GovTech is gaining momentum as it is passes from an emergent state and is poised to go global. It could be today in a similar investment position as FinTech was 6 years ago. With a global market potential estimated at $500bn it could become bigger than FinTech, according to a report produced by GovTech Research titled “GovTech: an Emergent Sector Revolutionising Public Services”
What is GovTech?
It is the result of a coalescence Government and civic activity with digitalisation. GovTech and CivicTech revolutionise the public arena. CivicTech is usually not for profit services for Citizens while GovTech Startups digitise public and civil services and have a forprofit based model.
Users and user needs are put at the core of this transformation – be they citizens, government departments or businesses. This requires a complete culture change within government to becoming focused on system and service outcomes not internal focus. The UK Government has made pioneering progress on this front being ranked No 1 in E-Government by the United Nations and No 1 in Open Data by The World Wide Web Foundation.
System wide change powered by Open Data
Process change is not all the UK Government has done, procurement policy is now favouring SME’s, and Open Data has become policy for all Government departments, public bodies, cities and local authorities. Examples such as Data.Gov.UK, Transport for London (TfL), London Datastore and DataMill North, illustrate progress made in providing open data. This effort is also supported by civic institutions such as NESTA and ODI (Open Data Institute) and Local Government Association.
A blueprint for how government and civil society services can undertake digital transformation has emerged, but there is much to be done. Simply the scale of the task of digital transformation is beyond the capacity and resources of government alone. There is a major role to be played by Startups and private investment to bring in additional human capital, financing, entrepreneurial skills, speed of delivery, technological innovation, along with the dynamic of the global Startup ecosystem.
Open Data stimulates innovation and Smart Buses
Startups bring a different mindset into GovTech, with their use of API’s (standardised data transfer), Open Data and capacity to combine mashup multiple data sources they find previously hidden monetisation propositions. Transport for London (TfL) is an example of what happens when public data is open, now with 11,000 registered developers, 600 travel apps and millions of daily API calls. Citymapper grew up using TfL API transport data and has raised c$50m investment. Citymapper’s journey has become circular, it has been testing out its own Green Smartbus on a central London route in collaboration with TfL. Maybe we have seen the birth of a data driven, on demand, adaptive bus service or digital transformation at a bus stop near you.
Private Sector Investment – What has the PE VC sector been investing in
Almost unnoticed $1bn has been invested in GovTech with $75m in the UK. Large investments have been made, Accela c$235m developing Government as a platform, Nextdoor (c$210m) a private social media network. VC PE investors are specialising in the field GovTech Fund and Ekistic Ventures in the USA with a UK based fund Public.io now running a GovStart incubator programme.
The rise of VC PE and with Purpose Investors
A $40m investment into Change.org a social change platform indicates an appetite to invest into GovTech models by socially inspired investors such as Omidyar Network and Knight Foundation. This is an accelerating trend with Texas Pacific Group’s “The Rise Fund” with Bono and Richard Branson as investors. In the UK Zinc VC is looking “to build commercially successful business to solve chronic social problems in the developed world” led by a very experienced investor team Saul Klein, Paul Kirby and Ella Goldner. In FinTech Leapfrog Investments has invested in Insurance companies in Africa and Asia, an example is AllLife who has developed whole life cover Insurance for HIV positive and diabetic individuals in South Africa, it is now bringing it diabetics insurance model to the UK.
These investors look for the “double bottom line” Social Impact with Profit, bringing scaling size investment rounds and management expertise: education, energy, food and agriculture, financial services.
M&A activity could become a hotspot
At least 20 trade acquisitions have occurred, in the USA Maximus acquired Ascend and Acentia, Accenture acquiring Agilex, GovDelivery merged with Granicus, and Accela has been a leading consolidator acquiring companies to building up its portfolio. In the UK Streetlife was acquired by NextDoor. M&A activity could become a significant force in GovTech as existing suppliers many being large system integrators need to acquire new technology and business models.
So could GovTech become as large as FinTech?
Around $90bn has been invested in FinTech since 2010 (William Garrity Associates) in comparison $1bn GovTech investment is small, however we are at the very beginning of the investment cycle in GovTech. GovTech is now entering a new phase; Government and Civil society digital transformation models have been developed and proven both Government and civil society entities are poised to embrace Startup ecosystems and use PE funding capacity, dedicated CivTech innovation spaces such as the “The Rain Cloud” in Westminster London have opened.
Rocket Science an example of GovTech at Work
Elon Musk’s SpaceX is an example of how Startup thinking can revolutionise a Government Institution. It would have been unthinkable 20 years ago to allow a Startup to use Cape Canaveral to launch the most sensitive of the US Airforce’s satellites. Elon Musk went back to first (Startup) principles, what was the problem, what are the physics involved and asked questions – “Why throw away the multimillion dollar first stage booster”. So while using very much the same infrastructure and people as NASA did, Space X, build, launch, recover and maintain Rockets at a much reduced cost.
Yes, GovTech investment and innovation could become as large as FinTech and this rocket is about to take off.
Ian Dowson, Co-Founder GovTech Research and GovTech Meetup London [email protected], @govtechresearch