Venture Investing in the Public Sector
I’ve been at Insight Venture Partners for a year and a half now, and many people I know ask me how about how it compares to the White House.
I tell them, truthfully, that it’s hard to compare things to the White House. The sense of mission, the opportunity to work on issues that are next week’s front-page headlines, the scope and scale of the federal government, and the feeling you get seeing the Marine standing guard outside the West Wing are unlike any of my private sector experiences.
But I’m really excited to be back in venture, working with software and internet entrepreneurs determined to make their mark. This month, Insight is hosting its annual Limited Partners meeting, where we spend time with our investors—including state pensions and state university endowments that trust us with the public’s money.
While the specifics of our investing strategy are proprietary, it’s public information that we are one of the largest venture and private equity firms focused just on software and internet companies. Looking at our current portfolio, you can also see that we’ve invested in software areas where government is significantly involved—as a regulator, payer, or customer. For example, we’re investors in:
- Public safety companies like TriTech and Appriss that help law enforcement and communities stay safe.
- Education companies like BrightBytes, Achieve3000, Illuminate, Frontline, and TurnItIn—companies that are improving teaching and learning in K-12 and higher education.
- Cybersecurity companies like Tenable, Thycotic, Checkmarx, and Firemon that help organizations—including government agencies—and detect or prevent bad guys from doing harm.
Why are these markets attractive areas for Insight, given conventional wisdom that government can be challenging to sell to, and expensive to serve?
- First, government is a large market. The federal IT market is $80B, and the global market for government software is estimated to be $400B.
- Second, government desperately needs better software. Ask any veteran who has tried to use the over 1,000 websites at the Department of Veterans Affairs, or the VA employees trying to help them.
- Third, government requirements, while challenging, can sometimes advance product development for our companies. For example, Docker is working with the federal government on strong security features for its container software, which will be helpful for the financial services industry and other commercial customers.
Like any market, the government market takes focus. Many of our companies have dedicated teams to it, and I’ve also been helping a handful of our companies with their federal market strategy, as well as policy and regulatory matters. Insight and our companies have also been proud to contribute to Presidential initiatives like TechHire, the White House Science Fair, and the White House Demo Day.
A workshop with our portfolio companies about the federal government.
Our commitment to these causes will continue past President Obama. Aaron Skonnard, CEO of Insight portfolio company Pluralsight, writes about why future Presidents should continue TechHire’s important mission to help more Americans get the accelerated, nontraditional technical training they need to obtain better jobs and achieve better futures.
I’ve written publicly about how the federal government isn’t getting sufficient value for its $80B of annual IT spending—and the most vulnerable in society are often the most harmed. Last week’s GAO report highlights the need for federal agencies to address their aging legacy IT systems, and included an alarming statistic: federal agencies spend $61B on IT operations and maintenance, but only $19B on new or modernization projects. The Department of Defense’s system that coordinates operations for nuclear forces runs on a 1970’s era IBM computer, and uses 8 inches floppy disks.
Some people ask how I square fixing that problem with my role at Insight Venture Partners. That’s easy—government should buy more of the market-leading software that our companies offer, rather than spending ten times as much to have a beltway contractor build a custom solution that doesn’t work well, and is outdated at time of launch. Our companies, in contrast, are typically building for Internet scale with software-as-a-service (SaaS), and are rigorously focused on constantly delivering delightful user experiences—for both federal employees and American citizens.
As one example, we’re investors in Qualtrics, a leading survey and insights company based in Utah. Qualtrics offers software for academic research, human capital management, and customer satisfaction. The federal government spends many millions in each of these areas—yet its activities are often conducted on outdated systems or still using paper. And in many cases, the government doesn’t even properly use the data it collects in these areas. Qualtrics can help government agencies gain real-time, actionable insights from research studies, government employees, and users of government digital services.
Another example is Alteryx, a leading self-service data analytics company. Alteryx can help the federal government become more data-driven internally, as well as deliver on the President Obama’s commitment to open up machine-readable data to the public.
There is also an increasing push for open source software in government. As someone who helped author President Obama’s commitment to a federal open source software policy, I’m a big believer in open source. We’re investors in Automattic (WordPress), Mirantis, and Docker—open source companies that are powering the websites and infrastructure of the federal government.
Some of our companies also have government roots. Mirantis sells software and services around Open Stack, an open source cloud software project co-founded by NASA and Rackspace. LiveAction, a recent investment focused on network management, has its origins in the Department of Defense.
I’m also passionate about finding ways to bridge the private and public sectors—and thus my involvement with the Harvard Kennedy School. I hosted panels on Designing a Better Digital Government, Security and Privacy in the 21st Century, and Criminal Justice in the Age of Big Data last fall, and taught a Tech and Innovation in Government field class this spring, where student teams worked closely with the VA, Census Bureau, City of Boston, and NYC. Teaching and mentoring the next great crop of what HBS Professor Mitch Weiss calls “public entrepreneurs” is both challenging and rewarding.
Working with great people is always gratifying. I’m humbled to be working with a great team at Insight, and I’m also extremely proud to have played a small part in the creation and growth of the Presidential Innovation Fellows, 18F (now part of the GSA’s Tech Transformation Service), and U.S. Digital Services—now over 350 people in government. In fact, I recently gave a talk at our annual Insight R&D Forum about Healthcare.gov—my White House colleagues Todd Park and Ryan Panchadsaram were key in the rescue—and how the crisis helped catalyze the rise of the digital services movement in the U.S. government.
So when my public sector friends ask about my return to venture capital, I tell them authentically that I’m very excited to be part of a great team investing and working with innovative companies that are growing quickly, creating opportunity for employees, and delivering real value to their business and government customers. But still nothing compares to the Marine standing sentry at the West Wing! Title image via MSNBC