Business

💰How can venture capital invest in the public sector?

JT chats with Josh Mendelsohn, an investor and advisor for startups in the public sector. Josh shared how his firm, Hangar, helps startups bridge the gap between innovation and the public good.

John Thomey
John Thomey
Feb 11, 2021
💰How can venture capital invest in the public sector?
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Hello! And welcome to all of our new (~25) subscribers who joined us since Monday. Most of you found us through some love we got from my school, the Price School of Public Policy at USC.

Are you a college student or recent grad (with up to 2 years work experience)? 

An Urban Tech friend is doing research for an early-career community product and wants to hear about your experiences getting started in your career. Click the button below to send her an email if you are open to chatting!

Chat with my friend Malkie!

Personally, I’m super excited she’s looking to build something to help people early in their careers. I really struggled in my early 20s to find what I wanted to do and wish I had a community to help me figure it out. I’m hoping she may even give me the chance to share a couple of the things I learned along the way with the people she’s building this for.

Now, onto today’s Urban Tech Thursday edition.

This week I got to chat with Josh Mendelsohn, an investor and advisor for startups in the public sector. Josh shared how his firm, Hangar, helps startups bridge the gap between innovation and the public good.

Before becoming an investor, Josh worked in government before joining Google's business team. Josh also served as a CEO, so he provides a unique perspective on how government can help spur innovation, having seen this world from all sides in his career.

Where to listen

Spotify Apple Podcasts | Amazon Music | Select Podcast Player

Before diving into the conversation, here are a few of the companies Josh is directly involved with. This context should help make the transcript below make more sense, but go listen to the podcast if you want the full conversation.

  • Camber: A company combining mobility data and analytics to improve operations across all levels of government, empower informed decision-making, and create equitable communities.
  • Cornea: Leverages machine learning to provide critical, real-time insights that inform disaster planning and response and recovery across government levels.
  • Outcome: Delivers a higher education financing platform that reduces the burden of student debt and aligns the interests of individual students, colleges, and universities to promote successful and sustainable educational outcomes. 
  • Roster: Pairs specialized technology systems with dedicated community health workers to deliver effective and accessible value-based health care.

JT: Josh, thank you so much for taking the time. So I think Hangar is a company that I'm keeping my eye on. I don't really know if company is the right word? You have a lot of different things going on. Maybe at the top, you can explain what Hangar is and how it’s involved in the city and tech space?

JM: Truly, John, thank you for having me. I think the easiest way to describe Hangar is we are an investment firm, but we're an investment firm specifically looking to build technology products and services in the public sector market.

What that practically means is we're building companies. We're building companies that are sustainable. We're building companies that are profitable. We're doing so on behalf of investors, whose assets we manage, who are equally committed to this marketplace and the opportunity it presents. 

It's probably worth sharing that the reason we started building Hangar and building it in this way, which isn't quite venture capital, but it's pretty close. As I looked at the landscape, having spent some time in government, it comes from the fact that I spent a lot more time in Silicon Valley. It just became so clear to me that the public sector needed more innovation. It needed more invention; it needed more use of technology. 

At the time, I threw on my VC hat. I was like, let's go invest in some of these companies. Truth be told, as a lot of your listeners know, it doesn't occur to a newly-minted Carnegie Mellon engineering graduate to be like, "Oh yeah, let's start a company that's gonna deal with the public sector market." It's a little more challenging than building something for consumers. It's a bit more challenging than building something, say, like the B2 B market, like the B2B market.

 It's phenomenally rewarding. You get to build these products and services where for all the talk that technology always has about scale. There's no other market that has the kind of scale-like thinking about than the public sector does. Cause you know, quite literally whether it's localities or states, or it's the federal government, there's no better way to touch millions and millions of lives by laying down code than this sector. We get to invest in companies that usually do that by building them and putting the teams together.

JT: Definitely a few points there I want to zoom in on. The term “venture” gets really complicated these days. On the investment side, how would you call it? Seed, pre-seed; whatever language -- What are y’all?

The term venture capital is just not as clear as it was maybe 5 years ago, but I probably don’t need to tell you that.

JM: That's where we get a little funky. Suppose you force me to stick to venture language. In that case, I'd say we're doing everything from where an angel would usually pop in all the way to seed investments or Series A. In practice, we look a lot more like what you would expect in private equity because we have a little bit of a different model.

We are funding these companies from the get-go. We own them outright, and we bring in amazing management teams to come in and run them. Of course, the management teams get a healthy chunk of equity. And, in our view, that's how you're able to build customer-centric companies.

We do that focused on a particular market sector that I think; unfortunately, many folks have found isn't one that naturally scales. Building companies, building products and services that then become companies for the public sector market isn't the kind of thing that happens because you've got two folks in a dorm room with an idea of cooking it up, who then do the chase on Sand Hill Road to capitalize it over time and quest to find product-market fit and grow from there. 

To work with the public sector market, you got to know your customer.

