened to 73 days).

But it’s not just vertical investors and enthusiasts exploring government technology opportunities. Established venture capital firms like Andreessen Horowitz, and incubators and accelerators like Y Combinator and 500 Startups are also taking note.

Y Combinator is beginning to explore entrepreneurial opportunities around cities, establishing a research effort on this front, and has graduated a number of government-focused startups. To date, OpenGov has raised nearly $50 million, including  investments from Andreessen Horowitz, to bring financial benchmarking and transparency tools to government.

Even Google has created its own city-focused venture with Sidewalk Labs.

Other startups—NextRequest for public records management, Romulus for constituent relationship management, Patronus for 911, SeeClickFix for 311, Mark43 for law enforcement, mySidewalk for city analytics, ProudCity (my company) for city websites, and others—are beginning to replace legacy systems as the next-generation government SaaS stack.

Former White House Office of Science and Technology Policy Deputy Chief Technology Officer and now partner at Insight Venture Partners Nick Sinai recently wrote about his firm’s government technology investments:

“Why are these markets attractive areas for Insight, given conventional wisdom that government can be challenging to sell to, and expensive to serve? … First, government is a large market. … Second, government desperately needs better software. … Third, government requirements, while challenging, can sometimes advance product development for our companies.”

In “B2G: The Excitement Of An Old-Line Industry,” OpenGov founders Zac Bookman and Joe Lonsdale highlight four points on why investment in government disruption is a ripe opportunity:

1. Old technology provides opportunities for order-of-magnitude improvements.
2. Big institutions signal huge markets.
3. Industry pressures demand new efficiencies. 
4. Challenging sales cycles increase barriers to entry and foster customer retention.

“The right path for a startup company in an old-line industry is arduous and immensely rewarding,” Bookman and Lonsdale wrote. “Conventional wisdom says that it’s too hard to build a business in government (or other major industries), and this has kept many from trying. Grand outcomes await for those top young companies bold enough to venture and win.”

According to Government Technology, state governments will spend $47 billion in IT and local governments $52 billion in 2016—a 3.25 percent and 2.5 percent increase, respectively, over 2015.

Couple this with a long tail of 19,000 cities, 89,000 agencies, 3,000 counties, 98,000 schools and 119,000 libraries, and the opportunity is there to enjoy entrepreneurial success, disrupt the seemingly impossible and, as Tim O’Reilly says, work on stuff that matters.

For the bold, grand outcomes await.