100+ Million Invested In Civic Tech Sector Over Last 3 Years: Village Captial & CIIE.CO

Village Capital and CIIE.CO has launched a report titled ‘Catalyzing Civic Tech in India’. The report highlights the  $100+ million investment into Civic Tech in India by organizations aimed to improve the delivery of services to citizens and refine the Indian government’s responsiveness to important civic issues. The report further analyses emerging subsectors, promising revenue models and actionable takeaways for the sectors’ key stakeholders - entrepreneurs, investors, government leaders, and philanthropic organizations to build out the civic tech sector.

Speaking about the need for the report, Kunal Upadhyay, CEO and Managing Partner - Venture Investing, CIIE.CO, said, "There has been increasing movement and investment in startups across specific domains like geo-mapping, mobility, waste management, and backend government tools, to name a few. However, as a collective, civic tech remains a big opportunity for entrepreneurs to create impact, especially given the governments’ increasing focus on incorporating effective tech solutions to deliver welfare services better. The time is right for civic tech to be recognized as a sector in India - one with superlative potential for growth and impact."

“Village Capital has worked with impact-driven startups from 28 countries, and we have seen time and again how technology can help address civic issues and improve civic engagement,” said Village Capital CEO Allie Burns. “We’ve also seen civic tech startups build scalable business models that can deliver returns for investors and sustain their impact over time. Investors should pay attention to the civic tech sector in India: it only has room to grow.”

The findings of this report encourage entrepreneurs, investors, government leaders, and philanthropic organizations to take responsible measures that can build a robust civic tech startup ecosystem in India: 

INVESTORS

Consider alternative models for investment, beyond equity

Equity investments are the most common way for an investor to fund an early-stage startup and can work quite well for businesses that have a clear path to scale and exit. But, as Village Capital explores in our report Capital Evolving, equity can be a poor fit for startups that have cash flow challenges or do not fit the traditional mold of a Silicon Valley startup. Indian civic tech startups often face cash flow challenges. Other more patient models, including revenue share, could be a better fit.

Enable startups to work with the government

 Investors, who can be a powerful lobbying group and often have close government connections, can encourage government leaders to engage more small, tech-driven innovative companies in government contracts. 

GOVERNMENT

Ease restrictions on eligibility requirements for government tenders

Civic tech startups seeking government contracts often find themselves in a catch-22: the contracts require them to meet certain requirements or have particular experience, but their inability to get those contracts precludes them from getting the proper experience. These requirements can vary from the age of the organization to the company’s operations (for example, setting a minimum turnover level). Government leaders looking to grow the civic tech sector as a public good can consider easing these restrictions.

Train government workers in digital literacy

Many government workers have low digital literacy or are untrained in data collection. This hinders their ability to take advantage of the latest technology and work effectively with startups. We have heard from entrepreneurs that request-for-proposals are often vague, unclear or opaque. Also, onboarding can be difficult: unclear data maintenance or storage policies, and limited or no access to APIs make data-centric government solutions more difficult to adopt.

PHILANTHROPY/NGOs

Support organizations with hybrid business models

This report lays out different models for revenue for civic tech startups, but it is still the case that many startups rely on both revenue and philanthropic support, at least in the early days. Philanthropic organizations should encourage this by supporting startups with promising hybrid models.

Consider capacity-build and multi-year funding models

Progressive donors should consider moving toward multi-year, milestone-based funding models that are heavy on strategic technical assistance. 

Consider making program-related investments

Program-related investments allow foundations to make investments as loans or equity stakes in the hopes of regaining their investments plus a reasonable rate of return. While they are not common yet in India, they have begun to gain popularity in the US, and we believe they could be a powerful way to support Indian civic tech entrepreneurs.

CIVIC TECH ENTREPRENEURS

Engage with government entities to help your business achieve scale

This is particularly the case in terms of product sales, SaaS models, commissioned projects and other revenue models. Therefore, understanding government needs and solving their pain points is an important void that entrepreneurs should target. Having delivered a proof of concept with one district, municipal corporation or state can go a long way toward establishing credibility with agencies that you might be targeting.

Consider opportunities to create revenue models beyond government funding

Government contracts can be slow to come at the very beginning. There are a few ways to get an early revenue stream. First, consider leveraging partnerships with large IT consulting firms and systems integrators like PwC, L&T, Dell, that have been traditional service providers to the government. Second, consider selling your technology directly to the private sector, which is always looking for IoT, data analytics and SaaS innovations. 

Consider hybrid revenue models where philanthropic funding supplements own revenue

As we’ve explored in this report, some subsectors of civic tech, particularly those that rely on revenue from citizens, can be more challenging for a for-profit business model. We have seen startups have success using hybrid models that combine revenue with grants and philanthropic funding.

The report focuses on providing insights and showing pathways to build a vigorous Civic Tech environment in India where all these stakeholders work cohesively towards enabling citizen-government engagement to devise progressive systems of governance that cater to basic civic and lifestyle needs.