The 2023 GovTech 100

All right, happy New Year, New Year everyone, and welcome to a special episode of In Case You Missed It. It is Wednesday, not Friday, but it is our favorite time of the year. Every January we have the opportunity of rolling out the GovTech 100, uh, list, and so we're excited today to formally unveil our GovTech 100 for 2023, and this is year 8 of the GovTech 100. So what a wild 8 years it's been, Joe.

It goes by quick, and, and this year, I mean, this list is incredible.

It is. And, you know, every year, these are companies that are solely focused on state and local government as a customer. They're doing incredibly innovative work, and each year, as Joe mentioned, we see more innovative, interesting companies that tackle complex challenges in the public sector market. And so I'm really excited to share who's on our list. We also have a special guest that will be joining us in a little bit to talk about their perspectives, and it's also the COVID story of Government Technology Magazine's January issue. So make sure you check it out because it is, it is hot and right off the press on GovTech.com. So definitely take a look at that. So now with that, let's move into the numbers for— 2023's GovTech 100 cohort and dig in. So let's talk a little bit about it. So total funding raised by our cohort of 100 companies in 2023, $5.1 billion in funding raised. So, you know, an incredible amount. I mean, this is a market too, Joe, that we've talked about in years prior where investors, you know, kind of looked at GovTech on the fringes of it, but now they're all in and these companies have raised a significant volume of capital that they're using to scale. We also have the average age of companies for the GovTech 100 in 2023 at 16. So we're starting to see, you know, in addition to some of the newer earlier stage companies that are, you know, starting up in our market, also, you know, companies that have been in the market since, you know, 1951. We have one. So you've got some legacy companies on here too that have found ways to innovate, to lean into some of the new technologies, and that are continuing to push the envelope. Out of all of those investment dollars, there's 598 unique investors just in that 100 companies. So just that curation of the market, you're seeing a snapshot of $5.1 billion, 16 years old, 598 unique investors, and they raise those funds over 293 unique funding rounds. So, you know, this isn't a one-shot, you know, one-and-done. This is a spread-out set of activity that these companies have been, uh, you know, staying busy. Now, 14% of the 2023 cohort are companies that are founded by women. And so it's exciting to see more female-led, female-founded, minority-owned businesses starting to enter the mix as well. We've seen those 100 companies make 218 of their own acquisitions. So these aren't just small companies. These are companies that are leveraging, you know, M&A and consolidation to kind of continue to grow their approach to the market. The average number of founders with ArchovTech 100 from 2023 is 2. And 8% of our 2023 cohort are publicly traded companies. So these are companies that have hit their, you know, IPO state and are publicly traded and performing pretty well in our economic downturn that we're in right now. So some wild stats, but now it's time to meet the 100 for 2023. Now, we don't have enough time to go through all 100, so I wanna start first with just some notable new companies, you know, that are on the list. Joe, any of these companies stand out, you know, for you?

I mean, many of them do. I think a couple of things that stand out to me is more the vertical-driven nature. We saw a lot more focus in public safety, and that's referenced on this new company list as well. And you're seeing that not only a broadening of the GovTech 100, but you're seeing a concentration on some of these verticals where we're seeing lots of activity, public safety being one of them.

Yeah, and I think, you know, even like companies like Blue Dot that are tackling economic development, you know, the Library Corporation that's really looking at that specific subset of the market, and JusticeText. I mean, people are coming in and tackling really complex challenges that exist in the market, you know, all the way down to geospatial imagery satellite. You know, we've got a company on that does leak detection from space, and now, you know, kind of a Zapier for government with Velocimo breaking the list in 2023. So, so much excitement happening here. So definitely want to check out that. And the full list of 100 is now available at govtech.com. So you're going to want to make sure that you dig into that, read the full list, read their profiles. Their stories are incredible. But in addition to congratulating our 100 for 2023, we want to talk a little bit about what's happened in the market. And so we want to bring in Thad from our GovTech Biz team. And Thad wrote an amazing cover piece, our Safe Haven piece here for the 2023 list. reprofiles just what's been happening in the market, and he talks to a variety of experts from the investment community, from companies themselves, and even government agencies about what they make of GovTech in 2023. So Thad, thanks so much for joining us.

Thank you. Thank you for having me, and Happy New Year, everybody.

Happy New Year. So first question for you is, you know, after, you know, what a wild year 2022 was, what were some of the standout moments for you from a coverage standpoint of this market in 2022?

