Our business puts us on an interesting perch whereby we find ourselves in conversations with founders, operators, private equity firms and venture firms that are focused on the gov tech market. Unsurprisingly, the dominant topic in every interaction has been AI, as all stakeholders in the market try to gather as much information as possible and form a consensus view on what the future might hold for gov tech. Depending on what conversation you find yourself in, the headlines will range from immense risk to a generational opportunity.
AI is already changing how gov tech businesses are valued, diligence and financed — the only question is how quickly that will occur. We have seen this first-hand in our work with clients where the volume and nature of AI-related due diligence has changed considerably over the last few years. If we go back to 2023, a minority of firms would ask about AI and it was not the focus of their due diligence. Last year, 100 percent of firms asked about AI but the theme of those conversations was more “how are you using AI to accelerate growth and improve margins?” — AI was an opportunity, not a threat. In the current environment the conversation is equal parts opportunity and threat, fueled by the headlines around the long-term risk AI is presenting to traditional software models.
While AI will certainly reshape the gov tech market, we think the complexion of that transformation is going to look different than in the private sector. The most important dynamic is that government agencies’ purpose is to serve the population in an effective and transparent manner — not the relentless pursuit of revenue growth or earnings maximization that defines many companies in the private sector.
