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What Optibus' Unicorn Status Means for Transit Tech

The Israel-based firm, expanding in North America, has joined a recent uptick in gov tech firms with valuations of $1B or more. The Optibus success provides signals about what’s next for transit software and other tools.

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The Memphis Bus Riders Union, which was born out of the Occupy movement, believes access to transit is a civil right.
Thomas R. Machnitzki
Israel-based transit software provider Optibus recently made the government technology big time by achieving unicorn status with its newest funding round.

Now comes the harder part: gaining more market share as mass transit recovers from the pandemic.

In May, the eight-year-old software-as-a-service company raised $100 million in a Series D funding round that valued the company at $1.3 billion — good enough for “unicorn” status, which is achieved at $1 billion.

Optibus said it was the first public transportation firm to become a unicorn.

Company leadership says that status matters as transit agencies around the world and in North America — where Optibus is expanding — strive to upgrade software; recruit, retain and deploy workers via the use of new technology; explore the use of artificial intelligence; and win back riders in this new environment of remote work.

“The fact that Optibus has reached such a status shows that a critical mass of public-sector players trust and believe in our product and mission, and that we are able to direct a significant amount of private investment toward public services and the mitigation of industry challenges,” said Amos Haggiag, CEO and co-founder of Optibus, in an email interview with Government Technology. “Optibus brings to investors a unique message about why public and mass transit should be on their radar, and not just financial services, cryptocurrency and cybersecurity, which are more common industries among unicorns.”

MORE UNICORNS


The gov tech industry continues to attract investors — drawn to the sector for a variety of reasons, including as a hedge against recession — and experience big mergers and acquisitions.

At least nine private gov tech firms have become unicorns since the start of 2021, according to Jeff Cook, managing director at Shea & Co., an investment bank that has advised in more than 20 gov tech deals in the past five years. Other unicorns in the government technology space include Tyler Technologies, Granicus, Mark 43 and OpenGov, according to industry experts and financial sources.

The reasons for such growth?

According to Cook, the industry is maturing and has more larger businesses than was the case five years ago; consolidations have helped tech providers scale more quickly; and variation multiples “grew meaningfully last year, and so high valuation multiples on a larger base of revenues created a perfect storm of sorts to establish a class of unicorns last year.”

While Optibus can enjoy the pride that comes from being a unicorn, it’s not as rare as it once was, and might not even qualify as massive news anymore, given those recent trends, Cook said.

POST-PANDEMIC TRANSIT


No matter the significance of the Optibus unicorn status, its new capital and the attention it is receiving — $260 million total thus far — comes at a vital, perhaps existential time for mass transit, especially in the United States.

Ridership fell to 20 percent of pre-pandemic levels in April 2020, according to the American Public Transportation Association (APTA), but has since recovered to “slightly more than 60 percent of pre-pandemic levels,” with that growth determined by the health of local economies, service delivery and reliability, as well as other factors.

Ridership also grew when college students returned to classes last fall, though new COVID variants — which kept riders and transit workers at home — and the ongoing labor shortage also can serve to dampen use of mass transit.

In fact, APTA found that 92 percent of transit agencies are having problems with hiring, with bus drivers being the hardest jobs to fill. Retaining workers stands as a prime challenges for about 66 percent of transit agencies. Such woes, which persist even as agencies increase pay and offer bonuses, often lead to service cuts and delays.

As well, the shift to more remote work brought upon by COVID lockdowns and ever-improving digital tools — to say nothing of worker preferences to spend less time at the office — is forcing transit agencies to figure out how to make their services appealing during all this change. Reduced fares and years of reduced spending on mass transit have taken a toll, which is one reason why transit advocates and technology providers have celebrated the federal plan to provide more funding to transit agencies.

“These agencies will likely embrace AI solutions to help improve traffic management, enhance safety and reduce travel time,” wrote Kevin Kelly, a principal with Deloitte Consulting’s Government and Public Services Practice, in an email.

NEW TECHNOLOGY


As Kelly told it, other tools that might find appeal among transit agencies — technology that can be sold by Optibus and its competitors as they respond to all these changes — include more sophisticated digital payment systems, fare capping and discount programs, interoperability with third-party systems such as ride-sharing, sensors, better data analysis software for planning and route optimization, and more robust cybersecurity.

All that provides opportunities for new unicorns and other companies working to sell more of their technology to North American transit operators — as does any new federal money that makes its way to those transit agencies, especially investments earmarked for operational upgrades rather than new capital projects.

“As transit agencies re-tool to deal with the impacts of the pandemic, there will be even more demand for innovative software and integrated technology solutions that improve rider experience, boost safety and lower costs,” Kelly said. “Moving forward, transportation agencies and operators must embrace a more agile approach to public transit to meet changing market demands and the higher expectations of their riders. This includes upgrading legacy systems and modernizing infrastructure with new technologies by leveraging the new dedicated federal funding for public transit systems provided by the American Rescue Plan Act and the Infrastructure Investment and Jobs Act.”

OPTIBUS GROWTH PLANS


Optibus, with more than 500 clients around the world, has spent the last few months touting how its AI-powered technology can reduce labor shortages by matching bus drivers with preferred shifts, among other tasks. The development and sale of such technology show where the transit world might be headed in general, according to Haggiag, the company’s CEO.

“I think the takeaway for planners and schedulers was that faster, smarter tools are not only relevant for special or emergency circumstances,” he said. “They provide value in tackling larger, systemic challenges facing the industry.”

Another area of growth for sellers of transit technology also will come from data, he said.

“Data-driven planning is the future, and already part of our present,” Haggiag said. “Collecting and analyzing data about services and operations is key to offering better services and saving costs, and I think this will soon give rise to roles like data analyst or data scientist — people that understand how to leverage big data for the benefit of the operation, passengers and drivers.”

Fresh off the $100 million funding round, Optibus will keep up work on its goal to provide what Haggiag called a “a comprehensive platform for all public transportation management needs,” developing tools that provide seamless, end-to-end experiences — in a way, one-stop shopping for transit agencies, itself a reflection of a larger trend in the government technology industry.

Indeed, the new unicorn status of Optibus, even if not as rare as it might have been a few years ago, does illustrate what’s at stake for transit technology providers and their customers, at least going by comments from Kelly, of Deloitte.

“Ultimately, agencies will seek out and embrace new, cutting-edge capabilities that enhance service and help increase ridership — whether from established players or new innovators,” he said.
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 New Orleans.