Lesson from COVID-19? It Pays to Work with the U.S. Government
Finding a way to help the government, could help your business.
By: Claudio Ochoa
Earlier this month, Sequoia Capital, one of the country’s top VC firms, warned its portfolio companies to expect decreased growth as a result of falling consumer spending from the coronavirus. Other investors are advising companies to cut costs, reduce headcount (aka fire people), and “raise capital as soon as possible and focus on breaking even.”
Despite all this negativity, there are a handful of companies that not only will see little to no impact to their bottom line but in some cases may actually see a significant increase: those who count the U.S. Government as a customer.
At Donovan Capital, we invest in commercial companies that also work with the U.S. Department of Defense or Intelligence Community. That decision to diversify their customer base and grow into the government channel means that regardless of what happens in the consumer market, they have a customer ready, willing, and able to spend $148 Billion this year on their goods and services.
This is not limited to the Pentagon. In 2018 alone, federal agencies spent – more specifically, entered into contracts with companies to purchase goods or services for – approximately $559 Billion. That includes everything from building websites, to cutting grass, to providing IT services, to buying toilet paper. Chances are that whatever you make or provide as a business, the U.S. Government (as the world’s single largest purchaser of goods and services) needs.
And, that is before COVID-19. In addition to an increase in discretionary spending across the board, Congress has recently authorized $8.3 Billion in supplemental funding. While a significant amount is earmarked for the development of a vaccine, that still leaves over $6 Billion for the government to contract with companies to provide related goods and services, or invest in R&D. Already, million-dollar contracts have been awarded on everything from janitorial services to companies that are applying AI to predict hotspots.
The shocking part is that this is just the beginning. Consider that we are still unfortunately weeks away from the zenith of the outbreak, and the White House has already requested another supplemental spending bill of $46 Billion ($8.3 Billion of which is slated for the Pentagon), a significant portion of which will ultimately end up in the hands of private companies. Given the unprecedented impact of the virus, this likely won’t be the last increase in funding, as the U.S. Government will need to be at the center of almost every remediation effort for years to come, including providing public safety, coordinating logistics, and initiating massive infrastructure projects as a means to jumpstart the economy.
The bottom line for any CEO is that now is the time to work with the U.S. Government, both because it is the right thing to do and because it makes economic sense. And, as investors, now is the time to encourage your portfolio companies to consider diversifying into the channel. While there are no doubt challenging times ahead, there is also opportunity.
