Global venture capital is up over 150% year-on-year in Q1 2026. AI investment is at record highs. Yet impact startup investment fell 63% last year to $33bn — its lowest level since 2017. The money hasn't gone anywhere. Investors have simply lost the ability to spot what's in front of them.The wrong diagnosisThe prevailing explanation is that investors have become cynical. They’ve come to believe that ESG was always greenwashing dressed up in better fonts. Trump-era politics have killed the appetite for anything that sounds like a nice-to-have. There's something in all of that.But the more interesting question is how the entire impact category got conflated with climate tech and clean energy. The answer isn't complicated: those were the sectors that attracted the most capital in the 2021 boom. When they cooled, and they cooled hard, investors didn't distinguish between subsectors. The whole category got tarred.Climate and impact became synonymous, and that stuck.The result was an entire class of commercially strong businesses getting written off alongside loss-making green energy plays that probably deserved more scrutiny than they got. That's not cynicism. That's miscategorisation.The real problem is capability, not characterVenture capital doesn't have a values problem. It has a capability problem.The due diligence frameworks that work brilliantly for B2B SaaS break when you point them at companies serving governments and public services. Public sector contract renewal doesn't map neatly onto churn metrics. Revenue recognition looks different. Sales cycles are longer, procurement is messier, and the moment it gets complicated, investors default to "too hard" and move on.What they miss when they do that is the other side of the ledger. Government revenues are among the most resilient in the world. Switching costs are enormous, not because public sector buyers are irrational, but because transitions are genuinely expensive and risky for agencies responsible for delivering services to real people. The stickiness that investors obsess over in SaaS exists here in spades. It's just harder to see if your mental model was built on Series B fintech deals.Investors have begun to recognise the opportunity in some sectors which sell to governments. Defence and policing get the attention because the contract sizes are enormous and the geopolitics are obvious. VCs have recognised that you can build large, enduring businesses serving these segments, but the lens has stayed narrow.The broader opportunity, technology that helps governments deliver human services, manage workforces, run public infrastructure, has been dramatically under-indexed. The businesses being built in those categories have NPS (net promoter) scores — a standard measure of customer loyalty, where a score above 50 is considered excellent — and retention rates that would make most enterprise SaaS founders envious. That combination of genuine product quality and structural stickiness is powerful. Investors just haven't built the tools to see it.The overlooked unit economicsFor every pound of public money invested well in govtech — technology built specifically to help governments deliver public services — the downstream return to public services, reduced caseloads, faster processing, better outcomes, can be ROI for all citizens. That’s a social argument but investors have their own investors to please and their own fiduciary duties to uphold.Government contracts don't disappear in a downturn. The market has accumulated decades of software debt that is only now beginning to be repaid. The competitive moats, once established, are real and durable. The businesses that get this right will be building enduring good and enduring value for mission-driven investors.Who's already noticedThe smart money is waking up. Just not through the VC route.Accenture paid a reported $1bn for UK govtech scaleup Faculty. Govtech M&A hit a record $17bn in transaction value through Q3 2025 alone, on course to eclipse $20bn for the full year. Private equity has been doing the work that venture capital hasn't. The investment firm EQT’s acquisition of Neogov, a US-based HR software provider for public agencies, for $3bn, is one data point among many. These are not charitable investments. These are firms that ran the numbers and liked what they found.I fear some may not be good custodians of these vitally important companies, but private equity spotted the opportunity. Venture capital, by and large, hasn't.