Funding can be one of the biggest challenges for small businesses, but if you have a compelling customer proposition and a robust business model, you can create a package that is attractive for investors, by Simon Hobday, partner at Osborne Clarke.
Today’s cities are increasingly faced with modern urbanisation challenges. From greater traffic flows, and bigger volumes of waste, to energy efficiency targets, cities have to find innovative and smart solutions to overcome these long-term barriers to growth.
At the same time, local government must be able to justify investments and prove they can deliver tangible benefits.
However, quite often smart technologies are developed by small companies who face an on-going challenge of demonstrating their innovative technologies can work at scale.
So why aren’t more cities partnering with technology companies to test smart solutions?
Funding can be one of the biggest challenges for small businesses, but if you have a compelling customer proposition and a robust business model, you can create a package that is attractive for investors.
However, many propositions require development of their proof of concept to underpin or indeed develop a robust business model. This is something with which private sector funding has struggled and where perhaps the public sector can make the most of its intervention.
To stand the best chance of securing government funding, companies seeking to demonstrate their technology at scale and cities wishing to host smart city demonstration projects need to give careful consideration to government requirements.
Open-access demonstrators, which provide a platform for multiple private-sector companies to access, stand the best chance of securing government funding.
By way of example, the Milton Keynes IoT project (referenced below) is being funded by a combination of private companies, government grants and higher-education funding.
Governments can’t plug the entire funding gap. Even if diverse pots of government funding can be amalgamated to fund a demonstration, that is rarely sufficient for a ’complete solution’ as businesses still need to be able to fund their own participation in the project or need growth capital to benefit from participation in a Government led trial.
For large industrial companies, this is not an issue since most have R&D budgets. However, smaller companies may struggle to fund their participation, especially if they need to manufacture equipment or run utility scale proof of concept exercises.
We’ve found large corporates are alleviating this funding gap by investing in smaller technology companies, either directly or through corporate venture funds.
During the last year, large industrial companies, including ABB, Siemens, Bosch, Philips, Volvo and GE, have all invested in young innovative smart city technology companies.
However, SMEs should be under no illusion that securing corporate investment is a golden ticket to winning orders from, and potentially being acquired by, the investor. Portfolio companies have to compete on a level playing field with non-portfolio companies for orders.
While small start-ups are likely to jump at the offer of investment from a major corporate, one potential drawback is that it can stifle their entrepreneurial spirit, so large corporates need to ensure that start-ups are given sufficient breathing space to innovate.
Establishing a smart citywide demonstration project may seem a daunting prospect for smaller cities.
EU, government or regional funding will be forthcoming for some cities across Europe through schemes such as Horizon 2020 or the Innovate UK programme, but certainly not all.
So what can cities without access to grant funding do to encourage the demonstration of smart technology?
Simply changing the way cities interact with private-sector companies that provide public services could encourage investment in smart technology, at no cost to the city at all.
Osborne Clarke is working hard to bring together the parties that will make our cities smarter and better, both in face-to-face and online discussions with key decision-makers across Europe.
Bristol is Open is a joint venture between the University of Bristol and Bristol City Council. It involves the establishment of three ultra-fast communication networks in the centre of Bristol capable of transmitting data relating to energy consumption, air quality and traffic generated from a series of sensors.
Once anonymised, the data is made public through an open-data portal. Companies and academic institutions will be invited to prototype new smart city applications and services that leverage this data.
The project commenced in spring 2015 and will run for five years. It is funded by local, national and European governments and also benefits from academic research funding and investment from the private sector.
Part of the network platform is provided by US company Silver Spring Networks. If successful, the project will be extended to nearby cities such as Bath and parts of North Somerset and South Gloucestershire.
Milton Keynes Internet of Things (IoT) network was unveiled in early 2014 and will be the location for a new citywide, open access IoT network to demonstrate how connected devices might be utilised to provide smart solutions.
It is the first citywide, open-access IoT network in the UK. Participants include Milton Keynes Council, BT, Open University, the Future Cities Catapult and the Connected Digital Economy Catapult.
Private-sector companies are invited to develop ‘smart’ use cases that leverage this network. The first use case involves the installation of sensors into recycling bins across the city.
The sensors inform the council via the IoT network when bins are full and ready for collection, enabling refuse collectors to provide a more efficient service.
The second application involves the installation of sensors in car-parking spaces to inform motorists where vacant parking spaces are.
The initiative is funded by Innovate UK, formerly the Technology Strategy Board. It also leverages £8 million of funding provided by the Higher Education Funding Council for England (HEFCE) for a wider smart cities project in Milton Keynes called MK:Smart.
Simon Hobday is a Partner at international legal practice, Osborne Clarke. He advises on commercial and regulatory issues the energy and smart city sectors. For more on smart cities, and to read the full ’Smart cities in Europe: Financing the commercialisation of smart city technology’ report from Osborne Clarke visit www.smartcities.osborneclarke.com