You got to spend the time understanding what they need, what they want, can they transact, and then, and only then, can you build. That's what we spend all our days doing at Hangar, getting to know those customers, understanding what their needs are, understanding what the broader marketplace looks like. In exchange, we can push code that impacts millions of people.

JT: So why how'd you move back to the East Coast? I’ve lived there and personally moderate climates are more my thing, being from Texas, but what made you go back after being in Silicon Valley and at Google?

JM: Look, so I had the weird experience of I started my career in government and spent some time in a whole bunch of places: a little bit of time at Treasury; a little bit of time at the Department of Defense, a little bit of time on campaigns. 

I thought of myself as like a political wonk and then had a job where I worked really long hours in DC and thought that moving 3,600 miles away to Mountain View, California, and worked at this little company called Google was like somehow going to give me a break. 

No way! I was sleeping on a couch there too, but it was great. And I fell in love with tech. And I think I got lucky in that Google was going through a magical time. It had just IPOed. It bet on a bunch of us who were like young kids, relatively straight out of school, and they let us go and build what we thought was interesting. I totally got hooked and spent a career in Silicon Valley as an entrepreneur who became a VC who went back to becoming an entrepreneur. 

But ultimately, at some point, I admitted to myself that I was an East Coaster at heart. Now we can always debate what that means. But I was really attracted to New York because the tech community in New York looked a lot in so many ways, like what I first found when I showed up in Silicon Valley, circa 2004, 2005. 

It was tight-knit and really supportive. And that, by the way, is totally the case. But the other part relevant to your question about New York. One of the big differences between and this held even when I finally moved six years ago. I think the prevailing approach of Silicon Valley to government was some version of, "leave us alone and let us do our thing. Let us innovate. Cause we know better than you." 

And hey, that's not how the world works. I think all your listeners know that. It remains pretty important to engage with policymakers, and that's something that East Coast, particularly New York's tech, whatever you want to call it, "leadership," has always really understood. Getting on that train and going down to DC and doing advocacy matters. 

Many New York tech advocates, whether it's Brad Burnham and Fred Wilson, through to Kevin Ryan and so many others have been getting on trains and going down to DC and advocating for all tech for a long time.

More and more folks recognize now that policymaking and commerce don't happen together in a vacuum.

JT: So I'm curious, Hanger obviously is focused on public-facing companies, but what would you say is your overarching investment thesis? If you have that, I know VCs or investors typically have that, but some people I've met don't like that word when describing it.

JM: You're not going to let us just pretend that all we care about is the public sector market?

Yeah, no, you're so right. I would say, if you look across our entire portfolio, and if you look at stuff that excites us right now, every one of these companies is taking the power of data and commoditized, computational power, and putting them to work in service of our customers.

It is not uncommon to be spending time in a Hangar meeting and you might as well play tech buzzword bingo.

But we need to get these techniques, tactics and approaches right for our sector, the public sector.

For the public sector, which we carefully defined, is not just building things for government, but building things in marketplaces where just to get market entry, you need to be working with the government, whether that's healthcare. 

Or it's public health officials in their COVID response who are just now coming okay to using the cloud. That's really powerful. And we spend a lot of time with our customers trying to help them understand what's possible due to moving to tech like cloud environments and taking advantage of all the data they have. And Lord knows there's no industry better at data than the government. Heck, just think of the National Weather Service and how it used to keep meteorological records hundreds and hundreds of years ago. That was one of the most authoritative sources of data you had at all. Nevermind all that they have now.

JT: Can we take a little closer look at your model? People reading/listening may roll their eyes, but in Silicon Valley, there's a massive conversation happening around this idea of startup services. VC firms doing direct media is a prominent example of it. I'm not saying it's good, bad, whatever. It just is happening.

But for what you focus on, how do you think about these services? For startups in the public sector, the services must look a lot different. In my experience around startups, no one in the early days is typically thinking about policy unless they are from a government/politics type background.

But as companies are "digitizing physical things," you should be thinking about it a bit earlier. At least, I think so, but that's my personal taste.

JM: No I, appreciate that. Look, I'll go out there and say I'm a big fan of “value-added services,” right? That's one of those amazing air quote terms. What does it actually mean?

I think that's the right way for firms to think about these, the services they provide to startups. And then it's the nuance that comes in the debate of is it as simple as you're a venture fund that has a Rolodex.

Of the right service providers to call, or do you have a full-time team that works with the portfolio companies? And I've found all the different flavors. I've built a firm that we ultimately sold to Google that was a bit more of on the engineering side of things. At Hanger, we specifically focus on the services that we provide to our portfolio companies that have everything to do with our industry.

How do you build those rapid prototypes to show a customer very quickly that what you discussed is now being reflected correctly? In our case, how do we work with our portfolio companies to have them better understand topics like that in a democracy, only legislative bodies can appropriate?

