Since 2011, investors have poured $431 million into a new sector of companies aiming to make citizens' lives better. Here's why civic tech is suddenly hot.
When Ashton Kutcher, Jeff Bezos, Google, and Andreessen Horowitz have all invested in a certain sector of start-ups, it's probably safe to say that there's something to it. That "it" in this case is civic tech, and according to a new report, it's one of the hottest niches in start-ups.
The report released Wednesday by the Knight Foundation and data analysis firm Quid defines a civic tech start-up as a company that helps people better interact with their government, partake in democracy, and promote an open and transparent governing body. In practice that means these start-ups aim to improve citizens' lives through crowdfunding mechanisms, neighborhood forums, peer-to-peer sharing, and more.
Between 2008 and 2012, the civic tech field grew on average 23 percent each year, from 83 companies in 2008 to 121 companies in 2012. Jon Sotsky, the director of the Knight Foundation, says there's good reason for the sudden interest in technology that improves citizens' lives.
"This type of tech distruption has happened in many other industries. It's almost like the public services and government usage of tech is a laggard and is coming at the tailend," Sotsky says. "Healthcare.gov and other frustrations citizens have are because they want the same level of tech application they have as consumers in their lives as a citizen."
Investors seem to agree. From January 2011 through May 2013, individual investors, VC firms, and philanthropic organizations poured $431 million into 102 civic tech start-ups. In addition to the high-profile names mentioned above, Napster creator Sean Parker, Reddit's Alexis Ohanian, Yahoo's Marissa Mayer, Y Combinator, and Benchmark Capital have all made investments in the sector.
It's worth noting that Knight and Quid keep their definition of civic tech broad, so that funding figure includes peer-to-peer sharing companies such as Airbnb and Waze. The former has raised $119 million and the latter has raised $30 million. But even start-ups that might fit a more strict definition of civic duty raised a considerable amount of capital. Community forum Nextdoor raised $40.2 million and the petition platform Change.org raised $15 million. Code for America raised $9.8 million.
Areas Ripe for Entrepreneurs
Civic tech is really just getting going. Mayur Patel, vice president of strategy and assessment at the Knight Foundation, advises entrepreneurs to focus on political opportunities within the sector--things like making it easy to submit community feedback to the government, organizing public decision-making, increasing data access and transparency, and improving the voting process, which is still one of the more complicated actions a citizen performs.
Start-ups and organizations like TurboVote and Votizen are tackling the "antiquated" process of voting, Patel says. But with only eight start-ups that collectively raised $4 million since 2001 in the voting cluster, there's a lot of room for competition. In the feedback cluster, 17 start-ups raised a collective $16 million. One of them, SeeClickFix, lets residents report non-emergency neighborhood issues. In the transparency and data niche, the Seattle-based cloud software company Socrata, which is aiming to democratize access to government data, is one of 16 start-ups that collectively raised $37 million.
"People want to interact with their government in a way that is immediate," Patel says. "Peoples' trust in the government and its ability to function has waned."
WILL YAKOWICZ is a reporter at Inc. magazine. He has covered business, crime, and politics at Patch.com, and his work has been published in Tablet Magazine and The Brooklyn Paper. He lives in Brooklyn, New York. @WillYakowicz