Federal Sales

Government agencies almost always buy software through channel partners. A “channel partner” is an umbrella term for organizations authorized to work with the federal government. It includes managed service providers (MSPs), systems integrators (SIs), resellers, etc. Open core companies tend to have channel partners/MSPs reaching out more than is usual for an early-stage startup because of high open source software usage in the government. Sometimes it makes sense to focus here, but often it does not.

If you don't have any customers, you should focus on opportunities that are most likely to be your first customers. Federal agencies often don’t make good first customers because of the complex federal procurement process that requires security clearances, certifications, and working with channel partners. Deals can take years to close. This is very risky for startups that need to maintain cash flow. Don’t underestimate how challenging it is.

If you have government agencies using the open source project, and they're proactively reaching out for specific enterprise features (like auditing, support, SSO, etc.), it may make sense to explore these opportunities. In most cases, inbound outreach comes from a channel partner, not the agency itself.

We do not recommend that Pre-Seed companies pursue outbound federal sales, unqualified (i.e., no existing usage) opportunities, or engage in white-labeling deals.

When you're the only option

Some open core companies are uniquely positioned to sell to government agencies because their open source version is the only self-hosted provider available, making it the only option for government users. Being the only self-hosted provider isn’t a signal to pursue outbound federal sales if there’s no inbound interest. To get the certifications and clearances needed to engage with federal customers, you still need a sponsor (could be a customer or partner). If an agency is willing to sponsor you because they need your software that badly, they will likely have a channel partner contact you. Federal customers are great in the long term due to large contract sizes with expansion opportunities and great retention, but being prepared to sell to them and navigating the process is hard.

Engaging with channel partners

Channel partners or MSPs may reach out because they are working with a specific customer with a current need, or because they see some potential future opportunity. A good guideline is if a channel partner contacts you about specific customers, it’s probably an opportunity worth exploring. If they contact you promising broad distribution or a speculative prospect, it’s best to pass for now.If a channel partner or MSP contacts you, assess each potential deal on a case-by-case basis. Quickly qualify or disqualify the opportunity by finding out if there are existing active open source users and their feature requests. Act according to usage and interest:

Engage

If you have not sold to the government in the past but are being pulled in that direction because there is existing active open source usage and inbound interest, this is a signal to start selling to them. Closing a highly engaged, highly motivated government customer can still take over a year —always maintain a strong non-federal sales pipeline. Don’t pursue a government customer at the expense of more immediate revenue opportunities.

Don’t engage

When there is no existing usage, a channel partner may try to sell you on the promise of gaining access to government customers with large deal sizes. This can be tempting, but it’s often more of a distraction than a worthwhile sales opportunity. We strongly recommend against engaging in white-labeling deals.

Selling to the federal government is distinctly different from typical B2B sales. For example, government customers can’t talk openly with you about their needs and challenges unless you have the proper security clearances and certifications. Dress codes are more formal, and deals take longer to close. If you’re pursuing government contracts, plan to work with channel partners and have additional revenue channels with faster sales cycles.

GovTech companies specifically targeting government sales should be prepared to commit to selling to the federal government and find a trusted channel partner to work with at the company formation stage. We recommend working with Carasoft. We can help facilitate introductions. Carasoft doesn’t work with everyone. You’ll need a compelling case explaining why they should take you as a client. Pay close attention to U.S. sanctions. Don’t sell to businesses or governments, or hire employees in restricted countries. Non-U.S. citizens and entities may face additional hurdles or be unable to engage in federal sales.

How federal sales work

Most federal sales will require working with a channel partner unless you or your co-founder already have the necessary security clearances, certifications, and contacts. Channel partners can help navigate federal procurement, but reliability and impact vary. Gaining certifications and clearances yourself is time-consuming, costly, and requires sponsorship from a potential customer. In most cases, it doesn’t make sense to pursue certifications and clearances at this stage. Work with the channel partner who initially contacted you or, in the case of building GovTech, find a reliable channel partner to work with.

Channel partners

Evaluate partner credibility and prioritize partners who are working with existing open source users. For example, In-Q-Tel is a common partner that may reach out to a company they see increasing open source usage within their federal clients. Engaging with channel partners is not free— it takes time and they may take a percentage of the final deal.

Set clear terms and negotiate roles and exclusivity agreements up front. Ask the channel partner to invest time and effort into the deal. You should be able to participate in partner-led discussions with end customers in most cases. The channel partner should pay for your time if that’s not an option. Use professional services pricing (e.g., $450/hour) to filter serious partners and ensure fair compensation.

White labeling

White labeling rarely yields substantial benefits. Consider allowing minimal branding flexibility without investing significant resources. For example, you can offer customizable logos as a paid feature.

Pricing

Offer consistent pricing structures and limit custom discounts as much as possible. Use standard agreements and templates for professional services and pricing to streamline discussions. If it makes sense to offer a discount, base them on measurable reductions in costs. For example, if support services account for 15% of the cost and the partner provides their support, offer a 10% discount.

Certifications and clearances

Certifications

Security certifications are formal validations required to demonstrate that your product, service, or organization meets government compliance standards. The most common certification is the Federal Risk and Authorization Management Program (FedRAMP). The purpose of the certification is to ensure cloud services meet U.S. federal security and privacy requirements. There are three levels of certification (Low, Moderate, High) depending on the sensitivity of the data handled. FedRAMP certification requires sponsorship from a federal agency. It’s a long and resource-intensive process (can take 6-18 months and requires ongoing compliance and audits.

Clearances

Security clearances are individual authorizations required to access classified government information. They’re necessary for personnel directly engaging with certain federal agencies. You must have a sponsor to obtain clearances. Security clearances are time-consuming and expensive, with processes lasting months and costing up to $15,000 per individual.