Why does Capstreet invest in government?
Capstreet believes government is behind on technology adoption and could gain a lot from specialized vertical software. It sees GovTech as similar to other stable, regulated industries it knows.
Capstreet states its view this way on its What We Do page:
We believe the government technology sector is behind on technology adoption but could benefit from the significant efficiency advantages that specialized vertical software can bring. GovTech shares many of the attractive attributes of other stable, regulated industries where Capstreet has the knowledge and resources to help businesses scale.
Vertical software means software built for one industry and its rules. Agencies buy differently from private companies, so a vendor that knows the process has an edge.
Capstreet does not claim GovTech is unique. It says GovTech has many of the attractive attributes of other stable, regulated industries, and that it has the knowledge and resources to help businesses scale there.
What kinds of government businesses fit Capstreet?
A fit is a specialized vertical software business that serves government customers. Capstreet looks for a tenured owner team, solid financials and untapped growth.
| Area | What Capstreet describes |
|---|---|
| Product | Specialized vertical software |
| Customer | Government and public agencies |
| Industry traits | Stable and regulated |
| Opportunity | Behind on technology adoption |
| Benefit | Significant efficiency advantages |
Capstreet does not name GovTech sub-segments. Its portfolio company works in eProcurement. Ask yourself three questions. Is your software built for a government workflow? Do customers keep buying it year after year? Does your team have tenure? Then compare your numbers with the firm’s criteria.
How do Capstreet’s criteria apply to government companies?
Capstreet publishes five criteria, and they apply to government owners the same way they apply to every other industry. Each one is listed below.
- Entrepreneur-owned businesses services companies
- $3 to $15 million of EBITDA
- Primarily majority investments
- Entrepreneurs reinvest alongside Capstreet
- Ability to apply the Capvalue Framework®
The firm also says it looks for “a tenured team of owners or managers seeking a majority capital partner, with solid financials, a defensive business model, untapped growth potential, and competitive advantages within their market niche.” Software that sits inside agency workflows and meets regulated needs can be hard to replace. That fits the defensive business model Capstreet describes. This is our reading of the criteria, not a Capstreet claim.
Its $3 to $15 million EBITDA range sits in what many call the lower middle market. EBITDA means earnings before interest, taxes, depreciation and amortization. It is the profit measure Capstreet’s range uses. In a buy and build plan, the first business is the platform company, and later purchases are added to it.
Which government companies has Capstreet backed?
Capstreet lists one government technology company in its portfolio. It is a current investment. Status is shown as Capstreet publishes it on its portfolio pages.
- PlanetBids: Current, Fund V. A provider of eProcurement software-as-a-service with two platforms. PB System helps government, private, nonprofit and educational procurement teams manage and streamline procurement. VendorLine connects vendors and contractors with bid opportunities. Headquartered in Studio City, California.
What does Capstreet do after it invests?
Capstreet applies its Capvalue Framework® in three steps: Research, Build Scalable Platform, and Drive Business Transformation. Across its history, the firm reports 50+ Platform Acquisitions and 200+ Add-on Acquisitions.
- Research. Perform deep research to identify markets and build relationships with key entrepreneurs.
- Build Scalable Platform. Invest in top talent and technologies, and provide functional expertise for scale.
- Drive Business Transformation. Develop a long-term strategic roadmap and execute a buy and build strategy.
PlanetBids serves several customer types, not only agencies. That is a useful reminder that GovTech companies often grow beyond their first customer group. For the deal process, see how selling to private equity works.
There can be no guarantee that Capstreet will be successful in applying its Capvalue Framework®.
Next step
If your company serves government, read the full deal criteria, then start a confidential conversation through the contact page. You can also call 713-332-2700 or email connect@capstreet.com. See all industries Capstreet lists.
Frequently asked questions
What government technology companies does Capstreet invest in?
Capstreet invests in specialized vertical software for government. It believes the sector is behind on technology adoption and can gain significant efficiency. Owners should also meet the firm's criteria, including $3 to $15 million of EBITDA.
What is PlanetBids?
PlanetBids is a Capstreet portfolio company, listed as current in Fund V. It provides eProcurement software-as-a-service through PB System and VendorLine, serving government, private, nonprofit and educational procurement teams and connecting vendors with bid opportunities.
Why does Capstreet compare GovTech to other regulated industries?
Capstreet says GovTech shares many attractive attributes with other stable, regulated industries where it has knowledge and resources to help businesses scale. The firm sees that as a reason it can add value in government technology.
Does Capstreet invest in government contractors?
Capstreet's published thesis is about government technology and vertical software, not general contractors to government. Ask the firm directly if your company is a services contractor. A confidential call is the first step, and the firm can say whether a fit exists.
