At Early Metrics, we rate innovative ventures by analysing their non-financial metrics*. We assess 50 main criteria spread across three main pillars: Team, Project, Ecosystem.
With over 1300 startups and scale-ups rated at this stage, Early Metrics has accumulated and analysed a large amount of data, and we are now able to identify some recurring trends and characteristics, depending on maturity stage, country of origins, and more interestingly, industries.
Let’s take the Smart Cities & Mobility (SCM) sector. Accounting for 11% of our portfolio, these ventures represent an exciting pool of innovation comprising green mobility, renewable energy, decentralised generation, signal processing.
How do these startups compete with other industries we have analysed?
If we compare SCM ventures with other sectors, the average ratings are extremely close: overall, SCM startups don’t stand out as over-performers, or under-performers. Even if we compare SCM startups with other industries at a pillar level, these comparisons do not provide significant insight. While SCM startups tend to rate slightly higher on the Team pillar, and slightly lower on the Project and Ecosystem, the differences are insignificant (below 1,5% for each pillar). Overall rating or pillar rating therefore does not tell us much. The main differences are actually found at the criteria level. Let us have a look at a few where there is a significant different between SCM ventures and other sectors.
Strong expert founding teams make Smart Cities and Mobility products shine
SCM startups perform very well on two criteria: Market Expertise and Ability to Convince. On Market Expertise, the ventures usually rate 5% more or above compared to startups in any other sector. A similar differentiating figure can be found on the Ability to Convince criterion, where SCM founders score +3% compared to the average.
This can be explained quite simply: entrepreneurs launching their SCM businesses usually have spent several years in the industries before, thus entering the entrepreneurial journey with a valuable professional background and strong expertise. Cities are a complex hodgepodge of infrastructure, service providers and regulation. The diversity of interests and stakeholders make it hard for industry-neophyte entrepreneurs to find an accurate positioning or even an entry door without a strong professional network. Convincing municipalities and established players to enable field-tests and pilots is also a key challenge. Without the right connections and the ability to convince, smart-city projects have little chances to ever see the light of day. Penetrating and navigating this complex ecosystem thus requires a high level of seniority.
Israeli startup Electroad – automatic charging infrastructure for electric buses – is a good example of a rated startup ranking high on the Team pillar thanks to high scores on the two above mentioned sub-criteria. The experienced founders demonstrated their ability to convince at a very early stage by successfully on-boarding investors despite the relatively risky nature of their business and the long-term return cycle proper to the industry.
But these ventures tend to underperform on growing/scaling criteria
If founders often have very strong tech backgrounds, many SCM startups show weaknesses on business-oriented skills. This is highlighted by scorings on the Financial Management, Founders’ complementarity and Commercial Skills criterion, where the SCM ventures rate on average -5% compared to other industries. The typical profile of the Smart City entrepreneur is thus a technical person with limited financial and commercial acumen. For instance, GreenOn – SDK detecting the smartphone owner’s means of transport – is currently made of 3 highly-technical founders searching for a CEO to support company structuration and commercial development.
On top of the business skills, SCM ventures tend to score less on the Suppliers’ Bargaining Power criterion (-6% compared to other industries). This is less due to the founders’ skillset, but more to the SCM industry landscape: energy and transport startups can’t operate individually and are highly dependent on a large amount of third parties, be them governmental bodies, tech giants providing a core component or traditional hardware partners (suppliers, manufacturers, engineering firms, etc.). SCM startups often have to accept not to be in full control of their operations, and thus need to create a strong ecosystem of reliable partners if they wish to grow.
Smart money for smart cities and transport ventures
SCM entrepreneurs are often market veterans whose idea dawned on them as they faced recurring challenges in their previous jobs. Usually bringing a new technology / offering to the market, they can’t succeed alone. R&D and pilots are expensive, and the founders tend to be product-focused rather than business-oriented – at least during the first steps of the company’s life. Maybe more than in other verticals, SCM entrepreneurs need smart money. Cash only won’t be the solution – all the more if founders demonstrate poor financial management skills – but a real active investment with network, business support and cash will have an impact twice as beneficial as it would be in other industries since it precisely answers the main pain points Smart City entrepreneurs are facing.
*Early Metrics rates young innovative ventures on behalf of investors and corporates, using a proprietary scientific methodology. The overall result is a rating out of 100 and it’s free of charge for entrepreneurs. For more information about our methodology and services: firstname.lastname@example.org