Zac Bookman argues that the high cost of sales, slower growth cycles, and customer preference for product suites make GovTech a better fit for private equity's long-term, operational focus than for venture capital's high-growth model.
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Capital has become commoditized with thousands of PE firms competing. The old model of buying low and selling high with minor tweaks no longer works. True value creation has shifted to hands-on operational improvements that drive long-term growth, a skill many investors lack.
For projects requiring hundreds of millions, fundraising should be split into phases. The initial "pre-industrialization" phase, focused on proving technology, is suited for venture capital. Later phases for manufacturing and scaling should target project finance structures with debt/equity combinations and strategic partners.
OpenGov's CEO advises against the conventional wisdom of hiring salespeople with deep government experience. Instead, his company seeks hungry, courageous, and disciplined individuals and trains them internally on domain specifics, finding this approach more effective.
The most effective government role in innovation is to act as a catalyst for high-risk, foundational R&D (like DARPA creating the internet). Once a technology is viable, the government should step aside to allow private sector competition (like SpaceX) to drive down costs and accelerate progress.
The venture capital paradigm has inverted. Historically, private companies traded at an "illiquidity discount" to their public counterparts. Now, for elite companies, there is an "access premium" where investors pay more for private shares due to scarcity and hype. This makes staying private longer more attractive.
A core investment framework is to distinguish between 'pull' companies, where the market organically and virally demands the product, and 'push' companies that have to force their solution onto the market. The former indicates stronger product-market fit and a higher potential for efficient, scalable growth.
In government, digital services are often viewed as IT projects delivered by contractors. A CPO's primary challenge is instilling a culture of product thinking: focusing on customer value, business outcomes, user research, and KPIs, often starting from a point of zero.
OpenGov's CEO argues against the "never compromise" mantra. Building a business over a decade is a long series of painful compromises on talent, pricing, and sales. You must make tactical concessions to survive each stage and earn the right to advance.
Despite the high cost of distribution, OpenGov's success relied on a high-touch, in-person sales strategy. The team would show up with donuts, meet everyone in town, and build deep relationships, even for small initial contracts.
The trend of companies staying private longer and raising huge late-stage rounds isn't just about VC exuberance. It's a direct consequence of a series of regulations (like Sarbanes-Oxley) that made going public extremely costly and onerous. As a result, the private capital markets evolved to fill the gap, fundamentally changing venture capital.
