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New Report: Civic Tech Companies Make Gains, Struggle With Sustainable Business Models

“Scaling Civic Tech: Paths to a Sustainable Future,” provides analysis and interviews with nearly 50 stakeholders

A new report offers an in-depth view into the emerging civic tech industry, revealing the opportunities and challenges faced by organizations working to connect citizens with their government when seeking to scale and become financially sustainable. Commissioned by the John S. and James L. Knight Foundation and the Rita Allen Foundation, the report, “Scaling Civic Tech: Paths to a Sustainable Future,” provides analysis and interviews with nearly 50 stakeholders, including founders of for-profit and nonprofit civic tech organizations, foundations, venture capital firms and other prominent voices in the field.

“Despite growing interest, activity and funding for organizations strengthening democracy and civic engagement, few civic startups have achieved sustainable and scalable business models for their work. Identifying bright spots and approaches for overcoming common widespread barriers is essential to nurturing more sustainable civic tech startups,” said Jon Sotsky, Knight Foundation director for learning and assessment.

“This is an exciting time of experimentation in the civic tech sector, and yet we see many great teams struggle to scale their ideas beyond promising initial tests,” said Jonathan Kartt, who leads program and evaluation at the Rita Allen Foundation. “We hope this report can catalyze a conversation among funders, entrepreneurs, researchers and others about how to build healthy, sustainable civic startups and strengthen the sector as a whole.”

Over the last few years, the field of civic tech has used the power of technology to open new avenues for citizens to contribute to democracy – helping to increase government transparency and accountability, while allowing citizens to better connect with each other, share their voices, access vital public resources and influence decision makers. Following the 2016 election, there has been an intense focus on building citizen engagement, even as communities continue to grapple with low public trust in institutions of all kinds.

In this environment, the role of civic tech becomes even more important, as does the future of the field. “Scaling Civic Tech: Paths to a Sustainable Future” offers an essential view into the current state of leading civic tech organizations through detailed research and insights from startup leaders, funders and others. It examines how civic tech organizations are gathering resources to sustain their work with examples from organizations that have scaled and grown, while highlighting the challenges that they faced.

Importantly, organizations are experimenting with several different revenue sources and business models that support their progress. However, few have identified repeatable and reliable revenue sources that fully cover their costs. Also, a shortage of capital and funders in the civic tech space has limited the ability of these organizations to scale. As such, the prospect of sustainability for many is still tenuous – with a few standouts driving success.

The report looks at civic tech organizations within different focus areas – open data and transparency (e.g. Countable, Mapbox, OpenGov); voting and elections (e.g. Ballot Ready, DemocracyWorks, Center for Technology and Civic Life); government-citizen interaction (e.g. Accela, mySociety, Neighborland); and citizen mobilization (e.g. Avaaz, Brigade, Change.org) – examining the ways in which they have worked to scale and succeed. It provides best practices, exploring what has worked in the field and what has not, and suggests opportunities for growth. It also offers funders insights to shape their giving practices and assess their role in advancing impact in the field.

Key findings about organizations in the field include:

  • For-profit organizations focused on selling software to governments and large companies show the most growth: These organizations have focused on developing their sales capacity and have often launched with strong connections within government. Organizations have grown through other business models, but generally not as quickly.
  • There are clear skill and experience gaps that limit growth: Organizations that have grown the most have paired technology skills with valuable experience in government or the social sector. However, many need to invest in key areas to survive and thrive, including: business planning, sales, fundraising, impact measurement and communications.
  • Business growth is harder for organizations playing a watchdog role: Revenue growth varies depending on focus area (transparency, voting, resident-to-government interaction), and based on whether organizations take a collaborative approach, working alongside government, versus demanding more accountability. For the latter, it is harder to earn money through government partnerships; they rely mainly on philanthropic funding.

Notable insights pertaining to civic tech funding include:

  • Funders should invest in core capacities that advance long-term sustainability: Unlike venture firms, philanthropic funding for civic tech companies has largely focused on providing “buyer” capital, investing to cover the ongoing costs of doing business, rather than “builder” capital, which supports growth and ongoing innovation. Before startups develop reliable “buyer” revenue streams they need “builder” capital to grow.
  • Philanthropic investments in civic tech have been limited: Compared with other investment areas (e.g. K-12, higher education, health), there is relatively little philanthropic capital in the civic tech space. As a result, many civic tech startups have structured themselves as for-profits to attract capital from venture firms.
  • Funders should explore new paths to advancing civic tech: Funders can advance specific mission-aligned issue areas – economic development, health, education – by seeking out organizations that focus on this work. In addition, they can play a role in mobilizing support from the impact investing community, which focuses on funding organizations to create a measurable, social impact. To date, little funding for civic tech has come from impact investors.

Finally, both funders and organizations need to play a role in driving collaboration in the field. Organizations can better coordinate efforts through incubators and accelerators, and shared sales and fundraising services. In addition, founders and funders must work together to recognize barriers to growth.

“Scaling Civic Tech: Paths to a Sustainable Future” includes insights from organizations such as: Accela, Avaaz, BallotReady, Bridgade, Center for Technology and Civic Life, Change.org, Countable, coUrbanize, Crowdpac, Democracy Works, DoSomething, Granicus, ioby, Loomio, Mapbox, MapLight, mySociety, Neighborland, OpenGov, Peak Democracy, PopVox, SeeClickFix, Socrata, Sunlight Foundation, and Vote.org.

Research for the report was conducted by Catherine Bracy and Elana Berkowitz, in collaboration with Nonprofit Finance Fund.

This report forms part of Knight Foundation’s efforts to engage people in shaping their communities and strengthening democracy. Knight has funded several projects in this area including its News Challenge on Elections and its News Challenge on Open Gov; in 2013 it released a detailed study of the Civic Tech Investments landscape.

As a funder of early-stage ideas in civic engagement and philanthropy, the Rita Allen Foundation supported this report in order to investigate opportunities for promising organizations to succeed in a changing financial landscape.

To download the report visit: kng.ht/civictechbiz. Follow the conversation on Twitter with #civictech.

About the John S. and James L. Knight Foundation

Knight Foundation is a national foundation with strong local roots. We invest in journalism, in the arts, and in the success of cities where brothers John S. and James L. Knight once published newspapers. Our goal is to foster informed and engaged communities, which we believe are essential for a healthy democracy. For more, visit knightfoundation.org.

About the Rita Allen Foundation

The Rita Allen Foundation invests in transformative ideas in their earliest stages to leverage their growth and promote breakthrough solutions to significant problems. It enables early-career biomedical scholars to do pioneering research, seeds innovative approaches to fostering informed civic engagement, and develops knowledge and networks to build the effectiveness of the philanthropic sector. For more, visit ritaallen.org.