So you can have a government agency who's super eager to use your product, but it doesn't matter if there are no dollars there. And, so our team can help guide them through just how that process works. Some version of like what you learned about government in high school. You learned about how government works, then in college maybe took another course and got a deeper look. If you spend a little time on the Hill, you got the course sequence. If you spent time in a federal agency, that's another version of a gov course, but it's pretty rare that folks get that sequencing and understand what it looks like and how that happens at the federal level.

It's also radically different from what will go on for a locality, or oh my God, a special district - of which there are thousands in the United States alone. We want to help our companies, and their leadership mentally map what's possible and how you do it and how do you get the right order of operations and how do you make sure, like I said, that a customer can in fact transact.

You'll have instances of good startups that are building good product. It's valuable. They, look at government opportunities and they're like, Oh, surely this is better than whatever government currently uses or has.

And if only it were that simple unfortunately, it's not and which isn't to say governments are making the wrong choices. It's just, they have a different set of incentives. Their incentives are to serve citizens and to do so relatively carefully. And, so one of our big jobs is to help our companies correctly understand the challenges, navigate the risks and know what they're going into with their customers and just with eyes wide open. 

JT: Your point on the different levels of government and your metaphor to college courses resonate a lot with me. I’m a grad student right now at USC, but I also feel like my brief time in New York politics was a crash course in state and local politics applicable to other states and cities.

You’re so right there are a lot of different constraints and incentives for the various actors that always need to be evaluated on a case by case basis.

JM: The coolest thing about when you're building tech for these audiences, there's nothing that is freaking insane like with this sector. The one thing that seems to unite folks still, regardless of their perspective, is, "Hey, we have something that's going to fix your problem."

And they're like, "Oh tell me more." And I will say that unless they're just evil, there's no elected official. Who's ever said, "Oh yeah, I don't want you to go make it more effective for me to provide services to my constituents." 

You're totally right about the city level difference too. The more local you get, the easier these discussions become. The manifested results you can produce that help people end up just overcoming whatever partisan dispute, whatever community dispute, whatever somebody wants.

That's super motivating when there's a ton of divisions in the country at a time where tech itself can be divisive. There's some grand irony right now reminding us precisely what technology is. It's not just big internet platforms. It's more than that when you can use technology to help communities.

JT: When you're talking to the companies across these sectors. What types of questions are they coming to you and asking? 

Is it like, how do we work with a mayor’s office or city council? Sure, it varies by sector and size, but what are they coming to you for to help maximize opportunities or mitigate problems?

JM: So for our portfolio companies, we work so closely with them, so it's really tactical. 

It's like "we've had really good success building X, Y, and then help us expand it to Z. And can you just help us think through what the implications are of Z and for us."

We're also fortunate enough to have all sorts of startups, friends, companies come to us and ask questions too. I'm a huge fan of answering what questions you can and paying it forward.

Oftentimes, tech companies are thinking about policy debates and trying to figure out what role they can play and what that looks like. Companies often don't realize that you don't have to be a Google or Facebook or Twitter to gain officials' attention, whether at the state level or, the federal level. In fact, in my experience, even at the federal level, there's always this preference to be interacting with a startup executive, who's got an interesting story to tell and a particular point of view. 

Through my work with Engine, I'm happy to have had the opportunity to constantly introduce startups, to elected officials and that's one way to overcome whatever the concerns are about Google or Facebook or whoever else. They're easy to pick on. You can ust make it about the brass tacks of what is the startup trying to do? How are they trying to do it? And when, what way does regulation make it possible or threatened, or keep the startup from doing the good work that it wants to be doing.

That part's super exciting, and it's just hard. If you're a smaller company, your leadership team focuses on laying down code and operating your business. And that is what you should be good at. And you're probably not looking too in-depth at policies or asking, "who do I need to be talking to?"

I really tip my hat to every startup founder who takes the time anyway to get involved in policy discussions, those that impact their company, and those who don't. I've just always enjoyed answering their questions and helping them understand what they can do to make a difference.

And I think on some level too, educating founders that their voice is powerful, is really important for us to do too.

JT: Yeah, so I feel like this isn't a hot take, but I’ll be honest the policy debate in Washington seems a lot more productive the last few weeks than it was last year, or the last four years or so...

I'm curious, how are you looking at the new administration and how it can help innovation and what it can do to kickstart innovation?

You talk with a lot of startup type people, founders, investors, employees etc. What kinds of things are you helping them with to make the most of a hopefully more productive time in Washington? Maybe they can participate in a more direct way than was the case before?

JM:  I think really with any administration shift, there's a renewed opportunity for innovators to engage with their new government and help that government, as it puts its staff in place to understand where the marketplace stands and what's possible.

Those components are what are required. Particularly as a new administration sets its agenda and its priorities. When I get asked this question, it's tough for me and maybe this is like a little bit of my odd set of experiences kicking in not to say there's nothing better for new companies and entrepreneurs feeling like they can take the leap and start something new or try something radical than a stable economic environment.

