Self-driving cars that talk to roads and to each other, ensuring fast, safe and convenient transportation.
Energy generation and distribution that respond to a city’s dynamic needs.
Water delivered through dynamic pricing, taking into account the exact real-time needs of a household.
Radically better transportation, energy and water are some of the biggest promises around smart cities. And plenty of startups are playing in it as the diagram below and the full report from CB Insights illustrate.
Yes, the technology that enables these use cases can also be used very destructively, eroding privacy and free speech — but that’s a big topic for another article. What this post is taking the lens of benefits and focusing on how entrepreneurs can succeed in what is still more potential than reality.
1) Foreign Go To Market — Smart cities are very private-public partnerships ie this is squarely govtech. Ask any VC though and they will tell you that govtech is either a non-started or at least a very difficult proposition given especially long procurement cycles. Startups that have mastered working with governments have typically focused on forward-thinking cities, which have already a strong track record of adopting technology. Names that came to mind are densely developed places like Singapore, London, and Tokyo, and evolving projects like Masdar City in the UAE and Songdo in South Korea. The general principle is if your larger home market is harder to crack then don’t be afraid of foreign go to markets.
2) Governments As Investors — In Singapore the government permeates everything and quasi or actual public entities are actively investing into startups. In the US In-Q-Tel is the classic example if you are building a security solution. We are not talking about grants here, these are actually equity investments just like any other VC. Entrepreneurs should approach these in the same vein as corporate investors ie it’s a good idea to have them as follow or maybe even co-lead, but not as a lead, so you can signal to the market enough financial upside. Strategic investors are usually also slower in decision-making and have stricter limits on how and when they can invest.
3) Multi-Year and Multi-Source — City governments will typically operate on yearly budgets but when it comes to non-elected government agencies, often times the budgets are allocated for the duration of a project. One advantage for all companies is that procurement may be for multiple years. Governments will also often multi-source as opposed to a single vendor so to signal the decision-making is independent. This is an advantage that levels the playing field — disproportionately better for startups because they can win a contract alongside much larger, well-known competitors.
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Originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). Many of my writings are at https://www.linkedin.com/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are my own.