I love finding opportunities to invest in startups that have massive financial potential and also strengthen the financial fabric of society. GovTech SaaS is one such opportunity. In future articles, I’ll cover opportunities in other sectors.
I believe GovTech SaaS businesses have unfair advantages that make them some of the most interesting and underrated opportunities in entrepreneurship:
- Recurring and sticky revenue – if you can overcome a challenging sales and procurement process, you have a chance to engineer great net revenue retention.
- Less competition – it’s anti-hype and unsexy, so few 20-something CS grads have the interest and domain expertise to effectively compete. This translates to fewer competitors and lower long-term pricing pressure.
- Opportunity for truly holistic vertical SaaS – it’s a chance to start by solving one pressing problem for a key department, expand to multiple needs for that same stakeholder, deepen value and lock in, and get economies of scale at the city or state level.
- Accelerated momentum with scale – GovTech SaaS purchasers are typically risk-averse and consensus-driven. However, once you have a critical mass of adoption and public case studies, this can actually accelerate your sales and market awareness.
- Impact – your work strengthens society. You’ll have a deeper mission to hold on to when times get tough, and you’ll find it easier to recruit and retain similar mission-driven talent.
GovTech SaaS, however, is not for the faint of heart and has perils that typical enterprise SaaS companies don’t face. However, if managed correctly, these perils become competitive barriers that strengthen your company over time.
Here are some of the top things to focus on and stay honest about as you grow:
- Get real revenue, not just pilots – closing a bunch of pilots with innovation departments within governments doesn’t validate your business.
- Quick sales cycles – find ways to incentivize speed where possible, and accurately track and optimize CAC throughout. If you are facing a long and multi-month process, price accordingly.
- Expand beyond a point solution – with few exceptions, only comprehensive GovTech plays can achieve the scale to get to $100M+ ARR. If you’re starting with a point solution, prove out horizontal expansion relatively early.
- Meaningful ACV with existing budget – small ACV contracts coupled with a required new budget request have killed many GovTech SaaS startups. If possible, design your sales process to tap into existing budget and build a business for six- or seven-figure contracts.
- Find win-win opportunities to monetize – for example, you might solve a department’s licensing and payment challenge by providing integrated payments; this costs the department nothing and can drastically impact your revenue.
If you’re running a GovTech SaaS startup at a seed or series A stage, I’d love to chat: you can reach me at firstname.lastname@example.org.