Radiography of Govtech startups

Many open innovation programs are currently emerging, most of them promoted by large companies that are seeing the value of collaboration with startups in all their business areas, but... how do corporations recognize this type of emerging companies?

Recently the Startups Law has been approved in Spain, which defines this type of companies giving them a specific legal character, with benefits at tax and administrative level (BOE 22/12/2022, application from January 1, 2023). This law sets standards and a frame of reference within the sector to homogenize the definition of the concept of “startup”, whose interpretations are very varied and discussed.

In terms of open innovation in public institutions, this search has a particularity and it is that in addition to startups, they are sought to be govtech.

Today I want to point out some particularities that make these companies can be recognized and categorized as “govtech startups”.

As a starting point, we will take the previously published article on “Govtech: what is it and why now?”, which specifies which are the agents of this ecosystem and emphasizes the essential role that startups have to develop potential solutions for Public Administrations (AAPP).

And this role is the main point that allows us to rule out or confirm whether we can label a company as “govtech”; the Public Value.  

Public Value

This term refers to proposals that contribute or can potentially contribute to improving the quality and efficiency of public services, while seeking to reduce associated costs, and that digital startups and SMEs do through technology.

Business model

We introduce the concept of Business to Government or B2G. Of course, if the way in which a specific startup obtains economic performance is exclusively by selling to Public Administrations, then it is clearly a govtech startup, but this category is not limited exclusively to this type of business.

Business to Business (B2B), and in some exceptional cases Business to Client (B2C), can also be classified as Govtech. The condition is that the model can be sustainable and scalable in its application in the public sector. This requires some important adaptations for this type of client, since it has a particular idiosyncrasy that, in most cases, has little to do with traditional models, especially in terms of sales times, form of contracting, administrative procedures, costs and delivery of the product or service.

The strategy of approaching the public customer and in general, the B2G model, is usually the point where most external support or advice is required by startups, since the whole process can generate frustration, a loss of focus with no way back, and therefore, a wear and tear and consumption of vital resources for this type of companies.

A clear example of this is the case of Uphint, a startup with a clear value for corporate work teams, which are adapting their product and processes to take advantage of the opportunity to sell to the public sector. 

Maturity

Increasingly, Public Administrations are “venturing” to contract new digital providers, such as startups, but it is not very common for them to take risks when working with emerging companies and with products or services that are not consolidated or validated. For this reason, governments tend to opt for those with whom they collaborate on a recurring basis, even if this means inefficiencies and excessive costs on many occasions.

At Gobe, we work to open up the supplier market and we advocate promoting the startup ecosystem, but always prioritizing projects with a track record in the market, those startups that are usually called in the Growth or Scaleup phases.

Some of the aspects taken into account by the AAPP to evaluate the proposals are:

• Economic Solvency, i.e. turnover in past years.
• Technical Solvency, the participation of the company or team members in similar projects.
• Level of development, i.e. how advanced the product is or which of the required functionalities are already developed, operational and tested.

Investment

Although it is not a limitation when it comes to labeling a startup as Govtech or not, it may have some intrinsic characteristics.

As this sector has longer sales times, marked by bureaucracy and limitations in hiring, this type of models tend to be capital intensive.

That said, the business opportunity is so relevant that investment focused on this type of business has recently been activated. Proof of this is the $3M Venture Capital round raised by the startup GLASS, dedicated to helping US states in the purchase of material through the Internet (what they call G-commerce), reducing paperwork and administrative obstacles.

Sectors

This point is not a limitation either, in fact we usually say that Govtech is a very transversal market, because it involves areas as diverse as:

As CAF's Enrique Zapata points out in his article 17 Govtech startups working towards 17 SDGs; “Govtech can be used to design and deliver any policy in any sector”.

Este punto tampoco supone una limitación, de hecho solemos decir que el Govtech es un mercado muy transversal, porque involucra a áreas tan diversas como: 

• Social Impact
• Energy Efficiency
• Environment, sanitation and waste
• Mobility
• Tourism
• Security (online and offline)
• Health and wellness
• Education
• Administrative management
• Human resources
• Fintech, Insurtech, proptech
• And... data, lots and lots of data

As CAF's Enrique Zapata points out in his article 17 Govtech startups working towards 17 SDGs; “Govtech can be used to design and deliver any policy in any sector”.

Currently, the B2G startup market is not yet very mature and in some countries it is even very incipient, so it is a great opportunity to position yourself in it as a solution provider for Public Administrations.

If you are a startup and you are exploring this business avenue, we invite you to enter the public sector market through some of the open innovation opportunities we have in our Open Gobe platform or to continue investigating other examples such as the Govtech Startups Ecosystem of Brazil or the Community of Madrid.

Dare to impact the lives of thousands of people and contribute public value by collaborating with Public Administrations.