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A $23 million venture fund for the government tech set

img_bouganim
Govtech Fund founder Ron Bouganim (Credit: The Govtech Fund)

The American technology innovation ecosystem is, in some ways, a well-oiled machine. A smart person or a group of smart people come up with an idea and then go get funding to turn it into a business. In the best cases, they end up not only making a living but changing an industry for the better.

Why has government seemed so resistant to that process?

One problem, says many of those deeply involved in the tech world's fundraising swirl, is that the venture capitalists who might be able to help trigger innovation in government tech have, historically, laughed those opportunities right out of their conference rooms and cafes. Venture capitalists are largely pack animals, and the pack has long determined that governments are simply too unreliable customers to warrant much attention. That's been especially true in recent years, when the near-instant payoff of the next Instagram or Snapchat or Twitch often has seemed just around the corner.

Ron Bouganim wants to break out of that pack. On Monday the seasoned technology entrepreneur is launching the Govtech Fund, with $23 million in initial investment. The fund, says Bouganim, will put money into companies aimed at upgrading "the technology infrastructure that runs the day-to-day of government," from the federal government down to to the smallest of towns. Those are thousands upon thousands of potential customers, and Bouganim says -- and is likely right -- that his is the first fund aimed at supporting the govtech startups that hope to tap those customers.

Bouganim says that he and his investors are looking to pour funds into companies that demonstrated that they know how to work with government, whether that's understanding how to slide under the procurement limits that trigger mounds of paperwork or make use of cloud computing in a way that works within government's often-strict security requirements.

The Govtech Fund, which Bouganim is launching with Tim O'Reilly, the high-profile tech world publisher and visionary, has already backed four companies -- most of them outside the obvious locales of Washington or San Francisco. They are MindMixer, a Kansas City-based Web platform that allows cities to have conversations among themselves; Seamless Docs, a New York City-based paperless-document company; Amigo Cloud, a San Francisco digital mapping company; and the Deerfield, Fla., SmartProcure, an online marketplace for governments to buy things and for companies eager to sell to them.

Bouganim explains in simple terms why a company like SmartProcure is so attractive to him: "The U.S. government buys 10 eBays' worth of stuff just to operate," from software to heavy-duty trucking equipment.

Bouganim got into the business of government tech as a volunteer with Code for America, the San Francisco nonprofit that works with local governments to improve their technological infrastructures. In 2012, Bouganim and O'Reilly helped launch the Code for America Accelerator, which picks out civic-tech projects in their early stages and supports them with $25,000 on their way to becoming full-fledged companies.

Inspired by that experience, Bouganim says that he started making the rounds on Sand Hill Road and other places where California's VC community gathers. Sure, investors had been scared away by the idea that working with government might be a tortuous slog, but Bouganim says that he saw that behind that red tape lay a market that could be worth in the neighborhood of $500 billion a year. Still, he says, "A lot of traditional VCs were still thinking there's nothing here." That's a "classic information asymmetry," says Bouganim. And it smelled to him a lot like opportunity.

Nick Bowden is the chief executive of MindMixer, one of the Govtech Fund's early companies. "I distinctly remember a conversation with a well known VC during our Series A round (2.5 years ago)," Bowden recently wrote, "who said 'you must be crazy if you are trying to raise money for a tech company that works with government.' What most people don't realize is government spends nearly $74 billion on technology annually. As a point of comparison, the video game market is a $15 billion annual market. That lack of market insight, combined with the usual perceptions  —  government is slow, the sales cycle is too long, government isn't innovative — prevented both potential founders and investors from entering the market."

Concluded Bowden, "That's starting to change."

Some recent high-profile government IT failings have done their part, says Bouganim, pointing to HealthCare.gov's bungled debut and the crumbling of the Federal Communication Commission's Web site under the load of open Internet comments. His colleagues are starting to come around, he says, and he's hoping that the launch of the Govtech Fund will trigger competing funds in the government tech space.

He says he's also counting on a pair of cultural shifts to work in his favor. Those responsible for buying tech from inside government are changing, he says: More people in those positions are comfortable with the idea that some of the best tech might be produced not simply by big-name government contractors by small groupings of smart private-sector technologists. Meanwhile, those technologist are starting to look to the government arena as a place to do neat work.

"If you want to work on big, gnarly, complicated problems," says Bouganim, "government is where you want to be."

Bouganim, a Canadian by birth who became a U.S. citizen in recent years, says that he's motivated in part by the desire to help make sure that that governments in his adopted country are using the best, most appropriate technologies they can as they go about serving their citizens. "And what better way to have an impact," he says, "than capitalism?"

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