Depending on how you write your resume, I think that your public sector job could be a draw for smart employers. Hell, if you pitched it on your resume the way you pitched it here I'd absolutely want to get you in and talk to you about how you A) handled the failure of your business, B) pivoted to having a real job and C) overcame the crazy obstacles in public sector work to make real impact.

The fact that you can and did push change in public sector is huge, HUGE to anyone with half a brain. It's all in how you tell your story.