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GT100 2023: Investors Bet Big on the Gov Tech Market

Managed services and platforms promise to take on more work in the coming year as investors seek the safe haven of government from looming uncertainty affecting other sectors.

Green umbrella among many black umbrellas in the rain
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Click here to see the full list of companies on the 2023 GovTech 100.

A few weeks before Halloween, a deal took place that could foreshadow how the government technology industry will look in 2023.

Granicus, which sells agenda, meeting and communications management software to public agencies, said it would buy Rock Solid, known for its citizen engagement tools. The deal marked another step toward what amounts to one-stop shopping for state and local governments in search of the latest digital services.

The spread of big tent platforms — already common in e-commerce — stands among the most notable trends for gov tech as the new year begins. It’s one that has certainly caught the attention of many public agency tech leaders, and it promises to help drive acquisitions, mergers and investments in the coming 12 months.

Meanwhile, those investors are looking to the gov tech space as a relatively safe haven for their money as fears of a recession continue to shape markets — and as the industry shows signs of its own slowdown, at least in certain areas. And as all that happens, state and local officials must confront the challenges of hiring and retaining tech talent, a situation that is leading to the growth of managed services by government.


In a sense, gov tech grew up quickly during the pandemic, as IT departments were forced to improvise and innovate. Vendors offered the latest digital tools to help usher in remote work and to bring operations further into the 21st century by expanding online services. Now the pandemic has eased as federal stimulus money flows. Those are among the factors that could cause the business of gov tech to change shape in the coming year.

That’s not to oversell the case. But late 2022 offered signs of some meaningful changes on the business and investment side of gov tech, shifts that will potentially impact how state and local agencies buy and deploy the newest digital tools and services.

For instance, while it might be difficult to find an investor or market expert who is not optimistic about the prospects for gov tech in 2023 — especially given all that stimulus money from the Infrastructure Investment and Jobs Act and other sources (see Follow the Money on p. 30 for a breakdown of recent federal funding packages) — gov tech transaction volume decreased in Q3, according to an analysis from Jeff Cook, a gov tech investment expert who works as managing director for Shea & Co. Rising interest rates also are making borrowing — and gov tech deals — potentially more expensive.
graphic that says 14% - percentage of 2023 GovTech 100 companies founded by women

Even so, no one is panicking.

“I think transaction volumes will slow in the next quarter or two, but those companies that test the market will still be met with strong interest and good valuations,” Cook told Government Technology. “I also believe that gov tech companies will continue to perform — most operators I speak with talk about how full budgets are and how they expect that to fuel continued growth for the next while. I am also particularly bullish on the public safety side of the market, where funding dynamics are particularly strong.”


graphic that says 218 - number of acquisitions by 2023 GovTech 100 companies
As those market forces play out, suppliers of gov tech are racing to offer more tools and services to their customers, and set themselves up as reliable partners for government to deliver on its many responsibilities — what Granicus CEO Mark Hynes called a “platform integration strategy.”

The company boasts of connecting more than 500,000 government professionals with 300 million opt-in subscribers, a base growing via every acquisition, including one prior to the Rock Solid deal that involved a company focused on public records and compliance workflows.

“Integrated platforms are what technology buyers want,” Hynes said.

“It shouldn’t be incumbent on government IT buyers to have to solve the integration problem. Why shouldn’t we centralize that concept?”

This goal of providing a single platform for government use is nothing new, of course. But it seems to have gained importance in 2022 and promises to become even more prominent in gov tech work in the new year. Steve Ressler, a market expert and managing partner at The Brydon Group, points to companies like Granicus and CivicPlus — reportedly the largest provider of websites to governments — chasing the all-in-one model used by gov tech giant Tyler Technologies as evidence of the trend.

“Some [public agencies] are looking for one provider to do all these services, and build deeper relationships with fewer groups,” he told Government Technology.


A view from the gov tech trenches confirms that point — and illustrates what it means for public agencies as such all-in-one platforms gain popularity.

Salt Lake City CIO Aaron Bentley told Government Technology that until relatively recently, the traditional idea was for tech departments to do things on their own.

“We thought we were special, like every city,” he said.

But that attitude is evaporating, in large part because of pandemic experiences, along with broader consumer expectations set by apps and other realities of digital life. The increasing need for the latest cybersecurity protections is also driving interest in platforms, according to Bentley.

“We don’t need to build everything specific to us,” he said. “We look for partners. We have no desire to do in-house development. We are moving as much as possible to the cloud so that we can focus less on triage and more on governance.”

graphic that says 2- the average number of founders of a 2023 GovTech 100 company
That means more openness to the all-in-one platforms that gov tech suppliers are constructing. But that openness brings some questions, such as how to avoid being locked into a platform that, say, offers little flexibility, or which has some “best of breed” features, as Bentley put it, but also some mediocre ones.

“That is probably the hardest part of the job, to be honest,” Bentley said.

The solution is to communicate and work with platform vendors, and to “aim for the middle” when it comes to the city’s tech expectations. That is, encourage or pressure vendors with an attractive platform to build up the mediocre parts, and to realize that not every part of the tech machine will be top of the line. The benefit is having fewer vendors to manage, but being able to work more closely with those vendors, he said. It’s about finding that “middle ground and trying to consolidate vendors in some way.”