Well, one of the standout deals, perhaps not the biggest deal, but a very significant deal was when Granicus announced it was going to buy RockSolid, a company that's known for its citizen engagement tools. And the way, the way, you know, the context for that deal, according to more than a few sources of mine, is it represents the increasing trend of doing one-stop shopping when it comes to GovTech, you know, something that's been around the e-commerce area forever, kind of in a way. And, you know, CIOs are getting on board with this, and I think that's gonna— I think that's also going to help guide some of the investment merger and acquisition activity in this coming year, according to the sources I have. Another thing that really struck at me, we were at the State of GovTech conference in late 2022, I believe it was in Arlington, Virginia, And one of the investors there, one of the younger investors in the GovTech space, said something that really struck with me. Within a couple of years, the people who grew up since the iPhone has been around will start voting. And, you know, the idea there is they're going to increasingly, either as citizens or as professionals, guide some of the GovTech choices going forward. forward. And I think you're going to see a lot of innovation on that front, whether to serve those types of citizens or to respond to them in the rapidly changing government tech workforce.

I know you've tuned into the past episodes and we've had a lot of conversations, particularly over the last year, around the acceleration of the maturity of the GovTech market during the pandemic. But what did 2022 show us?

I think 2022 showed us a couple of things. First of all, we are We are one way or another, we're moving past the pandemic era. If you look at the earnings reports, if you look at the conference call transcripts, if you talk to people, a lot of that COVID business is drying up. Tech companies are dealing with it one way or another. Some are going to have easier times than others. Also, in terms of the maturity of it, and I think this theme, this is one of the main themes in our recent cover story, is that investors are coming to the conclusion that a lot of the GovTech space is still relatively undervalued, and there's a lot of room for growth there. And you're also moving to these cloud platforms as well. And I think that's gonna be a big driver as this space becomes much more mature. I don't know, that's kind of a cliché. I think we're out of the beginning, you know, I mean, we're into this new era. What's gonna happen is gonna be one of the main stories coming up over the next 12 months.

Yeah, and I think, you know, one of the things I wanted to latch onto is that, you know, notion of platform, as you mentioned, because GovTech has had so much, you know, kind of market activity and there's, you know, 2 ways of thinking about it. You've got, you know, these best-of-breed applications that sit on the edge of the market, and then you have this platform play that's, you know, really happening strong now. You got Granicus, you got Civic+, You got Accela, you got a variety of companies that are kind of building their own platform of capabilities. So, you know, how are you seeing those dynamics evolve in the market?

Well, a lot of it I'm seeing through the lens of the move toward managed services in the GovTech space. Another big theme of our new cover story. I talked to the CIO of Salt Lake City about, you know, in the past they wanted to do so much in-house. You know, so much of their tech in-house. Hey, we are special. I think one of his quotes was, we can do it, we can do it all on our own. But they're trying to move to that all-in-one platform type thing, you know, instead of having maybe a dozen vendors, having a couple, having a central shop for these vendors. And one of his things was, well, we got to move, we got to move sort of We got to shift from the best-in-breed thinking and kind of aim more for the middle. Get a vendor that does quite a few things right, but then work with that vendor on improving the other services that might not be at the top level. And I'm seeing a lot of interest, a lot of interest in that shift among the CIOs that I do talk to.

Well, Thad, you're continuing along with that evolution aspect. Your piece highlighted the evolution of the delivery model in GovTech as well, and particularly as more managed services. have entered the picture. Maybe you could explain your thoughts here a little bit more.

Yeah, I think, I think some of the drivers of the move to more managed services, number one, to cloud, as we mentioned just a few minutes ago. I also think cybersecurity is playing a big role in this. It's hard to keep up. You know, it's, it's, it's hard to keep up with the best defenses against all the hackers and criminals and ransomware operators out there. And so, and sometimes it's better to hand it off to experts, people who focus on this as well. I also think, I also think a lot of these tech departments are just realizing there's so much to do with tech, we just can't do it all. We just don't have the manpower, we don't have the expertise. Let's hand it off to someone who has a, you know, a little bit more focus on this area. I mean, that's what I'm hearing from CIOs that I talked to for this story.

So, you know, you talked to a lot of those CIOs, as you mentioned. What were some of their needs, their unmet needs that you might be driving some of the GovTech market activity in some of these different sectors? Any standout themes for you?

Labor, talent. There's always a need for talent. And we here at Government Technology have been focused on that issue all All of 2022. But I think, you know, you're seeing private sector salaries increasing more, you're seeing a lot of retirements, a lot of COVID-related retirements as well. And just the need for fresh talent and also cybersecurity. I can't emphasize that enough. That's what I hear all the time, cybersecurity. And also, you know, this really got a spark during the COVID area, just, you know, Residents demand digital, mobile, online ties with their government officials, with their city hall departments. That's just what everyone is used to now. And that's what— and there is no going back on that. So that's a big need for the, uh, for the tech leaders I've been talking to for this story.

Yeah, I don't think that issue is going anywhere.

I don't think so either. But, but I think it's really gonna grow even more in 2023.

You know, as we, as we look at the year ahead, I mean, it's It's obviously clear we're going to navigate some economic uncertainty. What impact, if any, do you see that having on investors or investment activity in the GovTech market?

