How Venture Capital Can Help Us Avoid The Next Big Disaster
A new report shows that startups focused on solving our biggest social issues lack access to funding. Here is why we need to change that.
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Immediately after the devastating damage caused by Hurricanes Harvey and Irma, several spontaneous hacking events were organized to create new tech tools to address problems that, had they been available prior to hurricane season, might have prevented damage or saved lives. Alphabet deployed their own cavalry of balloons to deliver internet access to Puerto Rico and Tesla's team installed solar batteries to get a hospital and other vital services back on the grid. And companies already doing business with government like Accela offered complimentary access to their Hurricane Damage Assessment software to speed up recovery in hard-hit areas.
The responses from the tech industry were a shining example of how technology can help cities improve our quality of life - and why venture capitalists should focus more of their investments on the emerging industries of GovTech and Civic Tech.
According to a new report by The Knight Foundation, many of today's startups which are focused on improving cities and addressing civic and social issues are not finding adequate access to capital or accessing the resources needed to develop sustainable, scalable revenue models.
There are two basic categories for startups focused on civic issues: GovTech, which tends to address the operational side of government, and Civic Tech, which focuses on the citizen experience.
The Knight Foundation's study revealed that while progress is being made for GovTech startups, many Civic Tech companies are struggling. Unlike other investment areas like education and health, the report found there was "little philanthropic capital in the civic tech space. Whereas the Foundation Center approximated philanthropic funding for education sector nonprofits in 2014 at $5 billion, previous research showed a relatively minuscule amount of philanthropic funding for civic tech."
That isn't to say that the funding landscape for GovTech and Civic Tech companies hasn't improved. e.Republic's annual GovTech 100 report issued in early 2017 indicates that the GovTech marketplace has burgeoned to nearly $100 billion annual spend on IT for local and state government with the top 100 companies accruing upwards of $185 million in new investment.
One of the leading investors focused solely on GovTech industry, the Govtech Fund, recently filed with the SEC their raise of $20.75 million of a possible $25 million for their second fund. The fund launched in 2014 with $23 million invested into companies like Neighborly and Seamless Docs. In fact, Neighborly, which closed on their own $25 million Series A round, has initiated an investment initiative focused on blockchain and artificial intelligence.
Several Silicon Valley philanthropic and social good organizations are focusing at least some of their impact investing on civic tech startups, including Omidyar, Emmerson Collective, W.K. Kellogg Foundation, and Khosla Impact. And some governments are choosing to fill in the gaps of funding by offering their own funds focused on their own priorities for civic improvement - an excellent opportunity for startups addressing those specific issues. The UK Government recently announced a 20 million fund aimed at startups addressing public sector issues, and New York City has launched a new crowdfunding program aimed at increasing the number of women entrepreneurs creating businesses across a wide variety of verticals including Civic and Gov Tech.
Three areas of improvement recommended by the Knight Foundation can help us get there: providing better access for founders to develop vital competencies for running a startup, delivering better access to capital and facilitating more collaboration between startups.
If we want to harness many of today's new technologies to help address some of the broader issues that affect our quality of life like those which severely impacted communities hit by natural disasters, leaders in the investment community and in government will need to commit resources and time to address these areas of need. While these startups may not yet have sustainable revenue models, the value they deliver could make the difference in helping us mitigate the impact of natural disasters, social unrest or quality of life issues.