Dusseldorf, Berlin After a year and a half of editing, Marc Hodapp ran out of patience. As an architect and project developer, he had to wait so long for a building application to be approved. So in 2020, he sought out two co-founders and turned his frustration into a business idea: With his startup Urbanistic, he sells digital solutions to municipalities that can be used to speed up construction planning and many other processes.
Queue tickets, file folders, faxes – nowhere does digitization seem more necessary and overdue than in administration. At the same time, the state with the spending of billions is a potentially large and reliable customer. But for a long time, the digital and start-up scene in Germany struggled with offers for authorities. So far.
In Germany alone, the Govmind data service recently counted 300 “Govtechs”. The acronym stands for companies that sell technology to the government or have a strong influence on public life. Examples range from Civical, which offers software for social media communication by political actors, to e-scooter providers such as Tier, whose electric scooters are to be integrated into city traffic.
For Europe, Govmind founder Manuel Kilian has nearly 1,500 Govtechs founded since 2010. At the same time, some $20.7 billion in venture capital has flowed into the European government tech universe, he says. For comparison: According to management consultancy EY, the entire German start-up scene raised a record 17.4 billion euros last year. So the potential in the market is huge – once you get into it. New government technology companies can learn from the experiences of the pioneers.
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In the beginning, patience and financial margins are needed
Former architect Marc Hodapp once again needed patience when entering the new business. After his experience with administration led him to found the start-up Urbanistic in 2020, he wanted to bring his solutions for modern urban development to municipalities as quickly as possible. One of the products is a digital twin that can be used to model if and where heat islands form in a building.
And indeed: With Kirchheim in Bavaria, he quickly found a municipality that was enthusiastic about the offer. Then the disappointment: “At first we thought we could launch in a month,” says Hodapp. But even in this case the start will have to be delayed for another year and a half. The municipality first had to organize a long tender process to be able to award the start of the contract. This is what the public procurement law requires.
The number of government technicians could probably be significantly higher if public procurement procedures in Germany were structured differently. Until now, competitions were often confusing, hard to find and not tailored to new companies.
In a survey conducted by digital association Bitkom two years ago, only one in three of the 206 startups surveyed said they had already applied for a public tender. The most frequently cited reasons: time-consuming award procedures, lack of time to read tenders, too many required documents and evidence.
The problem has been recognised, says Markus Richter, the Federal Government’s undersecretary and head of IT: “Big ideas come quickly,” he said recently at the Handelsblatt Govtech summit. But if startups are left alone with paper, they quickly become overwhelmed.
And: Not every start-up has the financial reserves to wait a year and a half for the first sales.
But it can also happen very quickly. Tobias Fischer founded the govtech start-up Roadia after a “near death experience”, as he puts it. After he was briefly hit by a car on his bike in Berlin, he started thinking about how to make traffic safer. In 2021 he founded Roadia with two colleagues. In the same year, they launched their first traffic data acquisition product, with which they received an order for traffic counting in Schleswig-Holstein.
When it comes to procurement processes, founders need to think like management
The trick? Roadia co-founder Mykhaylo Filipenko advises other founders to think carefully about what interests management might have in a partnership. “For companies, goals are usually financially driven,” he says. For the administrations, on the other hand, other points are important: to make the roads safer, to improve the infrastructure or to simplify the citizens’ services. In other words, startups are not allowed to present their profit-maximizing story to the office, with which they otherwise try to convince their venture capitalists. This tends to trigger defensive reactions.
In the meantime, Roadia has also taken part in public tenders outside Germany – somewhere in Europe, Filipenko does not want to reveal exactly where. But: “The commissioning process was much more transparent there,” says the founder. The example also shows that most government technologies are in no way tied to a single country.
According to the World Bank, $85 trillion worth of goods and services were produced globally in 2020, about 14 percent of which were ordered and paid for by governments: “Business-to-business is the backbone of the $12 trillion global economy.” says John Witt. With his London-based company, Stotles, he has developed a platform to make it easier for businesses to do business with the public sector.
In Germany alone, according to the Federal Procurement Agency, the volume of public contracts in 2021 was seven billion euros. Almost three-quarters of spending is on digital services and information technology. The procurement office does not collect information on how many of the orders end up going to start-ups.
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From Stotles CEO John Witt’s point of view, the more the merrier. For example, Stotles can be used to control the sale of materials such as staple guns, hole punches and office chairs. However, it also provides employees and software services. “Stepstone for Digital Administration” is what investor and president of the Federal Association of German Startups, Christian Miele, calls it. His venture capital firm, Headline, along with other investment firms, recently invested $6.5 million in the company. In total, the company has been able to raise approximately nine million US dollars since its inception.
Unlike classic online procurement platforms, Stotles personalizes the search for each company. For this purpose, the interests and preferences of customers are automatically investigated. The software compares that information with available offers and uses it to create a continuous hit list, a “personalized feed,” says co-founder Taj Kamranpour. Clients include established companies such as Vodafone, Nokia and Boston Consulting Group (BCG), as well as newer technology companies such as UiPath and Freshworks.
The business model is easily scalable, i.e. it can be offered to many customers simultaneously with relatively little effort. Companies pay an annual fee to use the platform, which depends on the number of employee accesses. A decisive success factor is the growing product expansion towards the “central procurement tool”, says the Miele investor.
Network first, then sell
The experience of the founder of Stotles Witt: Not only start-ups, but also many managements would have an interest in making existing innovations useful for themselves. However, outdated structures and strict standards in public procurement or recruitment law make modernization difficult.
Here comes Lars Zimmermann, who himself ran a government technology company for three years. He likes to call Germany a “framework state” with principles “from the industrial age”. Federal, state and local governments are finding it increasingly difficult to create the conditions for their own modernization, Zimmermann says.
So in March he founded the “Govtech Campus” in Berlin together with federal ministries and representatives of the federal states. Authorities and technology experts should meet there and find solutions together. From the point of view of federal CIO Markus Richter, the right approach: It is crucial that the purchasing process is “considered from the beginning” so that it can be carried out “smoothly”.
>> Also listen to this podcast on the topic: The co-founder of Public Zimmermann: “The state is threatened with a crisis of credibility”
Some municipalities are already taking a different approach. When the city of Bochum decided to create a website in 2018, it sought outside advice. But the result of the consultation: Bochum needed a digital overhaul. Without further ado, the city administration itself established a start-up through its business development organization – Shift Digital.
David Latz is CEO of Shift Digital and praises the advantages of the model: “We can offer modern working conditions and attract the young and digitally savvy,” he says. Due to the close connection with the city, future users could participate directly in the development.
The first project launched was an idea management platform intended to replace a letterbox in the town hall. In the long term, the home factory in Bochum also wants to sell its products in other cities. But for Nina Ferreira da Costa, Product Manager at Shift Digital, it is also clear: “We cannot replace digital skills in management.”
In other words, transformation can neither be created nor created. Municipalities also need to be digitized a bit.
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