Marc Andreessen's famous declaration at the beginning of the decade that "Software is eating the world" has largely come to pass. In a podcast last week, Eric Vishria pointed to the Bessemer Emerging Cloud Index's performance as a sign of just how starkly software companies have outperformed in the public markets.

Bessemer Emerging Cloud Index outperforms the benchmarks by a long shot

Constituents of the index span a range of industries, including, but not limited to: collaboration (Zoom, Slack), payments (Paypal, Square), education (Pluralsight), retail (Shopify, Wix), human resources (Workday), marketing (Hubspot) and so many more. These are by no means brownfield markets yet, owing to both the growth rates of each market and the relatively low rates of software penetration (for what it's worth, Emergence believed the CRM industry was worth a few billion dollars when they invested in Salesforce - Salesforce's market cap is $170 billion).

That being said, there are still many greenfield opportunities that have been largely immune to software's takeover. Let me throw at you one of the least fashionable portmanteau's out there: GovTech.

What's GovTech?

Definitions vary, but the one I've found most useful is from UK GovTech accelerator Public:

In its broadest sense, ‘GovTech’ refers to technology solutions and platforms aimed at transforming public services. Government buys technology products and services to meet a number of core business and policy functions. There are at least 18 distinct sub-verticals, which includes applications of new technology in policing and security, health and social care, schools and education, and smart cities and infrastructure etc.

As one would expect, digital adoption in healthcare has accelerated several years in the space of a few months since the outbreak of the pandemic. The same can be said of education, another sector which is largely funded by the government.

COVID-19 could accelerate digital adoption in healthcare and education, two sectors heavily funded by the Government
Source: Atomico, State of European Tech, 2019

It's no surprise that sectors that are largely run by the government have been the slowest to innovate. This is why they represent such huge market opportunities, as Meera Clark of Obvious Ventures points out:

The first and second-order effects of COVID-19 on the pace of innovation and funding in healthcare and education have been discussed ad nauseam; some of the less glamorous segments of the public sector have received less attention. Let's explore some of these.

Source: GovTech Research, Cragie Capital

Access to Justice

Whilst LawTech tends to focus on the software wave consuming law firms, access to justice for consumers is a growing market opportunity that I would classify under GovTech. As the graphic below illustrates, legal aid still eludes the majority of populations, particularly when it comes to civil cases:

Proportion of the total number of criminal and civil cases filed in court
for which State-funded legal aid was provided (2013)
Source: Global Study on Legal Aid, United Nations

Claiming to be the world's first robot lawyer, DoNotPay raised $12 million from Andreessen Horowitz to help consumers appeal parking tickets and schedule appointments with the DMV, among other things (only in America could 'Sue Anyone' be a serious feature'). The total addressable market for tools like this is hard to accurately estimate; a bit like with ride-hailing, consumers who previously never considered legal services suddenly become part of your TAM when they recognise how effective the tool actually is. In this respect, this has huge potential for social impact by way of increasing access to justice for the working classes.

Governmenterprise Software

Moving on quickly from that shining example of my creativity, there's a genuinely large market for B2B enterprise software tailored to local, state and federal governments. The advent of industry-specific cloud solutions has been a key tailwind for uptake.

The most well-known example of Enterprise Resource Planning software in this regard is OpenGov, who most recently raised $51 million from 8VC, Founders Fund and others. A snippet from the company's website:

Today over 1,000 public agencies in 48 states form a growing network leveraging OpenGov to achieve better budgeting, performance, communications, reporting, and open data that ultimately result in better outcomes for the public.

Just as there are a variety of functions with private companies that need to be optimise - sales, marketing, operations, product - so there are various functions of a civil service that can be significantly modernised and optimised through software.

The UK has set up a Digital Marketplace of suppliers to the public sector, though it is dogged by the usual concerns about B2G (business-to-government) models that VCs tend to be concerned about, chiefly long sales cycles and procurement hurdles. Frederik Groce of Storm Ventures has built a good matrix for companies with a B2G model - ultimately, I think this is a winner-takes-all market. Once you're in, the barriers to entry are formidable.