That's just so important. And as the Biden team, Goes about thinking through COVID response and how to produce increased resiliency levels. And I should say on that too, like that's all about governors and mayors, right? It's all that. How do you bring that resiliency to bear as fast as possible? How do you get folks vaccinated? How do you stabilize our system and get us on track to the new normal that then allows entrepreneurs to go in and make the leap? 

One of the things that I find most exciting is this bizarre silver lining of the tragedy that is COVID in that it brought down some walls -- really artificial walls or walls that were born by history, but no longer had quite, quite the same relevance around regulatory policy for health data. That kind of innovation is really powerful.

So I think what the Biden team sees is that they've got a lot of windows and, frankly, I think the most formidable challenge for them is how to make sure they're focusing on the right handful of things, where they can have the biggest, fastest impact, because otherwise you lose momentum.

JT: You lose momentum as a new administration so quickly! It’s pretty crazy. As you know having been in politics for a while, when you have an agenda you need to get done, immediacy is a powerful tool to motivate your coalitions. 

More specifically though, is there anything like tax credits for remote work hubs or new infrastructure to support the rise of driverless cars that the Biden administration could do in the short-term that would have a big ripple effect for innovation? Anything tactical or in the weeds that you see?

JM: Oh, man. John, I'm so boring on this one. I really do believe it's like creating more stable government.

JT: Boring? I worked in the government for a bit so from my perspective, boring and stable government is a good thing for everyone, typically. It’s something that can be very undervalued even if you know it’s an important thing we should have.

JM: It happens to be true! I always found with government they're not, good at trying to predict the next innovation that's going to come.

So don't try, and that's not your job as a policymaker either. Your role as a policymaker is to understand how to maximize resources for the people you represent and make the universe of great things available to them, or at least that's the American way of thinking.

You totally hit on a couple of things that sure are vitally important. For me, one of the ones that always will come to mind is broadband access. It feels a little bit ridiculous to say that right now in a time when folks are doing remote school, and a lot of folks are having the luxury of doing remote work, but many don't and you have these deep inequities with broadband.

I feel a bit weird saying it because I think it was a drum that some of us were banging way before a pandemic that would have extreme near-term consequences. But I also think that it would behoove electeds to realize that there is a moment where high skill high-tech work can now be done almost anywhere. To the extent that there were some who thought that "tech" was something that was uniquely Silicon Valley and maybe New York. or Boston, maybe right. 

It's not, and you find successful companies that have tech companies that have grown up everywhere. That's really a condition that will only grow and should be embraced.  I hope this trend in the near term is reminding us that high-tech high growth startup activity in this case an American activity that isn't bound by geography. 

And as much as you know from your experiences, sometimes it's about new policies and sometimes it's also about not messing with policies that exist. Like a lightning rod right now is around Section 230 of the Communications Decency Act.

JT: For the listeners,  can you just explain 230 quick? I know what it have written talking points on it before but I know not everyone is as steeped in tech, policy jargon as us.

JM: Please if you have zero ideas about 230, consider yourself lucky. 230 is the federal guidance that has allowed user-generated content (like social media) to increase on the internet. And the reason being it's a provision that large companies will cite where it's quite clear, they are not responsible for proactively monitoring, editing, or moderating the content that appears on their platforms. It's gotten a lot of political hate. What does it mean for Twitter? What does it mean for misinformation?

JT: Yeah, both sides use it for opportunities. You can make an argument for whatever cause you have pretty easily using 230 to make the point, whether it's good or bad. 

The answer is it's really just complicated.

JM: That's exactly right. And the challenge though, when you look at the proposals, you don't really have to have a point of view. To read the proposals and be like, "Oh yeah, all this does is make it so that the really big platforms forever have a monopoly and no startup can really enter a marketplace without an extraordinary set of resources."

And that's just the latest in a line where sometimes policies, risk overreaching, and unintended consequences and unintended consequences are consequences born most frankly by entrepreneurs and small businesses that haven't even been born yet.

JT: Know you're a busy guy, and I don't want to take up too much of your time. Where can people check out your work? Where can people stay up on what you and your team are doing? 

You helped me understand 230 way better. I used to have to write talking points on it, but honestly, your breakdown gave me some useful context for how maybe I can look to cover it for Urban Tech in the future. I may even be quoting your explanation in any future article! Who knows. 

JM: The pleasure's mine. The easiest way on hair's website is hanger.is. Kind of a hanger-is. We've got a blog and you can also follow us on Twitter. You can follow me on Twitter @JoshMendelsohn. I’m more of a retweeter than a tweeter, but I'll work on that. Particularly as these debates get lively again. 

But seriously,  I think for everyone out there, that's working at that intersection of tech and policy and tech and government. I think there's, really nothing better you can be doing with your time right now.

Our country needs you. Our cities need you. And in tech is all about how to make a limited set of resources go as far as, as completely possible. And heck if that's not what we're trying to do right now in the environment we find ourselves in, this pandemic I don't know what is so, thanks for having me.

JT: Let’s also figure out a time and what would make sense to have you back to talk more tech and city stuff. I know people will probably want to hear your thoughts on some other topics soon. Thanks again man, talk soon.

