Editor’s note (15 October 2026): Editor’s note, October 2026: this post was written in March 2024. The company funding figures are from that time, and the registration platform mentioned at the end has since been superseded by the Cluster’s current routes to membership.
In short: GovTech offers startups and scaleups lucrative, long-running public contracts, but government is a diverse customer with bureaucratic and risk-averse buying. Scottish and UK technology firms should start with a narrow agency or problem, build a track record, and pursue the public sector only where it fits their core competencies and long-term goals.
Key takeaways
- Selling to government is attractive to tech companies because public contracts are described as lucrative, long-running and less likely to be cancelled than those in other sectors.
- Government is diverse and not a single customer, so companies may find it easier to focus on a narrower agency or problem area first and build a track record.
- Bureaucracy, red tape and a risk-averse political culture can fade early enthusiasm, so startups should assess core competencies and long-term goals before pursuing the government market.
- Palantir, launched in 2004 with funding from the CIA’s venture arm In-Q-Tel, is cited as a GovTech success story that had raised over $900M.
- OpenGov, launched in 2012, had raised over $47M, acquired several companies and served over 100 public sector customers in budgeting software.
Why do startups and scaleups sell to government?
GovTech, the modernisation of public sector organisations through technology, has significant implications for startups and scaleups. For many tech companies, selling to the government is an attractive market due to lucrative, long-running contracts that are less likely to be cancelled compared to other sectors. The large and complex nature of public organisations often requires software solutions best provided by startups or small companies, whether for prototypes or bespoke products handling specific tasks. For example, GDS’s use of armchair testing by SimpleUsability revealed user confusion and poor visual signposting on their website, highlighting issues that could be solved with targeted software solutions or by companies selling relevant services.
Does GovTech benefit small technology businesses?
Despite limited academic research and statistical evidence, it is widely believed that GovTech positively impacts small technology businesses. As the public sector is the customer, GovTech is generally assumed to reduce government costs and improve service quality, providing supplier firms (mostly SMEs) with greater opportunities to secure government contracts.
What makes government a difficult customer for startups?
The government, as a customer, is diverse and does not represent a single entity. Companies may find it easier to focus on a narrower agency or problem area initially, building a track record of success while creating internal networking opportunities. Pursuing prime contracting is a common strategy for small technology companies entering the government IT market, particularly in countries like the United Kingdom and United States, where outsourcing and commercial technology use is encouraged. Meeting stringent qualifications can lead to large multi-year contracts, bypassing the need to understand government procurement procedures, but this high-risk, high-reward strategy may not suit all companies.
Adopting government technology can be challenging for startups and scaleups due to the complex, public-interest-driven nature of the sector. Enthusiasm for public service may fade as entrepreneurs and employees experience bureaucracy and red tape, exacerbated by the highly political and risk-averse culture in public agencies, limiting external entities’ access. While the government is a significant vertical market worth pursuing, startups and scaleups should first assess their core competencies and long-term goals, only pursuing the government market if they find a good strategic fit.
Which GovTech companies have scaled successfully?
Palantir Technologies, a data analytics company launched in 2004 with significant funding from the CIA’s venture capital arm, In-Q-Tel, is a GovTech success story. Palantir has raised over $900M and worked with numerous government and non-government organisations to analyse, integrate and visualise large data sets for decision-makers, without replicating failed software projects.
Another successful GovTech company is OpenGov, offering cloud-based, integrated solutions for public sector budgeting, reporting and open data. Launched in 2012, OpenGov has raised over $47M, acquired several companies and become a leader in the budgeting software space with over 100 public sector customers.
Is GovTech the right market for your company?
Many startups and scaleups overlook the potential of leveraging GovTech solutions to enhance their growth due to initial inertia and scepticism towards these solutions, perceived as low in maturity and lacking proven results. However, adopters found GovTech solutions to be competitive, cost-effective, highly customisable and responsive to community feedback, governed by service quality rather than profit margins.
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Frequently asked questions
Why should startups and scaleups sell to government?
The post says public sector contracts are lucrative, long-running and less likely to be cancelled than those in other sectors. Large public organisations also often need software that small companies are well placed to provide, from prototypes to bespoke products for specific tasks. GovTech is generally assumed to give supplier firms, mostly SMEs, greater contract opportunities.
What are the challenges of selling GovTech to the public sector?
Government is not a single customer, and entrepreneurs can find enthusiasm fading as they meet bureaucracy, red tape and a highly political, risk-averse culture that limits access for outside suppliers. The post advises assessing core competencies and long-term goals first, and pursuing government only where there is a good strategic fit.
How can a small technology company start in government markets?
The post suggests focusing on a narrower agency or problem area first, building a track record and creating internal networking opportunities. Prime contracting is a common route in the UK and US, where outsourcing is encouraged, and can lead to large multi-year contracts, but it is a high-risk, high-reward strategy that may not suit every company.
Which companies show that GovTech can work for startups?
The post cites Palantir Technologies, launched in 2004 with funding from the CIA’s venture capital arm In-Q-Tel and having raised over $900M, and OpenGov, launched in 2012, which had raised over $47M, acquired several companies and served over 100 public sector customers in budgeting, reporting and open data software.