Investing where the government is falling short

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Regardless of red or blue, there is one fact that just about every voter can agree upon: There is always some issue that Capitol Hill or City Hall just isn’t getting right. 

On Monday, venture firm General Catalyst announced a new investing focus on “civic tech” to be headed by partner Katherine Boyle.

So what exactly does that mean? Boyle will focus on investing in companies that are “either working hand-in-hand with the government to solve problems, or building in a way that augments the function of government to help society,” she says (for now, she is the sole partner to lead the charge, though other partners at the firm can also make investments in the space). In other words, General Catalyst is seeking to invest in startups that fill a gap where the authorities have fallen short—firms that solve problems typically tackled by the public sector, but will have the potential to grow with the speed of a private sector company.

Boyle says the venture firm is not looking to invest in, say, software that sells directly to government agencies—a process that can be slow and frustrating for the startup involved. Instead, it is seeking startups that are, say, looking to ameliorate San Francisco’s housing crisis by building guest houses in people’s backyards, or fill America’s shifting workforce needs with re-skilling classes.

“We think civic technology is going to be a growing sector,” Boyle, who is also moving to Miami, told me last week. As part of the thesis, Boyle says General Catalyst is also looking to invest in more aerospace and defense companies. (Boyle led General Catalyst’s 2017 investment in Anduril, a defense technology startup.)

You can read a longer story about Boyle’s “civic tech” project here. But I also left much of our conversation on the cutting-room floor. Boyle argues that as government work grew out of vogue in the 1950s and ‘60s (and then even more so in the wake of the highly unpopular Vietnam War), talent instead flew to private sectors in finance and now, tech. Now, says Boyle, many of those who would have previously sought to work within government are looking to solve problems like carbon emissions from Silicon Valley.

Still, having a private sector company try and fill the gaps of government can create perverse incentives down the line. For example, tax software makers Intuit and H&R Block certainly make it easier for some to fill in their taxes—but as the government grew more tech savvy, the duo also lobbied hard against free tax-prep tech that threatened their business. So I asked Boyle, how does she think about the problem in the context of her startups?

Here’s what Boyle had to say to that end: “I never hear mission-driven founders say: ‘We’re going into this sector because it’s so inefficient and the government is never going to fix itself so we have the opportunity to build a lasting company’… But I do think that it’s an important question to ask down the line.”

Of course, then that brings up the other part of the balancing act, which is: How do you then make strong returns as a fund? In short, it’ll be a dynamic to watch. 

SOOOO, THAT WAS A MISTAKE: Some three years ago, AT&T fought hard to buy up Time Warner for an eye-popping $85 billion. Then-CEO Randall Stephenson extolled the virtues of a potential deal: Combined, AT&T and Time Warner could differentiate itself by offering customers deals bundling wireless service with streaming content. The idea was that data collected from customers could then inform advertisers how best to target audiences. 

Skeptics were—skeptical, to say the least. Falling short of its competitors like Verizon in the arena of 5G, AT&T appeared to be acquiring Time Warner for the sake of growth rather than creating a viable long-term strategy. And while the content arena was attractive, AT&T was stepping into a heavily competitive realm where Netflix and Disney were spending billions. 

“I spend as much time thinking about Amazon and Netflix as I do thinking about Verizon and Comcast now,” Stephenson told Fortune’s Geoff Colvin in May 2019.

In hindsight, that was perhaps one of the reasons why the merger didn’t work out. Under a different CEO (John Stankey), AT&T is now spinning off those expensive assets into a new company in what amounts to an admission that the idea wasn’t such a good one after all. On Monday, the telecom giant said it plans to combine its content assets with Discovery, creating a standalone media company. Still subject to regulatory approval, the combination will bring brands such as the HBO Max and discovery+ streaming services under the same roof. AT&T shareholders are expected to hold about 71% of the business, while Discovery shareholders will receive the rest. AT&T would receive about $43 billion in cash and debt. Read our 2019 full feature on AT&T here.

Lucinda Shen
Twitter: @shenlucinda


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