Hello! And welcome to all of our new (~25) subscribers who joined us since Monday. Most of you found us through some love we got from my school, the Price School of Public Policy at USC.

Are you a college student or recent grad (with up to 2 years work experience)? 

An Urban Tech friend is doing research for an early-career community product and wants to hear about your experiences getting started in your career. Click the button below to send her an email if you are open to chatting!

Chat with my friend Malkie!

Personally, I’m super excited she’s looking to build something to help people early in their careers. I really struggled in my early 20s to find what I wanted to do and wish I had a community to help me figure it out. I’m hoping she may even give me the chance to share a couple of the things I learned along the way with the people she’s building this for.

Now, onto today’s Urban Tech Thursday edition.

This week I got to chat with Josh Mendelsohn, an investor and advisor for startups in the public sector. Josh shared how his firm, Hangar, helps startups bridge the gap between innovation and the public good.

Before becoming an investor, Josh worked in government before joining Google's business team. Josh also served as a CEO, so he provides a unique perspective on how government can help spur innovation, having seen this world from all sides in his career.

Where to listen

Spotify Apple Podcasts | Amazon Music | Select Podcast Player

Before diving into the conversation, here are a few of the companies Josh is directly involved with. This context should help make the transcript below make more sense, but go listen to the podcast if you want the full conversation.

  • Camber: A company combining mobility data and analytics to improve operations across all levels of government, empower informed decision-making, and create equitable communities.
  • Cornea: Leverages machine learning to provide critical, real-time insights that inform disaster planning and response and recovery across government levels.
  • Outcome: Delivers a higher education financing platform that reduces the burden of student debt and aligns the interests of individual students, colleges, and universities to promote successful and sustainable educational outcomes. 
  • Roster: Pairs specialized technology systems with dedicated community health workers to deliver effective and accessible value-based health care.

JT: Josh, thank you so much for taking the time. So I think Hangar is a company that I'm keeping my eye on. I don't really know if company is the right word? You have a lot of different things going on. Maybe at the top, you can explain what Hangar is and how it’s involved in the city and tech space?

JM: Truly, John, thank you for having me. I think the easiest way to describe Hangar is we are an investment firm, but we're an investment firm specifically looking to build technology products and services in the public sector market.

What that practically means is we're building companies. We're building companies that are sustainable. We're building companies that are profitable. We're doing so on behalf of investors, whose assets we manage, who are equally committed to this marketplace and the opportunity it presents. 

It's probably worth sharing that the reason we started building Hangar and building it in this way, which isn't quite venture capital, but it's pretty close. As I looked at the landscape, having spent some time in government, it comes from the fact that I spent a lot more time in Silicon Valley. It just became so clear to me that the public sector needed more innovation. It needed more invention; it needed more use of technology. 

At the time, I threw on my VC hat. I was like, let's go invest in some of these companies. Truth be told, as a lot of your listeners know, it doesn't occur to a newly-minted Carnegie Mellon engineering graduate to be like, "Oh yeah, let's start a company that's gonna deal with the public sector market." It's a little more challenging than building something for consumers. It's a bit more challenging than building something, say, like the B2 B market, like the B2B market.

 It's phenomenally rewarding. You get to build these products and services where for all the talk that technology always has about scale. There's no other market that has the kind of scale-like thinking about than the public sector does. Cause you know, quite literally whether it's localities or states, or it's the federal government, there's no better way to touch millions and millions of lives by laying down code than this sector. We get to invest in companies that usually do that by building them and putting the teams together.

JT: Definitely a few points there I want to zoom in on. The term “venture” gets really complicated these days. On the investment side, how would you call it? Seed, pre-seed; whatever language -- What are y’all?

The term venture capital is just not as clear as it was maybe 5 years ago, but I probably don’t need to tell you that.

JM: That's where we get a little funky. Suppose you force me to stick to venture language. In that case, I'd say we're doing everything from where an angel would usually pop in all the way to seed investments or Series A. In practice, we look a lot more like what you would expect in private equity because we have a little bit of a different model.

We are funding these companies from the get-go. We own them outright, and we bring in amazing management teams to come in and run them. Of course, the management teams get a healthy chunk of equity. And, in our view, that's how you're able to build customer-centric companies.

We do that focused on a particular market sector that I think; unfortunately, many folks have found isn't one that naturally scales. Building companies, building products and services that then become companies for the public sector market isn't the kind of thing that happens because you've got two folks in a dorm room with an idea of cooking it up, who then do the chase on Sand Hill Road to capitalize it over time and quest to find product-market fit and grow from there. 

To work with the public sector market, you got to know your customer.

You got to spend the time understanding what they need, what they want, can they transact, and then, and only then, can you build. That's what we spend all our days doing at Hangar, getting to know those customers, understanding what their needs are, understanding what the broader marketplace looks like. In exchange, we can push code that impacts millions of people.

