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GovTech Market Overview


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In a day and age of rapid technological innovation, the public has come to demand an incredibly high level of technical sophistication from all aspects of their lives. Where the commercial sector has accelerated to meet this demand, the public sector has historically been resistant to change. The Government Technology (“GovTech”) sector arose in response to public demand for more efficient, affordable, and secure government processes from a segment plagued by antiquated systems and outdated procedures. Only recently have government entities begun leveraging innovative and agile solutions to meet increasing operational demands and produce more citizen value while remaining adherent to stringent budgets. This digital transformation has been catalyzed by federal programs and regulations, which are accelerating tech adoption by increasing capital investment and streamlining procurement processes. To capitalize on this trend, Catalyst is exploring GovTech businesses seeking to exploit the recent digital transformation of the public sector across North America and seize market share in a fragmented market.

Published in: Government & Nonprofit
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GovTech Market Overview

  1. 1. GovTech Market Overview February 2019 Kyle Howard-Johnson & Todd Clapp
  2. 2. 2 ▪ Investor’s Perspective • Increasing public sector spend provides a strong foundation of demand to support future growth while streamlined procurement processes reduce barriers to entry, allowing smaller players to enter the market • The relative youth of this industry has left it largely fragmented without a clear leader and consolidation still in its early stages • Small, innovative players with limited market penetration are primed to capitalize on this growing opportunity with the support of a growth equity investment GovTech Overview ▪ The Government Technology (“GovTech”) industry was formed in response to public demand for more efficient, affordable, and secure government processes from a segment plagued by antiquated systems and outdated procedures • In a day and age of rapid technological innovation, citizens expect the public sector’s level of technical sophistication to be on par with other aspects of their lives • Only recently have government entities begun leveraging innovative and agile solutions to meet increasing operational demands and produce more citizen value while remaining adherent to stringent budgets
  3. 3. 3 Substantial and Growing Market Opportunity ▪ The U.S. State and Local Government System employs more than 19 million people and spends over $3 trillion annually • U.S. Government IT spending accounted for roughly $200 billion in 2018, representing less than 7% of total government spend • The Federal Government has recognized the widening innovation gap and passed legislation to catalyze the public sector’s tech adoption process Sources: Forrester, 2017, US Government Sector Tech Spending Trends, 2017 to 2018;, 2018; GovTech Navigator, Center for Digital Government, 2012 Census of Governments 50 States 3k+ Counties 19k+ Cities 38k+ Special Districts $73 $76 $80 $83 $78 $85 $100 $105 $108 $108 $112 $117 2013 2014 2015 2016 2017 2018 Federal State & Local $173 $181 $188 $191 $190 $202 U.S. Government IT Spend ($bn)
  4. 4. 4 Federal Programs Support Tech Adoption Sources:, 2018; Executive Office of the President, 2018, Implementation of the Modernizing Government Technology Act; Center for Digital Government, 2018 ▪ The Modernizing Government Technology (MGT) Act allocates funds to drive tech adoption • The act allocated $500 million between 2018 and 2019 to tech investment initiatives • The MGT Act will facilitate agencies’ adoption of tech solutions that improve service delivery to the public while securing sensitive data and systems in a more cost effective manner $579 $624 $660 $686 $703 2014 2015 2016 2017 2018 Federal Grant Funding ($bn) ▪ The Federal Risk and Authorization Management Program (FedRAMP) provides a standardized approach to securing and monitoring cloud products and services • FedRAMP established a repository of approved solutions, significantly shortening the procurement process and saving agencies both time and money
  5. 5. 5 Digital Transformation is Nascent… Sources: GovLoop, 2018, Looking Ahead: Government’s Technology Priorities; GovTech, 2018, Digital States Survey; IBM, 2018, Digital Transformation Digital Reinvention Digital Transformation / Lean Government Legacy Modernization Basic eGovernment Advanced eGovernment Digital Government AI-Enabled Government Today ▪ Despite market tailwinds provided by federal regulations, the public sector’s digital transformation remains in its early stages • According to a survey conducted by GovLoop, 87% of public servants indicated that their respective agency’s technology meets their needs either sometimes or not at all • 43% of state agencies have either implemented a tech startup’s solution or are in the process of piloting one, demonstrating the substantial room for incremental tech adoption
  6. 6. 6 … But Software is Driving Change Sources: Accela, 2018, Why has SaaS Become the Standard for Government Agencies, Top 7 Reasons Government Leaders Are Moving to the Cloud ▪ Public sector-focused software solutions are accelerating tech adoption by providing enhanced citizen value and reducing costs • Citizens demand consumer-grade experiences from government entities, forcing the public sector to adopt private sector practices and leverage cloud-based solutions • SaaS solutions remove the burden of building and maintaining legacy IT infrastructure, increasing organizational flexibility by: − Reducing costs: minimal upfront capital expenditures and automated updates for the lifetime of the product − Increasing security: cloud solutions secure, protect, and control data while remaining compliant with an evolving regulatory environment − Improving system integration: increased interoperability extends processes and data across systems, reducing the demand for highly skilled IT professionals − Creating efficiencies: increased data consumption and processing abilities provide actionable insights to optimize operations
  7. 7. 7 Citizen Engagement GovTech Software Market Map Note: this landscape is intended to be a representative sampling and is not an exhaustive list. Please direct inquiries to GovTech Software Municipalities Platforms Administration & Finance Information & Data Analytics Point Solutions Smart Cities, Logistics & Utilities Law Enforcement & Public Safety Agencies
  8. 8. 8 GovTech Software Market Map ▪ Provide suites of solutions to government entities that serve as “one-stop- shops” to satisfy a variety of technological needs and facilitate the digital transformation of the public sector ▪ Achieve a competitive advantage by reducing the number of procurement processes for government entities by going broad as opposed to deep ▪ Achieve a pricing advantage by bundling solutions together at a reduced price point, helping mitigate budgeting tensions Platforms ▪ Provide solutions intended to make transportation, utilities, and cities run more efficiently, effectively, and safely ▪ Achieve a competitive advantage by promoting safer, cleaner, and more efficient cities, making them more enjoyable places to live and reducing their environmental impact Smart Cities, Logistics & Utilities ▪ Provide solutions tailored specifically to the needs of law enforcement and public safety agencies ▪ Achieve a competitive advantage by catering to a vital piece of the federal system that is not only directly responsible for constituent well- being but also highly scrutinized Law Enforcement & Public Safety ▪ Provide solutions designed to increase citizen engagement, driving positive change through public sentiment ▪ Provide solutions designed to arm officials with actionable intelligence to optimize operations ▪ Provide solutions designed to support back office functions, driving increased efficiency and efficacy Citizen Engagement Information & Data Analytics Administration & Finance ▪ Achieve a competitive advantage by providing highly specialized point solutions that go deep rather than broad and are often more comprehensive than products provided as a part of broader platforms Point Solutions Municipalities ▪ Leading GovTech software providers offering robust platforms catering to a variety of different government functions – platforms often take advantage of the fragmented nature of this market and evolve through the acquisition of differentiated point solutions GovTech Software
  9. 9. Please send any inquiries to