It also means more reliance on outsourced public agency tech work. Indeed, the growth of managed services promises to also dominate more of the gov tech business in 2023.

Helping to drive that trend are the changes taking place in the public agency workforce — changes that will likely help steer how gov tech programs are rolled out and operated.

graphic that says 8% - the percentage of 2023 GovTech 100 companies that are publicly traded
A Government Technology analysis, for instance, found that the number of state and local government tech jobs in the U.S. declined in 2021, the first time that has happened since 2014. Private-sector salaries are attracting people who might otherwise work in public agency IT departments, especially as inflation cuts into the purchasing power of paychecks. In all, gov tech workers made up approximately 3.6 percent of the tech industry workforce in 2021, according to the most recent figures.

Worker availability — and the innovation that can come from being able to hire top talent — is a bigger issue in certain parts of gov tech than others, and those needs promise to also steer or perhaps in some cases slow the industry in the new year.

“It’s hard to take on new projects with government workforces getting stretched thin,” said Ressler, The Brydon Group managing partner. “And you still need someone to champion the project internally.”

Not only that, but the increasing importance of cybersecurity and the growing complexity of public safety operations — trends influencing various parts of the gov tech industry — also serve to boost opportunities for managed services providers.

For instance, it’s not hard to find consideration or support for using some federal cybersecurity grant money to pay for managed services that local governments can share. As that plays out, the building costs and multimedia demands of emergency dispatch are making officials look toward managed services programs in which one IT department supports multiple public safety agencies.
graphic that says $5.1B - total funding raised by 2023 GovTech 100 companies
One company riding this wave is Indiana-based Knowledge Services, which won its first government customer in 2008. It has since built up its focus on SLED (state, local and education) contracts, and it now serves some 20 states and more than 150 cities, President Joe Bielawski told Government Technology.

Factors favorable to the company’s government business include the ongoing migration of public agencies to the cloud, along with rising cybersecurity risks like ransomware — and labor woes.

Expect more managed services providers to compete for gov tech business in 2023, though it may be best to also temper expectations, at least according to investment expert Cook.

“No question that there is a clear trend toward governments outsourcing whatever they can,” he said. “I think you’ll continue to see growth in the category, though I don’t see any major catalysts that would dramatically accelerate growth in 2023.”


As the gov tech spotlight grows, and companies try to capture a particular corner of the market, investors are looking not just for lucrative innovations but a relatively safe place for their money.

It’s hardly a stretch to predict that worries of a recession common in 2022 will carry over into 2023. State and local agencies can count on not only federal money but also the virtual guarantee of being able to pay their bills via those grants and their tax collections.

That, of course, provides a sense of confidence as privately held tech organizations — including members of so-called Big Tech — announced layoffs and released relatively pessimistic economic outlooks based on retail and other metrics as 2022 drew to a close. Companies that sell to public agencies can also offer investors other positive traits: Many are still founder-owned and have relatively lean business models and what amounts to loyal and reliable customers, according to Cook.

But nothing is 100 percent recession-proof, Ressler pointed out. Any economic backsliding could indeed hit gov tech, even if the timing might lag behind other sectors. And different parts of the government market could experience any recession differently, too.

“The good news is that companies will continue to invest in gov tech, which is seen by many investors as very resilient,” he said.


But what about the innovation to come in 2023? What do other investors have to say about the general sense of gov tech and longer-term changes that are looming?

Investment, after all, is one thing. Securing contracts to bring in revenue is another, especially given that government often still moves more slowly than most other types of organizations. In addition, officials who make tech decisions for government have not traditionally been as open to risk as their counterparts in the private sector, and that can present challenges to innovators and entrepreneurs.

Those observations stemmed from discussions at the State of GovTech 2022* conference in Arlington, Va., in October, where investors met with entrepreneurs, government officials and others to talk about the post-pandemic gov tech landscape and what’s in store for the coming year. The conference stood as one of the main points of reference in late 2022 about gov tech business trends going forward.

One big theme was the quickening rate of change in gov tech. People who work in public agencies are getting more comfortable with the latest tools and services offered by all those startups and other vendors looking to partner with state and local government. Innovation, after all, often depends less on fresh capital than people — those who will craft forward-leaning tech visions and champion new ideas within public agencies.

That’s what Chris Massey, an operating partner at Craft Ventures who focuses on government relations, spoke about when mapping out the gov tech future.

“We are seeing a new generation of government employee,” he said.

And that new generation has the potential to meet residents’ ever-evolving digital expectations.

“In two and a half years there will be citizens voting who never knew life without an iPhone,” said Josh Rogers, senior vice president at Advantage Capital. “I hope it accelerates the innovation cycle.”

*Government Technology was a partner in the State of GovTech 2022 conference.


GovTech Biz
Thad Rueter writes about the business of government technology. He covered local and state governments for newspapers in the Chicago area and Florida, as well as e-commerce, digital payments and related topics for various publications. He lives in Wisconsin.