JT: So why how'd you move back to the East Coast? I’ve lived there and personally moderate climates are more my thing, being from Texas, but what made you go back after being in Silicon Valley and at Google?

JM: Look, so I had the weird experience of I started my career in government and spent some time in a whole bunch of places: a little bit of time at Treasury; a little bit of time at the Department of Defense, a little bit of time on campaigns. 

I thought of myself as like a political wonk and then had a job where I worked really long hours in DC and thought that moving 3,600 miles away to Mountain View, California, and worked at this little company called Google was like somehow going to give me a break. 

No way! I was sleeping on a couch there too, but it was great. And I fell in love with tech. And I think I got lucky in that Google was going through a magical time. It had just IPOed. It bet on a bunch of us who were like young kids, relatively straight out of school, and they let us go and build what we thought was interesting. I totally got hooked and spent a career in Silicon Valley as an entrepreneur who became a VC who went back to becoming an entrepreneur. 

But ultimately, at some point, I admitted to myself that I was an East Coaster at heart. Now we can always debate what that means. But I was really attracted to New York because the tech community in New York looked a lot in so many ways, like what I first found when I showed up in Silicon Valley, circa 2004, 2005. 

It was tight-knit and really supportive. And that, by the way, is totally the case. But the other part relevant to your question about New York. One of the big differences between and this held even when I finally moved six years ago. I think the prevailing approach of Silicon Valley to government was some version of, "leave us alone and let us do our thing. Let us innovate. Cause we know better than you." 

And hey, that's not how the world works. I think all your listeners know that. It remains pretty important to engage with policymakers, and that's something that East Coast, particularly New York's tech, whatever you want to call it, "leadership," has always really understood. Getting on that train and going down to DC and doing advocacy matters. 

Many New York tech advocates, whether it's Brad Burnham and Fred Wilson, through to Kevin Ryan and so many others have been getting on trains and going down to DC and advocating for all tech for a long time.

More and more folks recognize now that policymaking and commerce don't happen together in a vacuum.

JT: So I'm curious, Hanger obviously is focused on public-facing companies, but what would you say is your overarching investment thesis? If you have that, I know VCs or investors typically have that, but some people I've met don't like that word when describing it.

JM: You're not going to let us just pretend that all we care about is the public sector market?

Yeah, no, you're so right. I would say, if you look across our entire portfolio, and if you look at stuff that excites us right now, every one of these companies is taking the power of data and commoditized, computational power, and putting them to work in service of our customers.

It is not uncommon to be spending time in a Hangar meeting and you might as well play tech buzzword bingo.

But we need to get these techniques, tactics and approaches right for our sector, the public sector.

For the public sector, which we carefully defined, is not just building things for government, but building things in marketplaces where just to get market entry, you need to be working with the government, whether that's healthcare. 

Or it's public health officials in their COVID response who are just now coming okay to using the cloud. That's really powerful. And we spend a lot of time with our customers trying to help them understand what's possible due to moving to tech like cloud environments and taking advantage of all the data they have. And Lord knows there's no industry better at data than the government. Heck, just think of the National Weather Service and how it used to keep meteorological records hundreds and hundreds of years ago. That was one of the most authoritative sources of data you had at all. Nevermind all that they have now.

JT: Can we take a little closer look at your model? People reading/listening may roll their eyes, but in Silicon Valley, there's a massive conversation happening around this idea of startup services. VC firms doing direct media is a prominent example of it. I'm not saying it's good, bad, whatever. It just is happening.

But for what you focus on, how do you think about these services? For startups in the public sector, the services must look a lot different. In my experience around startups, no one in the early days is typically thinking about policy unless they are from a government/politics type background.

But as companies are "digitizing physical things," you should be thinking about it a bit earlier. At least, I think so, but that's my personal taste.

JM: No I, appreciate that. Look, I'll go out there and say I'm a big fan of “value-added services,” right? That's one of those amazing air quote terms. What does it actually mean?

I think that's the right way for firms to think about these, the services they provide to startups. And then it's the nuance that comes in the debate of is it as simple as you're a venture fund that has a Rolodex.

Of the right service providers to call, or do you have a full-time team that works with the portfolio companies? And I've found all the different flavors. I've built a firm that we ultimately sold to Google that was a bit more of on the engineering side of things. At Hanger, we specifically focus on the services that we provide to our portfolio companies that have everything to do with our industry.

How do you build those rapid prototypes to show a customer very quickly that what you discussed is now being reflected correctly? In our case, how do we work with our portfolio companies to have them better understand topics like that in a democracy, only legislative bodies can appropriate?

So you can have a government agency who's super eager to use your product, but it doesn't matter if there are no dollars there. And, so our team can help guide them through just how that process works. Some version of like what you learned about government in high school. You learned about how government works, then in college maybe took another course and got a deeper look. If you spend a little time on the Hill, you got the course sequence. If you spent time in a federal agency, that's another version of a gov course, but it's pretty rare that folks get that sequencing and understand what it looks like and how that happens at the federal level.

