Government technology segments to watch

The combination of aging infrastructure and evolving societal demands is forcing government agencies to embrace innovative solutions. Newly available federal funding and technological advancements serve as a tailwind, supporting growth in key areas such as energy, IoT and caregiving. 

Below, I explore these segments, why they are vital to our country, and why they’re poised to become ripe markets for govtech startup success in the next 12 months.

Energy and Climate

There’s a growing consensus that our energy infrastructure is fundamentally inadequate. In its most recent report card, the American Society of Civil Engineers gave U.S. energy infrastructure a C- grade. Increasing demand has only compounded these issues, elevating risks to both the economy and national security.

In response, Congress passed the Inflation Reduction Act (IRA) in 2022 to stimulate investment in clean energy and climate initiatives. The IRA allocates nearly $400 billion in federal funding to expand electricity generation, storage, and transmission, along with incentives to boost the adoption of electric vehicles and energy-efficient products. 

This funding isn’t limited to legacy players. For instance, one of the first projects funded through the $14 billion National Clean Investment Fund included a $250 million investment from Climate United for a partnership with Forum Mobility—a VC-backed startup founded in 2021—to offer affordable battery-electric truck leasing options for small fleets and independent operators.

From diversifying energy generation to align with regional strengths to advancing technologies for energy storage, distribution, and efficiency, the opportunities for innovation, investment, and impact are vast.

The private sector is taking note: earlier this year, GE spun off GE Vernova to focus on the energy transition and grid modernization. Energy has also been a rare bright spot for venture capital activity in 2023, with over half of investors surveyed by deVere Group planning to increase their investments in sustainable energy-focused options within the next year.

Expect continued momentum and enthusiasm in this sector as the country addresses its pressing energy challenges.

IoT and Critical Infrastructure

Beyond energy, the entirety of U.S. critical infrastructure is outdated. While the Infrastructure Investment and Jobs Act (IIJA) of 2021 made significant capital investments in roads, bridges, and water systems, it fell short of addressing long-term operations and maintenance (O&M) needs. 

As a result, governments are building infrastructure in some cases without a clear plan for how those systems will be effectively and efficiently maintained.

The good news is that recent advancements in IoT technology are spurring innovations that will eventually yield more cost-effective O&M solutions. Some of these advancements include:

• Edge Computing: Processing data at the edge, rather than in centralized data centers, is enhancing real-time data analysis and reducing latency.
• AI Integration: IoT devices increasingly use artificial intelligence to deliver smarter, more predictive solutions.
• Sustainability: Eco-friendly IoT solutions that optimize resource usage are gaining traction, driven by global environmental concerns.
• Security: IoT security remains a growing concern, leading to heightened investments in cybersecurity for connected devices.
• 5G Connectivity: The continued rollout of 5G networks is revolutionizing IoT by enabling faster, more reliable connections and unlocking new use cases.

In addition to improving O&M, these advancements also open up the opportunity for governments to simultaneously address other high priority challenges like resident affordability, accessibility and safety.

The market trends are significant. According to the IoT Startup Landscape 2024 Report and Database, active IoT startups have seen a 2.7-fold increase to over 3,300 in 2024. IoT startups seeking Series A and B venture rounds hit an all-time high of $2.45 billion in 2023, an 18% increase from the previous year. Analysts predict IoT startups will continue to see an influx of capital as the IoT industry more than triples in size over the next 6 years. 

Childcare, Eldercare and Aging in Place

The U.S. population is older than ever, with the Census Bureau projecting that by 2060, nearly one in four Americans will be over 65. This demographic shift presents significant economic, societal, and infrastructural challenges. 

Beyond expected increases in healthcare costs and pressures on Social Security and Medicare, caregiving needs are impacting workforce participation.

More than 2 million women have not returned to the workforce, citing caregiving responsibilities for children or elderly and disabled relatives. Businesses are estimated to lose $12.7 billion annually due to employees’ family care challenges.

Fortunately, the funding community is paying attention. Despite a downturn in overall venture capital funding, startups focused on childcare, eldercare, and aging in place have seen increased investment. 

Companies like Upwards, WeeCare, Winnie, Wellthy, Carefull, HCG Secure, and CarePredict exemplify an emerging segment of govtech operating at the intersection of consumer needs, private companies, and local governments.

Seizing the Opportunity

Government agencies often get a bad rap for being slow to modernize — a reputation earned in part by the critical need for reliability in services like water safety and waste collection. However, citizen demands, budget constraints, and workforce challenges are pushing federal, state, and local governments to adopt new technologies more than ever before.

While opportunities exist across many areas, I’m particularly excited about the rapid evolution and growth in energy, IoT, and the care economy. These segments are not just addressing urgent challenges but are also laying the foundation for meaningful, long-term transformation.

Elle Hempen builds companies, products, strategies and partnerships that respond to the most urgent issues of our times. Prior to her current role as EVP for State & Local Strategy at GovExec, she founded and led a government technology company, worked in philanthropy and served in government. Find her on LinkedIn.