A first-of-its-kind venture capital fund launches to aid a rising tide of government technology startups.
Government tech startups have reason to cheer: $23 million in seed funding is up for grabs by way of the Govtech Fund, a new venture capital fund aimed at irrigating a rising crop of government-focused entrepreneurs.
The fund’s founder and sole managing partner, Ron Bouganim, announced the birth of the Govtech Fund on Monday, Sept. 15, describing it as a first-of-kind resource that backs and develops the ripening field of tech startups. As a serial entrepreneur, civic tech advocate and investor, Bouganim said the investment capital represents an early bid by the private sector to improve government while capitalizing on a multi-billion dollar industry’s shift toward innovative and affordable solutions.
"It's just about opening the market to competition so now startups can compete,” Bouganim said. “And I just happen to be an entrepreneur and a startup guy, so my money always goes on the startups -- I think that's where the innovation comes from.”
Already, the Govtech Fund -- which is of no relation to Government Technology magazine -- has invested in four startups:
Bouganim said the fund anticipates backing 15 to 20 startups with an average investment of about $500,000. Criteria for startup investment explicitly targets government technology -- not to be confused with civic technology, which supports citizens' interaction with government, though some companies may fall into both categories.
"From our perspective, we define Govtech -- government technology -- as the technology infrastructure, the software tools and hardware that government departments use to do their internal work or to deliver services to their 'customers,' and here I mean citizens,” Bouganim said. “To use tech terminology, think of it as the operating system for government.”
More exceptional than the funds themselves is the investment interest attached to the fund.
The money isn’t philanthropic, part of an award, an accelerator program or envisioned as a one-time deal -- the typical funding hallmarks for government and civic tech startups. As a stand-alone venture capital fund, Bouganim said the money foreshadows government’s all but certain course to redirect buying habits and procurement practices. Highlighting his investment startup SmartProcure, he explained that the company’s services are representative of the change -- SmartProcure allows government procurement officials to get an aggregated listing of vendor pricing while simultaneously giving startups access to 100 million purchase orders for goods and services from 3,800-plus agencies. Traditional vendors, he said, can no longer hide behind a lack of procurement transparency.
"In the next five to 10 years, you're going to see a wave of capital coming to the space," Bouganim said. "From the Govtech perspective, we’re building an ecosystem.”
Since late 2009, when Bouganim first connected with the civic tech group Code for America, and later in 2012 and 2013 when he directed its startup accelerator as a volunteer, there was a realization that government, willingly or unwillingly, would be compelled to lean on startups for innovation. It was an idea first planted by friend and Govtech Fund adviser Tim O’Reilly, founder and CEO of O’Reilly Media and a fellow mentor with Bouganim at Code for America. The Great Recession had slashed and slimmed many agency and department budgets irreversibly. At the same time, Bouganim and he saw that the demands and services hoisted on officials had only increased. His conclusion -- and reason for Govtech -- was this: No matter current procurement standards, affordability and effectiveness would inevitably compel government demand for startups.
"I said, 'Wait a minute, this a $450 billion global market, and there is a decades'-long innovation cycle that needs to happen -- and not just in the U.S., but globally,'” he said.
While the Govtech Fund may be a first in the private sector, Bouganim isn’t alone in his optimistic forecast for the government tech industry. Jon Sotsky, a director and strategic assessment officer at the Knight Foundation -- an organization known for its ample investments in civic technology, made a similar comment when considering the fund.
"I think it's a great start," he said, "but it's a drop in the bucket in terms of size and the amount of investment opportunities that will emerge in the space in the coming years."
Cases of demonstrable proof, he added, will act as an accelerant to get additional jurisdictions comfortable to depart from their traditional suppliers. And considering drastic cost differences -- which Bouganim said could reach as much as 100 times -- the industry may see this happening sooner rather than later.
"Once governments see they’re not beholden to these traditional legacy system [vendors], and there are opportunities to experiment with new forms of technology, it will open up the floodgates,” Sotsky said.
Evidence of this changing of the guard can be seen in companies like the document transcription company Captricity, which secured deals with the U.S. Food and Drug Administration; OpenCounter, a city platform for online business applications and zoning lookups; and Appallicious, a company that partnered with the Federal Emergency Management Agency to launch its Disaster Assessment and Assistance Dashboard, a platform that tracks recovery resources after major catastrophes.
MindMixer CEO Nick Bowden, who’s startup was formerly part of the Code for America Accelerator, recently closed $17 million in a recent round of investment. Weighing the contribution, he said the Govtech Fund’s investment is incentivizing in its nod for what’s to come of the industry.
Below is a brief description of the Govtech Fund's four startups with company descriptions provided by the fund.
AmigoCloud is a next-generation mapping technology company, providing mobile GIS solutions with advanced offline support. Available for Android and iOS devices, AmigoCloud makes geospatial data collection, administration and sharing simple.
MindMixer is a community engagement platform that connects civic organizations with their constituents. By enabling idea generation, sentiment analysis and impact measurement, MindMixer provides an active and convenient way for community members to be involved in guiding decisions and policy.
“Symbolically I think it’s really important for entrepreneurs to see that there is someone funding this space and that can be a great partner.” Bowden said. “I think Ron has kind of set up a great niche, because he’s early stage -- where it’s harder to get funding from some of the more traditional venture capital firms -- and because of his knowledge of the space.”
Identifying his investor groups by motivations and backgrounds, Bouganim said they fell into three groups: Technology innovators represented the first set, those who knew firsthand how cloud technologies, mobile devices and government open data had seismically shifted government. Second were investors seeking to impact government’s day-to-day processes in a mutually beneficial way. And third are typical venture capital investors who’d been persuaded after an evaluation of government’s obsolete systems and overwhelming demand for new technology.
Case in point is the health insurance platform HealthCare.gov. Bouganim said the website sent officials scrambling for private-sector repairs and acted as a wake-up call that government is not a self-sufficient sector.
“Legislation can be debated all day long," he said. "However, in the end, it’s the execution of technology that gets the job done."
Despite great expectations, the Govtech Fund investors understand returns on investment will be gradual. The government technology sector isn’t anticipated to materialize exponentially in the next year or two. Investors' expectations are realistically planted, and Bouganim himself says he is in it for as long as it takes, with this Govtech Fund and the iterations that follow.
"There will be a fund two and fund three and a fund seven,” Bouganim said “I’m going to do this for the rest of my career.”
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