It's also radically different from what will go on for a locality, or oh my God, a special district - of which there are thousands in the United States alone. We want to help our companies, and their leadership mentally map what's possible and how you do it and how do you get the right order of operations and how do you make sure, like I said, that a customer can in fact transact.

You'll have instances of good startups that are building good product. It's valuable. They, look at government opportunities and they're like, Oh, surely this is better than whatever government currently uses or has.

And if only it were that simple unfortunately, it's not and which isn't to say governments are making the wrong choices. It's just, they have a different set of incentives. Their incentives are to serve citizens and to do so relatively carefully. And, so one of our big jobs is to help our companies correctly understand the challenges, navigate the risks and know what they're going into with their customers and just with eyes wide open. 

JT: Your point on the different levels of government and your metaphor to college courses resonate a lot with me. I’m a grad student right now at USC, but I also feel like my brief time in New York politics was a crash course in state and local politics applicable to other states and cities.

You’re so right there are a lot of different constraints and incentives for the various actors that always need to be evaluated on a case by case basis.

JM: The coolest thing about when you're building tech for these audiences, there's nothing that is freaking insane like with this sector. The one thing that seems to unite folks still, regardless of their perspective, is, "Hey, we have something that's going to fix your problem."

And they're like, "Oh tell me more." And I will say that unless they're just evil, there's no elected official. Who's ever said, "Oh yeah, I don't want you to go make it more effective for me to provide services to my constituents." 

You're totally right about the city level difference too. The more local you get, the easier these discussions become. The manifested results you can produce that help people end up just overcoming whatever partisan dispute, whatever community dispute, whatever somebody wants.

That's super motivating when there's a ton of divisions in the country at a time where tech itself can be divisive. There's some grand irony right now reminding us precisely what technology is. It's not just big internet platforms. It's more than that when you can use technology to help communities.

JT: When you're talking to the companies across these sectors. What types of questions are they coming to you and asking? 

Is it like, how do we work with a mayor’s office or city council? Sure, it varies by sector and size, but what are they coming to you for to help maximize opportunities or mitigate problems?

JM: So for our portfolio companies, we work so closely with them, so it's really tactical. 

It's like "we've had really good success building X, Y, and then help us expand it to Z. And can you just help us think through what the implications are of Z and for us."

We're also fortunate enough to have all sorts of startups, friends, companies come to us and ask questions too. I'm a huge fan of answering what questions you can and paying it forward.

Oftentimes, tech companies are thinking about policy debates and trying to figure out what role they can play and what that looks like. Companies often don't realize that you don't have to be a Google or Facebook or Twitter to gain officials' attention, whether at the state level or, the federal level. In fact, in my experience, even at the federal level, there's always this preference to be interacting with a startup executive, who's got an interesting story to tell and a particular point of view. 

Through my work with Engine, I'm happy to have had the opportunity to constantly introduce startups, to elected officials and that's one way to overcome whatever the concerns are about Google or Facebook or whoever else. They're easy to pick on. You can ust make it about the brass tacks of what is the startup trying to do? How are they trying to do it? And when, what way does regulation make it possible or threatened, or keep the startup from doing the good work that it wants to be doing.

That part's super exciting, and it's just hard. If you're a smaller company, your leadership team focuses on laying down code and operating your business. And that is what you should be good at. And you're probably not looking too in-depth at policies or asking, "who do I need to be talking to?"

I really tip my hat to every startup founder who takes the time anyway to get involved in policy discussions, those that impact their company, and those who don't. I've just always enjoyed answering their questions and helping them understand what they can do to make a difference.

And I think on some level too, educating founders that their voice is powerful, is really important for us to do too.

JT: Yeah, so I feel like this isn't a hot take, but I’ll be honest the policy debate in Washington seems a lot more productive the last few weeks than it was last year, or the last four years or so...

I'm curious, how are you looking at the new administration and how it can help innovation and what it can do to kickstart innovation?

You talk with a lot of startup type people, founders, investors, employees etc. What kinds of things are you helping them with to make the most of a hopefully more productive time in Washington? Maybe they can participate in a more direct way than was the case before?

JM:  I think really with any administration shift, there's a renewed opportunity for innovators to engage with their new government and help that government, as it puts its staff in place to understand where the marketplace stands and what's possible.

Those components are what are required. Particularly as a new administration sets its agenda and its priorities. When I get asked this question, it's tough for me and maybe this is like a little bit of my odd set of experiences kicking in not to say there's nothing better for new companies and entrepreneurs feeling like they can take the leap and start something new or try something radical than a stable economic environment.

That's just so important. And as the Biden team, Goes about thinking through COVID response and how to produce increased resiliency levels. And I should say on that too, like that's all about governors and mayors, right? It's all that. How do you bring that resiliency to bear as fast as possible? How do you get folks vaccinated? How do you stabilize our system and get us on track to the new normal that then allows entrepreneurs to go in and make the leap? 

