Civic Tech Is Ready For Investment

Editor’s note: Stacy Donohue is an investment partner at Omidyar Network, focused on innovations in civic tech.

Civic tech is not a new concept. People have been using technology to empower citizens and improve government operations for more than 10 years. However, there are a growing number of entrepreneurs, innovators, and private- and public-sector leaders breathing new life into an industry ripe for disruption.

What is new is the very real, very now investment opportunity. The civic tech of today is a burgeoning market: the U.S. government is projected to spend $6.4 billion on civic tech in 2015. Add to that the influx of tech talent into government – from ex-Googler Megan Smith becoming the country’s chief technology officer last year to the news last month that former Twitter and Medium exec DJ Patil will become the country’s first digital scientist – and we now see a major market for entrepreneurs to win.

Startups in civic tech are answering the call. Commercial investors are taking notice too, seeing the industry’s potential to generate both financial returns and social impact. Andreessen Horowitz, known for investing in for-profit startups Airbnb, Facebook, Lyft and Twitter, led OpenGov’s $15 million funding, the world’s largest petition platform now serving almost 100 million users globally, successfully raised $25 million Series C funding from investors like Arianna Huffington, Bill Gates, Richard Branson and Omidyar Network.

Recognizing the promise of civic tech, Omidyar Network is placing bets on nonprofits and for-profits in this growing landscape. As we know to be true in other industries, a sustainable sector requires funding through both grants and venture capital. We have supported organizations such as Code for America and Sunlight Foundation, nonprofits that have laid an important foundation for civic tech. And for-profit investments in tech companies such as NationBuilder and SeeClickFix provide early-stage funding needed to spark and nurture innovation in the civic tech ecosystem.

While the momentum in civic tech is clear – and the investment opportunity more ripe than ever – there are also challenges for funders to be aware of before taking the plunge. Here are three themes – ideas that can help investors understand, appreciate and find success in civic tech.

Define — But Don’t Confine — Civic Tech

All too often, good work in government and citizen engagement gets lost in semantics. We’ve seen the term “civic tech” used in different ways, and often interchangeably with other terms such as “government tech.” For some, a definition helps provide clarity on what exactly people in this space are doing. For others, a definition creates divisions, including some people and their projects and excluding others.

We use the term “civic tech” in a broad sense: any technology that is used to empower citizens or help make government more accessible, efficient and effective. We’ve seen a broad definition help break down silos and foster dialogue between stakeholders across the spectrum. With that said, though, we encourage use of a definition if, and only if, it helps connect you to the ideas, people and resources you need.

Go Local

While it might seem counterintuitive, going local may actually present the best path to scale for civic tech startups. Federal contracts certainly offer bigger revenue streams and wider distribution, but state and local governments are proving to be better testing grounds for civic tech innovations.

New York is a prime example. On the state level, the government is harnessing location technology to make a highly relevant tool for citizens, providing real-time, geo-targeted information on everything from road closures to open job listings to library hours.

On the city level, New York City is partnering with the private sector to turn the city’s almost 10,000 antiquated pay phones into gigabit-speed Wi-Fi hotspots with a goal of building the world’s fastest free municipal Wi-Fi system in the world. Other cities and states will be able to watch the progress of these initiatives, adopting what works and learning from what doesn’t – and avoiding the “too big to fail” mentality that often stifles innovation at the federal level.

Take the Long View

Success stories are critical to earning investor confidence. From revenue to user growth, startups are expected to demonstrate progress if they want investor support. But we must remember that a typical venture fund has a 10-year horizon, and some of the best innovations can take decades to mature and produce proof points.

Just look at – the company’s exit took 20 years, coming this month with LinkedIn’s $1.5 billion offer for the online learning company founded in 1995. Add to this the fact that civic tech startups are beholden to government procurement processes, and investors must adjust their expectations accordingly. Those who succeed in the space will be the ones willing to go the long haul.

The excitement among entrepreneurs and innovators in civic tech is palpable. Startups are doing their part, refining and reimagining ways to strengthen the relationship between citizens and their government. And from venture capital to mentorship, it’s clear that more now than ever, investors are paramount to the success of civic tech.