Any good venture capital portfolio strategy is diversified. Whether that is in the form of industries, markets, stages, time, or another factor — diversifying is important to success. If VCs could see into the future, there would be no need to diversify. They would simply invest all their funds into one company guaranteed to be a homerun. That’s obviously not the reality, which is why it’s important to cover many bases.
There may not be any startup company that is a guaranteed success, but just like diversifying your portfolio, there are ways to hedge your bets. The federal market may seem like a daunting place to turn for an emerging tech company, but it presents a massive opportunity to be a stable and reliable revenue stream.
Why should venture funds encourage their portfolio companies to sell to the federal market?
The federal market offers tech companies a multitude of opportunities. The federal government spends nearly $500 billion in contracts every year — and a non-negligible amount of that is spent on antiquated technology attempting to solve problems that could be better addressed by existing emerging tech solutions from the private sector.
Tech companies that succeed in the federal market are capitalizing on an opportunity for growth, a reliable source of revenue, and continued business. The government market is shielded from recessions, which means your contracts are also resistant to market fluctuations. Once you’re in with the government — you’re in. Past performance is massively important to government leaders and management when it comes to tech.
Not only does the government provide tech companies with financial opportunities but also opportunities to improve the way the government spends taxpayer money. When tech companies work with the government, they can help the government better serve Americans and ensure the U.S. stays competitive on a global level.
The main benefit to VCs is fairly straightforward: large federal contracts lead to revenue, which leads to a better return on your investment. Other benefits are less obvious: the opportunity to build relationships with government leaders and influence market trends is invaluable. And encouraging your tech companies to work with the federal government will help defend against foreign funding.
You’re probably thinking that working with the federal government sounds great — all of your portfolio companies should go for it. We agree, and think that more emerging tech should be making a run at the federal market, but tech companies that wander into the federal market without a plan are setting themselves up for failure.
The federal market presents some unique challenges to tech companies:
- The procurement process is lengthy and complex
- The marketing and messaging companies use in the private sector won’t work with government
- There is a learning curve to working with new solutions
Encourage the companies in your portfolio to go for it. But have them plan ahead first to reap the benefits and mitigate risk.
How can you help your portfolio get started?
First, evaluate which portfolio companies should consider federal based on parameters like size, location, and cash flow. (For more criteria, download our checklist!)
Once you’ve identified the contenders, it’s important to give the companies the support needed to succeed.
The most important lesson to tell your companies: selling to the government is not about selling, it’s about educating. This means pitches, messaging, and the approach to the procurement process will all need to be tailored to the government.
In addition, advise your portfolio to seek out leaders in government innovation and build relationships. Relationships within the federal market are key to success, and they take time to cultivate.
Acceleration programs specific to the federal market can offer the tools, resources, and connections to hit portfolio companies need to hit the ground running and cut time to revenue.
In addition, the government has lots of educational programs and training events with opportunities to pitch to a government audience and make connections.
With some guidance and encouragement, your portfolio companies can be in the running to land the next big contract — and share the wins with you.