Well, as we, as we covered in our, in this most recent cover story, there is a growing sense, growing sense that the GovTech market not only has a lot more value than may have been assumed in past years, but it's a relatively safe haven for investors. Money there. I mean, you know, I'm, uh, we are. Yeah, absolutely, absolutely. Uh, nothing, nothing in life is totally recession-proof, but you can't get much better than the government space. Government pays their bills, as we all know, and they, and, and, and they have a solid customer base. They just can't go out of business. So I think we're seeing a lot of that, and I think that's going to— and I don't think it's necessarily a move of desperation. I I think the money is going there to really spark innovation. And I think that money is going to lead to a lot more growth combined with the other trends we've been talking about.

So my last question for you is around something that you kind of closed your piece with. You posed this question about what about the innovation to come in 2023? And so I'd love to get your kind of perspective based on everyone you talked with and based on your coverage of the year that was. What do you think is on the horizon for 2023?

Well, it's going to be interesting to see. I did a story a couple— I did a story about a month or two ago about how Generation Z might impact the GovTech space. It's still a little bit early, but I get the sense that a lot of people are really starting to give good thought to Generation Z. I mean, we still got to worry about the millennials and everyone else here, but But I think a few main areas are going to drive innovation. Public safety, absolutely. Absolutely. There's so much going on there. Upgrades of emergency dispatch, body cameras, real-time location data. That is still going to be a sweet spot for innovation. Citizen engagement. I know I keep coming back to that, but I think we had Polco. On the list of some of the new companies, they raised $14 million in 2022. Kind of a small amount of investment, but a solid bet on where on on on where that part of the government tech industry is headed. And I think I think it's going to be a lot of innovation there. You know this post pandemic citizen engagement. How does it keep going? How do you keep that energy going? I also think the federal infrastructure money. I mean, people are still trying to. figure out how everything's going to work there. And, and, you know, tech, uh, tech vendors are going to play a big role in helping, uh, state and local public agencies figure out how to spend this money, where, uh, where to spend this money, and also how to keep citizens informed of these projects that are being funded through these federal dollars.

Yeah, you're right. I think that there are some big bets to place in 2023, and I'd agree with many of those. I think that the transportation infrastructure market Absolutely. It's going to be big. You still have most of that investment from the IIJA sitting out there. As part of that, the area that we'll see increased focus on for state and local will be the cybersecurity funding. We saw $185 or $180, whatever, roughly million.

Yeah, yeah, absolutely.

I think hit the market here soon based on the deadlines, but we also know that money is going to ramp up. I don't know if it's $300 or $400 million in the next one. So a lot more activity there. And then workforce, uh, that's going to be a long, a long-standing issue. Now, is there a silver lining with some of the transition that we're seeing in the broader tech marketplace? You've got a lot of tech companies making some announcements, uh, lately. Maybe some of that talent finds its way into states and localities.

Yeah, that'd be, that'd be very interesting.

Yeah, I totally agree. And I think, you know, to add to the list, I mean, areas that I'm looking at that I'm kind of bullish on, I think anything around the system of record, we're still seeing So much market activity. If you look at a lot of the fundraisers and acquisitions that have happened, they've all been at that system of record level where people have moved from the edge down kind of into the back office and really looking at modernizing that. I think, you know, identity, you know, identity is the thing that Joe and I always talk about because it unlocks all the things that you want to do, but it's that one kind of foundational element that needs to be in place to do it is going to be really interesting. But balancing that with a whole fragmented landscape. of state privacy laws that have just been updated.

That's right.

So it's gonna, you know, kind of be this really interesting dynamic. Some states are talking about doing their own kind of identity standards and, you know, doing it on decentralized infrastructure. So, you know, it's the wild, wild west of what's gonna happen there. I think experience is gonna be really big because you just had all of these services digitized and put online. And so now, you know, you can go to a respective city's website or county or state website, and you can do thousands of things online if you know where to find it. And so Yeah. How do we abstract complexity, personalize information delivery, make it contextual? That kind of wraps into the identity thing, but I think there's a lot of innovation that will happen with that. And of course, as Thad said, managed services, you know, is kind of something that's emerging out of a mission-critical necessity because of the gaps that exist from a workforce standpoint. But one thing that we haven't really talked about, in addition to the challenges of cybersecurity, is generative AI and looking at Web3. And, you know, although technologies that we're seeing out there and, you know, having interviews with different bots, you know, have kind of the party fun dynamic to it. These also can be flipped around and create a whole new wave of challenges for government agencies that they're going to need to pay attention to. And deepfakes have seen nothing yet. I like it though.

I mean, I think, I think we're heading into another stage, whatever that means. I mean, journalists love to Act like we're marking eras, but like Dustin said, there's still a Wild West out there. There's still so much that's in play.

Well, Thad, thanks so much for joining us.

Thank you for having me.

And congratulations to all the companies that made it to our GovTech 100 list this year. I hope that you'll check out some of these incredible companies and read Thad's piece in January's feature in Government Technology. Thank you.

Thank you.