Could GovTech be bigger than FinTech?
GovTech is gaining momentum as it is passing from an emergent state and is poised to go global. It could be in a similar position to FinTech 5 years ago, according to a report co-authored with Tarek Ahmed titled “GovTech: an Emergent Sector Revolutionising Public Services”.
What is GovTech
It is the result of a coalescence of GovTech (digitalisation of Government) and CivicTech (usually not for profit services for Citizens). GovTech startups digitise public services and have a for-profit revenue based model. Government spending on technology is one of the largest ICT segments and is estimated to be a global market worth at least $450bn, with the US worth over $100bn.
Fundamental change
At the core of this transformation are users (citizens) and the need for culture change within government to focus on system and service outcomes. The aim is to revolutionise all aspects of government services delivery to the citizen and government process at all levels. The UK Government’s progress has been 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
That’s not all the UK Government has done, there has been a drive to open up procurement to SME’s, implementation of an open data policy by all Government departments, public bodies, cities and local authorities. Exemplars such as Data.Gov.UK, Transport for London (TfL), London Datastore, DataMill North (previously Leeds DataMill) demonstrate progress made in providing open data, this effort is supported by civic institutions such as NESTA and ODI (Open Data Institute) and Local Government Association.
Blueprint Emerges
A blueprint for how government and civil society services can undertake digital transformation has emerged; there is much progress to be made. This task of digital transformation is beyond the capacity and resources of government alone and there is a major role to be played by startups and private investment bringing in additional human capital, financing, entrepreneurial skills, speed of delivery alongside the resources of the global startup ecosystem.
Open Data creates Startups
Startups bring a different mindset in service delivery into GovTech, with their use of API’s (standardised data transfer), opendata and capacity to combine multiple data sources finding monetisation propositions. Transport for London (TfL) is an example of what happens when public data is open, now with 8,500 registered developers, 500 travel apps and millions of daily API calls. A startup Citymapper grew using TfL API transport data and is rapidly becoming an international success, having raised investment in the region of $50m.
Private Sector Investment — What does it bring
Almost unnoticed in the PE and startup world, $1bn has been invested in GovTech with $75m in the UK.
The largest single investment has been into US Company Accela of c$220m to develop Government as a platform. The next largest investment is Nextdoor (c$210m) a private social media network for neighbours. A c$40m investment into Change.org a social change platform indicates an appetite to invest by socially inspired investors such as Omidyar Network into suitable GovTech models. Specialist VC/PE investors are starting to appear such as GovTech Fund, Omidyar Network, Knight Foundation, Ekistic Ventures with a UK based fund currently raising a targeted c$60m (£50m) headed by former Prime Minister Cameron advisor Dan Korski.
M&A activity could become a hotspot.
20 trade acquisitions are illustrated in the report including Maximus acquiring Ascend and Acentia, Accenture acquired Agilex to increase its US Government market share. Accela has been a leading consolidator acquiring 9 companies to build up its portfolio. M&A activity could become a significant force in GovTech as existing suppliers, mainly large system integrators, acquire to protect existing market shares and gain access to business models and technology they can then market through their global networks.
So could GovTech become as large as FinTech?
Around $80bn has been invested in FinTech since 2010 according to research conducted by William Garrity Associates Ltd. The $1bn observed investment into GovTech is small when compared, however we are at the very beginning stages of activity within the sector.
GovTech is now entering an exciting phase; Government and Civil society digital transformation models have been developed and proven. Governments and civil society entities are also poised to embrace startups, PE funding capacity and processes of the startup with the launch of dedicated incubation spaces such as The Rain Clouds. GovTech could indeed become as large an investment market and force for change as FinTech.
