Where problems are many, opportunities can be tremendous. This seems to be the thinking behind the investors’ minds, which have increased their bets on govtechs – startups focused on solving the problems of all kinds of state-owned organizations and governments. At least BRL 48 million (nearly $10 million) has been invested in this segment in Brazil since the beginning of 2020, in eight of the largest operations disclosed in the period, according to data from LAVCA and the Sling Hub gathered by LABS.

Camerite, which offers monitoring solutions used by military and civilian police and municipal guards in more than 800 cities across the country, was the startup that attracted more investments. In June 2021, the company received a BRL 15 million ($3 million) funding from Zaphira to invest, among other things, in expanding its artificial intelligence solution. AI-focused startup Automa, which specializes in territory mapping, also caught the attention of investors, announcing a BRL 5 million ($1 million) round in January 2020.

Despite all the potential of AI monitoring initiatives, in Brazil, the winning segment is that of govtechs focused on more trivial problems, that is, startups trying to retire obsolete resource and data management systems. Approximately BRL 22.5 million ($4.5 million) were invested in these initiatives in the last two years, which is also reflected in the advancement of the digital transformation of the public sphere.

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In its 2020’s Govtechs Maturity Index, the World Bank placed Brazil in seventh place in digital transformation in the public sector. The country reached a level almost twice as high as the world average, registering 0.92 against 0.52 for the global index.

The country currently has 135 startups fully or partially dedicated to the public sector, according to BrazilLab, an innovation hub aimed at startups that develop solutions for the public sector. Of these, 28% have management solutions. One of them is Gove, which analyzes financial data in search of inefficiencies in public management and raised BRL 8 million ($1.6 million) in venture capital in November 2020 with Astella Investimentos.  

Another outstanding startup solving management problems, Colab received a contribution of BRL 3 million ($600,000), in July 2020, made by two American funds and the Brazilian MDIF. The startup offers a complaints and suggestions platform, accessed by around 600,000 Brazilians from over 100 cities. 

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In the same line of work, Facilit Tecnologia, which develops management systems and has 60% of its revenue coming from the public sector, received a BRL 3 million ($600,000) investment in February. The round was led by Criatec 3, a fund managed by KPTL, which has Brazil‘s Development Bank (BNDES) as one of its principal shareholders. In the same month, Aprova Digital, which provides construction permits, raised BRL 4 million ($800,000).

Among the leading govtechs in Brazil is also one dedicated to facilitating the relationship between startups and the public sector, and not only in Brazil. Portal Compras Públicas (or Public Procurement Portal in English) received a BRL 2.5 million ($500,000) funding from Fundo Venture Brasil Central a year ago and says it can reduce the average time to complete public bids by 76% with the digitization and automation of processes.

Recently, the startup, which has already brokered BRL 61 billion ($12.2 million) in bids in Brazil, chose Portugal as its first international market and, possibly, a gateway to Europe.

According to Leonardo Ladeira, CEO at Portal de Compras Públicas, in addition to speeding up bids and public procurement process, the startup managed to double the number of companies competing in public procurement processes and reduce the reference values of bids by 2.5 times. But for that, it had to overcome the resistance of public managers to do all this digitally and with startups.

The adoption of electronic bidding processes was already recommended since the publication of the country’s electronic trading law of 2002, but it only became mandatory in 2019, and even then it only covered processes related to voluntary transfer funds from the Federal government. 

The Legal Framework for Startups, approved in mid-2021, emphasized the requirement and expanded the list of products and services that could be tendered electronically. According to Ladeira, the framework broke down some more barriers and helped make the bidding process more favorable to innovative initiatives.

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Nonethless, for Diogo Cantão, CEO at the govtech focused corporate venture builder Dome Ventures, the changes brought by the Framework still have “a primarily educational character.” “Mayors still come to us uncomfortable to talk (to startups). They don’t know how it works. There is the law, but roadmap for the adoption of innovative solutions is still not clear in the minds of many of them,” he says.

What really helps in the process, according to him, is the almost universal understanding that it is necessary to reduce costs and increase the efficiency of the public machine. “A startup manager has to show the public manager that if he digitizes or automates a process, he can sometimes save 90%”, he exemplifies.

Faced with budget reduction resulting from the economic crisis and the recent legal mechanisms to contain costs, public managers are urgently looking for ways to cut expenses. Without being able to replace public servants at a time when demand for services has never been so high, resorting to govtechs has been increasingly necessary in Brazil, says Marcelo Sato, a partner at Astella Investimentos.

“The public finance sector aims to maximize revenue and reduce costs. As with corporations, there is a responsibility of the public administrator. It is essential that he obtain reserves for local investments that, in a virtuous cycle, bring more resources to the municipality in the future,” evaluates.

Half fintech, half govtech

Sato points out that, in addition to management govtechs, a new niche emerging in the country is the one of fintechs dedicated to digitalize payments of public transport, tolls, taxes and fees, among other public services, as a promise to help governments to optimize their revenues.

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One of the startups engaged in facilitating public sector payments is Zapay, which has served more than 3.5 million customers with transit debts throughout Brazil since its foundation in 2017.

Zapay, which received an investment of BRL 7.5 million in 2021, has an official agreement with 25 units of the State Department of Transit (Detrans) and serves 95% of the national fleet. The startup emerged as a fintech but today has the public sector as its main customer.

For Callebe Mendes, CEO at Zapay, the digitization of the public sector it’s a trend that’s here to stay. The familiarity that citizens of all places and incomes have come to have over the last few years with digital solutions has accelerated the demand for public services in the palm of their hand.

“Companies and governments have realized the great need for digitalization and how beneficial it can be. This movement has changed the habits of many citizens, who are beginning to discover the ease of paying bills and taxes from the comfort of their homes,” concludes Mendes.

Translated by Fabiane Ziolla Menezes