The Covid-19 pandemic has driven greater investment into tech-based innovation such as artificial intelligence (AI) and machine-learning by businesses with a public-sector focus, according to a report.
The ‘StateUp 21’ study explores digital and new technologies designed for the public sector – ‘GovTech’ for short – by way of analysing almost 450 GovTech start-ups around the world and identifying 21 companies that it describes as the ‘most promising’.
The report is published by StateUp, a London-based advisory firm focused on public sector digital innovation. ‘Top’ GovTechs secured £500m (about $686m) of investment over the past year, with ‘much more’ investment foreseen during 2021, the authors say.
‘Urban and local’ tech-focused firms comprise the largest sub-sector (28 per cent) of companies analysed. This reflects the spending power of cities, as well as a sense that procurement may be easier at the local level, according to the report.
‘Administrative’ tech – a wide-ranging category including firms that help with budgeting and people management – forms the second largest sub-sector, comprising 23 per cent of GovTech start-ups analysed. Sixteen per cent of companies are tackling procurement and supply-chain issues, with the pandemic having increased pressure for reform of procurement processes.
‘Relatively young sector growing rapidly’
The report is published as governments worldwide increase their focus on digitally-driven solutions and services. As a recent example, increased investment in federal IT systems – with, in particular, a focus on cybersecurity – was part of the ‘American Rescue Plan’ presented by Joe Biden ahead of his recent inauguration as US president.
The StateUp 21 report welcomes this global momentum, pointing out that investors have typically been cautious about putting money into start-ups targeting government departments. ‘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 also 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 that GovTech companies are using, 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 global government market, Filer told Global Government Fintech that its data suggested “an uptick in interest from governments in working with start-ups whose financial services address new and emerging policy issues”.
Examples include US blockchain analysis company Chainalysis – a member of the StateUp ‘21’ – which saw increased government demand for its cryptocurrency forensics capabilities and recurring revenue rise 100 per cent year-on-year; and Gove, a Brazilian company – named in the report as among the ‘most exciting’ start-ups to watch for 2021 – that automates public-sector financial management.
GovTech start-ups’ reach spans the globe
The ‘21’ was compiled according to criteria including a requirement that companies are addressing a ‘big policy problem or satisfy a public need’. The start-ups collectively work with governments in almost every region of the world, the report says.
Other members of the ‘21’ are companies such as Privitar (a UK data-privacy company), Trafi (a Lithuanian mobility firm) and Healthy.io (an Israel-based healthcare company).
The report will form the basis of an event on 9 February that aims to 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.
StateUp has public-sector clients including the UK Parliament, the Centre for Digital Built Britain (a partnership between the Department of Business, Energy & Industrial Strategy and Cambridge University) and Oman’s government.