We don’t always have the highest expectations of our dealings with government departments and their tangled web of regulations and procedures – in fact, it’s usually just a sweet relief to get through the bureaucratic jungle of payments, planning and permits with minimum hassle and headache. This is where Government Technology comes into bat – it may not be the most glamorous player on the tech team, but any software or app that saves us time and trouble in our interactions with public administration is a welcome addition.

GovTech is essentially the digitalisation of public administration through online government software that is designed to be universally accessible, citizen-centric, transparent, and above all efficient. Quite a change from the slow-moving and frustrating paper-based processes of yesteryear. GovTech applications automate workflows, streamline internal and external communications, and keep government data safe and accessible on cloud-based and cyber-secure systems.

In recent years, GovTech startups have been attracting some serious capital from venture investors and acquirers alike, and recent predictions state that global GovTech spending in 2024 alone will exceed $17.5 billion. There are multiple reasons to consider it as a candidate for investment.

Tackling Big Complex Problems

By automating repetitive administrative tasks, GovTech applications not only make government workflows faster and more efficient, but they also free up employees to tackle bigger and more complex problems. Interdepartmental and government-citizen communications can all be simplified through online platforms, reducing labour-intensive telephone time and ensuring that no communication slips through the cracks.

Time saved through automation equates to money saved as well, freeing up budget to be dedicated where it is really needed, while the data collected through automated processes can provide useful insights into public needs, departmental expenditure and completion rates, enabling better decisions about where and how to spend public funds. Cyber-secure, cloud-based storage is more secure than local servers – not to mention the inherent danger of physical paper storage which can be obliterated in a fire or flood.

A Turning Point for Governments

2020 was a year of transformation for us all, and a turning point for governments and public administrations around the world as the Covid-19 pandemic forced policymakers to immediately innovate the way they delivered services. The public sector’s digital transformation in response to the pandemic did not reverse or ‘normalise’ once the crisis was over.

On the contrary, the pandemic effectively dissolved any pre-Covid resistance from venture capitalists, triggering a significant injection of investor cash into the GovTech sector and moving it into the venture investment mainstream. Compared to other tech sectors, GovTech has also proved to be consistent and reliable through economic cycles since then – suffice to say that this market has not seen a major downturn in activity since its record-setting $4.5 billion deal volume in Q2 2021.

Recurring Revenue and High Retention

GovTech business models tend to be very predictable, with high recurring revenues. As opposed to private-sector clients, governments don’t get merged, acquired, or go out of business, which means that GovTech companies have almost perfect customer retention. Government also pays its bills. This combination of recurring revenue and high retention rate makes for a predictable revenue flow and effective cost management.

Companies working within GovTech tend to be very lean as regards costs, spending an average of 15-20% of their revenue on sales and marketing as compared with the 40% spent by their counterparts in private sectors. All of this is a recipe for profitability and stability, which is a winning combination from an investor’s perspective.

In addition to being a stable and sustainable investment prospect, GovTech is also a sector in rapid growth. As the digital transformation has unfolded over recent years, government employees have become comfortable with the latest tools and technologies, while the digital consumer citizen is increasingly demanding about the efficiency and transparency of the services provided by public administrations. This combination is a potent catalyst driving demand, development and adoption of software and applications to meet the ever-evolving digital expectations on both sides.

Patient Investment

I mentioned the pre-Covid aversion that venture investors had for startups with government as client. Those sales models were perceived as slow and risky with uncertain growth trajectories, and some of the characteristics that made venture investors cautious at that time are still true today.

It can be very difficult for GovTech startup entrepreneurs to identify the purchasing decision-makers within public administrations. Purchasing decisions themselves can be slow to arrive, followed by procurement processes that can be painfully long and complex. Make sure that your timeframe for seeing a return on your investment is aligned with what your GovTech candidate can feasibly deliver – a demand for unrealistically fast profit means a lack of time for entrepreneurs to build public-sector knowledge and relations, potentially causing a collapse or a hasty pivot to the private sector for faster gains.

All in all, GovTech is a stable sector, even in times of economic recession. It has good growth potential and provides well-defined benchmark metrics that you can use when conducting diligence on an investment. If you’re looking to diversify your portfolio it’s definitely worth looking into. Do your homework, bet long and be patient – not only is it a virtue, but it’s a requirement for successful investment in GovTech.