Is public-purpose technology the new fintech?
By Sam Gilbert, author of Good Data: An Optimist’s Guide to Our Digital Future
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In the first half of 2021, a whopping $7.4 billion was invested into startups in “insurtech” — the subsector of fintech focused on insurance. And yet just nine years previously, when my co-founders and I launched boughtbymany.com, a platform for niche insurance , the term “insurtech” hadn’t even been coined.
Was this because the insurance market in 2012 was functioning perfectly, with no problems for innovative startups to get stuck into? Of course not: other areas of the financial services industry had simply received more attention from entrepreneurs and venture capital funds — including mobile payments, banking software, and online share trading.
Back then, the label “fintech” didn’t fit Bought By Many — so much so that we looked outside financial services for comparatives, describing ourselves to prospective investors as “Groupon for insurance”. But over time, a wider set of opportunities to change financial services for the better came into focus. Entrepreneurs founded startups in areas like wealth management and credit-scoring, and began describing themselves as “fintech” too. Venture capital investment grew exponentially as the scope of the sector became broader.
GovTech isn’t everything
Public-Purpose Tech (PPT) is at a similar stage of evolution now as fintech was in 2012. Currently, PPT is dominated by “GovTech” — software solutions designed to enable local and national governments to operate more efficiently. GovTech is generally associated with high-stakes “B2G” business models, with long sales cycles and byzantine procurement processes standing between startups and lucrative government contracts. Understandably, the costs, uncertainty, and competitive pressures inherent in B2G are a turn-off for some investors.
But just like investors came to see that there was much more to fintech than mobile payments, GovTech is only the tip of the iceberg when it comes to PPT. And below the metaphorical water-line, entrepreneurs are hard at work. In the coming years, we will see different kinds of PPT startups with different business models gain traction as they progress from MVP to product-market fit to scale — ranging from AI companies applying machine-learning to the built environment, to infrastructure providers enabling GDPR-compliant analysis of medical records, to analytics firms using sewage data to create epidemiological insights.
Meanwhile, impact startups whose core purpose is to improve citizens’ lives will come to be identified with PPT. These might include apps enabling people to provide remote care to relatives with dementia, next-generation credit unions, or SaaS companies helping businesses to reduce their carbon footprint.
As entrepreneurs tackle a wider range of public challenges, and venture capital investors’ understanding of PPT becomes more expansive, orders-of-magnitude more investment will follow.
Today, as Nebula reveals, the bulk of investments in PPT are at seed-stage. As these startups mature, the historical trajectory of fintech suggests we could see mega C- and D-rounds at unicorn valuations for PPT companies within 5 years, and major trade exits and IPOs within 10.
Fintech investments are now around 30 times their 2012 levels. The scale of opportunity in addressing public challenges in areas like the green transition, open data, and social care means PPT has every chance of following in fintech’s footsteps.
Dr. Johannes Lenhard, Researcher and Affiliated Lecturer, University of Cambridge (Max Cam)