One of the things that I find most exciting is this bizarre silver lining of the tragedy that is COVID in that it brought down some walls -- really artificial walls or walls that were born by history, but no longer had quite, quite the same relevance around regulatory policy for health data. That kind of innovation is really powerful.

So I think what the Biden team sees is that they've got a lot of windows and, frankly, I think the most formidable challenge for them is how to make sure they're focusing on the right handful of things, where they can have the biggest, fastest impact, because otherwise you lose momentum.

JT: You lose momentum as a new administration so quickly! It’s pretty crazy. As you know having been in politics for a while, when you have an agenda you need to get done, immediacy is a powerful tool to motivate your coalitions. 

More specifically though, is there anything like tax credits for remote work hubs or new infrastructure to support the rise of driverless cars that the Biden administration could do in the short-term that would have a big ripple effect for innovation? Anything tactical or in the weeds that you see?

JM: Oh, man. John, I'm so boring on this one. I really do believe it's like creating more stable government.

JT: Boring? I worked in the government for a bit so from my perspective, boring and stable government is a good thing for everyone, typically. It’s something that can be very undervalued even if you know it’s an important thing we should have.

JM: It happens to be true! I always found with government they're not, good at trying to predict the next innovation that's going to come.

So don't try, and that's not your job as a policymaker either. Your role as a policymaker is to understand how to maximize resources for the people you represent and make the universe of great things available to them, or at least that's the American way of thinking.

You totally hit on a couple of things that sure are vitally important. For me, one of the ones that always will come to mind is broadband access. It feels a little bit ridiculous to say that right now in a time when folks are doing remote school, and a lot of folks are having the luxury of doing remote work, but many don't and you have these deep inequities with broadband.

I feel a bit weird saying it because I think it was a drum that some of us were banging way before a pandemic that would have extreme near-term consequences. But I also think that it would behoove electeds to realize that there is a moment where high skill high-tech work can now be done almost anywhere. To the extent that there were some who thought that "tech" was something that was uniquely Silicon Valley and maybe New York. or Boston, maybe right. 

It's not, and you find successful companies that have tech companies that have grown up everywhere. That's really a condition that will only grow and should be embraced.  I hope this trend in the near term is reminding us that high-tech high growth startup activity in this case an American activity that isn't bound by geography. 

And as much as you know from your experiences, sometimes it's about new policies and sometimes it's also about not messing with policies that exist. Like a lightning rod right now is around Section 230 of the Communications Decency Act.

JT: For the listeners,  can you just explain 230 quick? I know what it have written talking points on it before but I know not everyone is as steeped in tech, policy jargon as us.

JM: Please if you have zero ideas about 230, consider yourself lucky. 230 is the federal guidance that has allowed user-generated content (like social media) to increase on the internet. And the reason being it's a provision that large companies will cite where it's quite clear, they are not responsible for proactively monitoring, editing, or moderating the content that appears on their platforms. It's gotten a lot of political hate. What does it mean for Twitter? What does it mean for misinformation?

JT: Yeah, both sides use it for opportunities. You can make an argument for whatever cause you have pretty easily using 230 to make the point, whether it's good or bad. 

The answer is it's really just complicated.

JM: That's exactly right. And the challenge though, when you look at the proposals, you don't really have to have a point of view. To read the proposals and be like, "Oh yeah, all this does is make it so that the really big platforms forever have a monopoly and no startup can really enter a marketplace without an extraordinary set of resources."

And that's just the latest in a line where sometimes policies, risk overreaching, and unintended consequences and unintended consequences are consequences born most frankly by entrepreneurs and small businesses that haven't even been born yet.

JT: Know you're a busy guy, and I don't want to take up too much of your time. Where can people check out your work? Where can people stay up on what you and your team are doing? 

You helped me understand 230 way better. I used to have to write talking points on it, but honestly, your breakdown gave me some useful context for how maybe I can look to cover it for Urban Tech in the future. I may even be quoting your explanation in any future article! Who knows. 

JM: The pleasure's mine. The easiest way on hair's website is hanger.is. Kind of a hanger-is. We've got a blog and you can also follow us on Twitter. You can follow me on Twitter @JoshMendelsohn. I’m more of a retweeter than a tweeter, but I'll work on that. Particularly as these debates get lively again. 

But seriously,  I think for everyone out there, that's working at that intersection of tech and policy and tech and government. I think there's, really nothing better you can be doing with your time right now.

Our country needs you. Our cities need you. And in tech is all about how to make a limited set of resources go as far as, as completely possible. And heck if that's not what we're trying to do right now in the environment we find ourselves in, this pandemic I don't know what is so, thanks for having me.

JT: Let’s also figure out a time and what would make sense to have you back to talk more tech and city stuff. I know people will probably want to hear your thoughts on some other topics soon. Thanks again man, talk soon.

💰How can venture capital invest in the public sector?

John Thomey

John Thomey is a founder of Urban Tech, a newsletter and podcast. He’s a graduate student at the University of Southern California, studying Public Policy and Urban Planning.

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