When Ron Bouganim, a former Code for America accelerator director and naturalized U.S. citizen from Canada, was in the middle of raising money for his new venture capital fund focused on making government technology investments, two things happened at the same time that boosted investor interest.
First, the federal Obamacare health exchange launched and a debacle of slow load times and broken forms quickly ensued. Around the same time, amid partisan fights over the budget and debt, the entire government shut down.
Government IT is a $450 billion global market, and with 22 million civil servant–about 15% of the country’s workforce–the U.S. government is the nation’s largest employer. Silicon Valley venture capitalists historically do their best to avoid getting tangled up with Washington, but now they are slowly awakening to bigger and bigger business opportunities for startups that develop technology to serve it. The new CTO of the U.S. came from Google’s upper ranks. And in leading a $15 million investment in the startup OpenGov in May, for example, the premier VC firm Andreessen Horowitz cited the $3.7 trillion that local governments spend each year and the fact that their reporting software is often 20 years old.
Bouganim decided the opportunity was ripe to open a dedicated VC fund for the sector. The shutdown made people realize the growing number of ways to get things done in government without a human involved. And the botched Healthcare.gov roll-out, he says, opened people’s eyes to the challenges of creating software in government, especially for the massive vendors that can be as bureaucratic as the governments they support.
“You can debate policy all you want, but these days when you want to roll out that policies, it turns out that technology plays a really important part,” he says.
Bouganim is founder and managing partner of the new GovTech Fund, which has $23 million to invest in software and hardware startups that build tools for which governments–at either the local, state, or national levels–as the primary customer. It has made four investments so far, including participating in a $17 million Series C round for the startup MindMixer, a company that helps local governments and civic organizations collect feedback and ideas from citizens, rather than or in addition to holding public hearings at 7 p.m. on a Wednesday when only a limited, particular audience can attend.
“The reality of these public hearings is that very few people go to them because it is hard to get there,” he says. With MindMixer’s platform, which is being used by cities like San Francisco and Kansas City, he says, “it means that community members can have a voice, and they can actually engage with their government.”
A combination of severe budget constraints, especially in local governments, and the emergence of cloud computing means that lower-cost startups are playing a far larger role in serving governments than they did a decade ago.
And many governments are going out of their way to make it easier for startups to provide their services–especially helping them move more quickly through the typically tedious government procurement process. In some cases, they can skip the formal proposal process altogether if the startup’s cost is low enough, turning a three-year sales cycle into a three-month one.
Says Bouganim: “If I sit back and ask, ‘this thing that we’re doing right now, could we have done this in the ‘70s in the same way?’ If the answer is ‘yes,’ then maybe it’s time for technology to play a role.”