COVID-19 pandemic drives govtech investment, says report

By on 28/01/2021
GovTech start-ups: the study details increasing investor interest across the globe | Credit: StartupStockPhotos; Pixabay

The COVID-19 pandemic has driven greater investment into govtech start-ups, according to a report.

The study, published by StateUp, a London-based advisory firm focused on public sector digital innovation, explores the govtech landscape. It did this by analysing information from its own database of almost 450 public sector tech start-ups, as well as recommendations from industry. It then included “detailed evaluations of 21 of the most promising start-ups in the sector.”

 The “top” govtech start-ups secured £500m (about $686m) of investment over the past year, with “much more” foreseen during 2021, according to a spokesperson for StateUp.

Of the 450 companies analysed using StateUp’s database, those focused on “urban and local” tech made up the biggest proportion – they comprised of 28% of the total. “This reflects recognition of the spending power of cities, as well as a sense that procurement may be easier at the local level,” the report says.

“Administrative” tech – a wide-ranging category including firms that help with budgeting and people management – forms the second largest sub-sector (23%), while a further 16% of start-ups focus on procurement and supply chains.

Growth trajectory

The report points out that investors have typically been cautious about putting money into start-ups targeting governments. “Venture capitalists have often perceived risk, slowness, and uncertain growth trajectories in start-ups targeting the government market,” the report notes. “They have also often been unwilling or unable to provide the kind of ‘patient capital’ – investment accepting of long and inexact timeframes – that some govtech ventures require.”

But the report’s authors say the Covid-19 crisis has meant a loosening of many investors’ purse-strings – and believe this trend will continue. “Resilience-building in a post-pandemic world is the driving force behind new investment into govtech, a relatively young sector that is growing rapidly,” said StateUp founder and director Tanya Filer, who leads the digital state research programme at Cambridge University’s Bennett Institute for Public Policy.

“Although traditionally GovTech has been seen as a long-term investment, 2020 has shifted changed 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,” she added.

AI and machine-learning among the trends

AI and machine-learning emerge as the top core technology innovation used by govtech companies, according to the research. This is followed by big data analysis, cloud computing, robotic process automation and communications.

“The pace that AI is being developed for public-sector organisations, across policy domains, suggests a need to upskill public servants to better understand the technology,” the report says.

In terms of fintech for the government market, Filer said data suggests “an uptick in interest from governments in working with start-ups whose financial services address new and emerging policy issues”. Examples include Gove, a Brazilian company, that automates financial management in the public sector.

The report forms the basis of an event on 9 February 2021. It will discuss the opportunities and challenges faced by the GovTech sector. Dr Stephen Unger of the UK’s Geospatial Commission, which advises government on the most productive and economically valuable uses of geospatial data, is among the speakers.

About Ian Hall

Ian is editor of Global Government Fintech a sister publication to Global Government Forum. Ian also writes for media including City AM and #DisruptionBanking. He is former UK director for the pan-European media network Euractiv (2011-2018), editor of Public Affairs News (2007-2011) and news editor of PR Week (2000-2007). He was shortlisted for ‘Editor of the Year’ at the British Society of Magazine Editors (BSME) Awards in 2010. He began his career in Bulgaria at English-language weekly the Sofia Echo. Ian has an MA in Urban and Regional Change in Europe and a BA in Economics, both from Durham University.

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