The govtech sector is seeing new levels of development, deployment and investment as the pandemic forces governments at all levels to accelerate their digital transformation. This is the conclusion of a new report from insights and advisory firm StateUp.
The StateUp 21 research, based on analysis of 450 global govtech startups in StateUp’s proprietary Nebula database, finds that venture capitalists (VCs) that have historically been reticent to invest in the sector due to concerns about a slow return on investment are now recognising its importance to a post-pandemic society.
Tanya Filer, Founder and Director, StateUp, and Lead Researcher on Digital Government at the University of Cambridge, told Cities Today: “Govtech may also be benefitting from a broader shift in investors’ perspectives towards ‘impact’ investing.” She said there are signs that VCs are more frequently seeking investment opportunities in companies that can do some material good in the world.
The report reveals that leading govtech startups have secured at least £500 million (US$686 million) in investment over the last year. This includes mobility solutions provider Via which secured US$200 million in March, transportation robotics MIT-spinout Superpedestrian (US$60 million in December) and AI insights company Zencity (US$13.5 million in August).
Much more money is predicted to be invested into the sector in 2021, with national and local governments doubling down on digitalisation and resilience.
Filer said: “Resilience-building in a post-pandemic world is the driving force behind new investment into govtech, a relatively young sector that is growing rapidly.
“Although traditionally govtech has been seen as a long-term investment, 2020 has shifted the landscape dramatically, with investors showing a burgeoning interest in technologies to support both public sector efficiency and accountability, and a green recovery. What was once a sector showing low reward over a period of years or decades is now a promising sector that is of growing interest to investors, entrepreneurs and government alike.”
In the US, the Biden-Harris administration has pledged to invest over US$10 billion into federal technology programmes, and the UK government has appointed three senior Digital, Data and Technology (DDaT) leaders to boost capacity in digital government over the next few years.
Cities globally have outlined the importance of data, infrastructure and resilience measures for their COVID recovery and look set to particularly benefit from the surge in innovation and investment. Urban and local tech companies make up 28 percent of startups in the Nebula database, representing its largest subsector.
Other key sectors include administrative tech (23 percent), procurement (16 percent) and digital engagement/civic engagement (14 percent).
The report finds that smaller companies also view cities as typically having less bureaucracy than central government.
Further, infrastructure and the built environment is tipped as the top govtech ‘subsector to watch’. It currently accounts for ten percent of startups recorded in Nebula, and includes companies developing and managing built assets and infrastructure. France, for example, has set aside €30 billion (US$36.4 billion) to make buildings energy-efficient, revamp transport networks and shift away from fossil fuels, and 30 percent of the European Union’s €750 billion (US$910 billion) recovery fund is dedicated to ‘green’ projects.
StateUp created Nebula to address the issue of govtech companies being lost among the more general category of technology. Companies are selected for inclusion in the database based on detailed submissions covering the problems they address, case studies, revenue and revenue growth, business model, strategy, clients and investors. Startups can self-nominate for the next edition.
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