A few notes on 2022.
Investors, partners, friends,
Hopefully, you are spending these waning days of the year as we are, with family and friends. It’s certainly a worthy moment of reflection for us at Hangar. 2022 has been a transformational year for Hangar as we were able to drive growth, recruit new extraordinary talent and LPs, and secure new government contracts while navigating market turmoil.
When we launched the firm and our first fund several years ago, we did so on a sometimes quite lonely set of convictions, notably that only governments can solve the biggest challenges we face, and that technology needs to be part of the solution. In parallel, we knew the conventional models of venture creation and financing could not be applied to that market, but it would require new thinking accounting for the scale and scope of the public sector challenges.
A perfect storm made 2022 the year that answered any questions that lingered as to our thesis. COVID and new moves against climate change reminded us all that public policy carries life and death consequences, and public institutions continue to struggle to serve their people. Which is why, this year, we saw the federal government double down, passing historic infrastructure and clean energy investment legislation that commits significant dollars to working with the private sector to develop and deploy just the type of technology that Hangar and its portfolio companies are building.
Practically speaking, it became the year that Mike Ference could stop having to explain how Washington actually works to institutional investors. When Jim Courtland could stop getting flack for our equity structure while his company, Outcome, turned on extraordinary customers and clients at ever higher volumes as his competitors shuttered on account of greedy financings and unsustainable models. And the year Erica, Karen, and Ricky had to focus on helping us scale to meet the opportunities in front of us because a fund focused on the public sector didn’t look so crazy anymore. Most importantly, our portfolio companies really began to rack up tangible successes.
As a result, we welcomed several new prominent LPs and received renewed support from some long-time backers. We thank them and are continuing to engage with potential new investors while we monitor the capital markets to take advantage of any new opportunities to invest in strategic growth opportunities. This is a group that has come to realize just how uncorrelated Hangar’s fund prospects are to the venture capital asset class we are most associated with, an attribute that sets Hangar apart, especially during these uncertain times in the market.
This year was not without its challenges. We remained undercapitalized against the opportunity because we simply don’t fit institutional categorization. Hangar and our investments were still vulnerable to macro conditions, which inevitably delayed exits. And the government’s decision to continue to maintain remote work for most employees slows down opportunities for convenings and partnerships.
Despite these challenges, as we move into 2023, we are more bullish than ever on Hangar’s core thesis: that building technology in the public sector is good for citizens and is good for business. Federal funds will begin to flow in 2023 through our federal government partners as well as state budgets, which will be passed in the first half of the year. There is no doubt we are in the strongest position since our founding to ride this wave to drive growth for businesses across the portfolio. (Some details on recent federal funding and related opportunities are at the bottom of this email below Q4 updates.)
Before we move to 2023, we wanted to update you on some highlights from across our portfolio during the fourth quarter.
As we look to 2023, in Q1, we’ll be rolling out a new investor resource page on the Hangar website to make it easier for our investors to access a set of resources on each of our companies, get access to key contacts, and connect with the upcoming PartnersAdmin portal that will allow access to investor-specific financial reporting. We’ll also be continuing our Hangar tech-policy event series, hosting influential people in our space to talk about both the opportunities and challenges associated with building technology for the public sector. We had a great dinner with NYC Mayor Eric Adams and other leaders across tech, government, and finance earlier this year and we are already planning more of these for 2023 on both coasts. Be watching for invitations.
Hopefully, this email gives you a sense of just how much is going on. Too much for one email. It’s been a good year. And, ultimately, that’s because of all of you.
Wishing you love and joy in the New Year. Thanks for joining us on this spectacular journey.
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Selected Q4 Portfolio Updates
– Outcome formally announced a new contract to build and manage an outcome-based loan program in coordination with Leadership in Flight Training (LIFT) Academy. LIFT prepares students for careers in aviation, including commercial airline pilots and aircraft maintenance technicians. LIFT is owned by Republic Airways, a codeshare partner operating more than 900 daily flights on behalf of American Airlines, Delta Air Lines, and United Airlines.
– Cornea and Hangar were proud to be featured in a USDA announcement of our Phase II SBIR grant. The release highlighted how Cornea “has developed real-time predictive tools for fire behavior. These tools will help with cost-saving planning and prevention measures, and proper allocation of resources as a fire is occurring. This funding will allow the company to rapidly develop and commercially produce predictive fire analytics for the public sector and expand into the tech-forward private sector.” The nearly $700,000 grant builds on our original SBIR Phase I grant and deepens our relationship with USDA as their investment in climate and wildfire research and response increases significantly in 2023 and beyond.
– Meter, which we explored in depth in our last note, has successfully onboarded its first subscription users in a production environment.
– Roster has entered two significant exploratory partnerships, including a highly sought after engagement that is built on sensitive HHS clinical data that will ultimately help clinicians understand how socially-determined factors impact how we each react to medical care.
Recent Federal Funding Overview
The past few years have seen an historic increase in government spending. Indeed, federal spending is expected to increase by more than $3 trillion from 2019 through 2030 and the COVID-19 pandemic has transformed federal government spending behavior, even as pandemic response spending eases: federal government expenditures were equivalent to 31.2% of GDP in FY2020 and 25.8% of GDP in FY2022, which are significantly higher than the 20% annual average since 1980.
While a divided Congress may portend gridlock, must-pass legislative packages like the annual National Defense Authorization Act and government spending agreements will continue to be viable vehicles for key priorities. Hangar is well-positioned to capitalize on accelerated spending at key departments and agencies in the coming years, including:
- Department of Homeland Security: DHS received $57.5 billion in FY2022 discretionary spending, which is $5.03 billion above the Administration’s request and a $5.62 billion increase over FY2021 levels.
- Department of the Interior: The Interior Department received $14.1 billion in FY2022 funding, which is a $776 million increase over FY2021 levels.
- U.S. Department of Agriculture: USDA received $25.1 billion in FY2022 discretionary spending, which comprised a 4.4% increase over FY2021 levels.
- U.S. Forest Service: USDA’s Forest Service received $5.7 billion in FY2022 discretionary spending, which comprised a 5.8% increase over FY2021 levels.
In the current lame-duck session, leaders of the House and Senate Appropriations Committees passed a $1.7 trillion omnibus spending package covering the 12 separate appropriations bills. This included full funding of the $858 billion FY2023 NDAA, which is a nearly 10% increase in defense spending, as well as increases in nondefense spending, including at the Departments of Interior and Homeland Security.
The Hangar team is gearing up to capitalize on these once-in-a-generation opportunities and we can’t wait to get to work in 2023.