Urban Planning

Software for the digitisation of urban planning was an attractive proposition in and of itself, but this market is taking on even more importance as climate change becomes the defining challenge of the century. Meticulous urban planning is necessary for cities to chart a path towards carbon neutrality and represents a huge market opportunity.

In the US, Remix raised $15 million last year to help cities plan public transit infrastructure. The tool helps planners quickly determine how bus, train or cycling routes might affect a city - all the more important in the post-COVID era as cities the world over begin to favour alternative forms of transport.

Source: Techcrunch

More specifically focusing on climate change, ClimateView raised $2.5 million earlier this year to help cities reduce their carbon emissions by providing a central hub of development, emissions and urban planning data. By using ClimateView, city planners will be able to take a data-driven approach to optimising urban planning for the reduction of emissions.

ClimateView

CivicTech

Software for civic engagement is key to arresting a decline in citizenship. The foremost report on the topic was produced by the Knight Foundation, who draw a demarcation with GovTech this way:

Civic tech: Technology used to inform, engage and connect residents with government and one another to advance civic outcomes.

GovTech: Technology designed with government as the intended customer or user.

As opposed to GovTech, which includes many technologies government uses to increase the efficiency of its internal operations, civic tech tools largely include a citizen-facing component.

Monetisation is a huge problem for this sector; the report cites a founder who was told by a VC to monetise user data. It's hard to conceive of a business model that could scale to generate venture-size returns without infringing on user privacy. Nonetheless, CivicTech companies constitute several of the annual GovTech 100 list, most notable of which is Accela, which has raised $216 million to date.

To conclude.. these are just some of the subsectors within GovTech that remain largely greenfield opportunities for software. Financial VCs are right to harbour concerns about businesses with a B2G model, which is why there is such a scarcity of accelerators or investors focused on the sector. Ultimately, it will require long-term, patient capital - ideally from the government itself.

The UK has earmarked £800 million to build a British Darpa, so why can't they fund the digital innovation that is so desperately needed?

For some other great takes on the future of GovTech, take a look at Nicolas Colin's writing, the PUBLIC blog, and the Bennett Institute.

Deals of the week

🇺🇸 Turbo Systems raised $3.45 million from Mayfield to continue building their no-code mobile app builder for field service employees. It's an interesting vertical to focus on and may give them some differentiation.

🇪🇺 Lots of funding going into e-bikes, with Cowboy, Dance and VanMoof raising healthy rounds to roll out e-bikes across Brussells, Berlin, Amsterdam, Paris, London and other international cities.

🇪🇸 Odilo raised $10 million to expand its digital educational content platform. The company aspires to let their clients create their own educational Netflix, with a mix of books, articles, podcasts, videos and courses. In keeping with the theme of lifelong learning I covered a few weeks back, the company is serving schools, universities, business schools, governments and corporations, serving 146 million end users.

Smart Reads

Lunch With The FT: Jim Chanos ($). Strip away the 'permabear' connotations and you find that there are some robust methods behind Chanos' bets against Enron, Luckin Coffee, Wirecard and most controversially, Tesla.

Nvidia is in talks to buy ARM, which would be the biggest deal to ever happen in the semiconductor industry. ARM's IP is found in the design behind chips inside all manner of electronic devices, supplying Apple and others. Softbank needs to sell, but this deal could be bad for a number of reasons.

ByteDance is in talks to sell TikTok, as pressure in the West mounts over the company's possible links to the Chinese state. General Atlantic and Sequoia are reported to be the interested parties; you have to wonder how bad things must be if ByteDance is actually contemplating a sale.

Slack launched an anti-trust complaint against Microsoft last week which could end up benefiting Google.

Alex Danco breaks down why SPACs are having a moment right now. As you'll know from my previous post, I share Alex's favourable view of the model, but this post goes much deeper than I ever could.

David Perell writes about how the Internet will transform education. As Polina Marinova noted, "No matter how old you are, where you live, or how much money you make, all of us should be able to access world-class teachers and the highest-quality instruction through virtual means."

Podcasts, videos and threads

Venture Stories - Journalism, Subscriptions, and Podcasting with Li Jin and Nathan Baschez

Invest Like The Best - Eric Vishra: The Past, Present, and Future of SAAS Software

Quote

“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” -  Sun Tzu