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At Memoori, over the past few months, we have been exploring the development of the Smart City from a new perspective, an organic development of a city, inspired by its inhabitants.

Last December we talked about the evolution of the Smart City from the bottom-up rather than a top-down system, which has been prevalent around the world. We equated the Smart City to the Internet and Smartphones, which became the global phenomenon we see today by fashioning themselves as a platform upon which the public could create the sites and apps that shape their direction. This organic, albeit messy, approach fosters their popularity, their usefulness and their profitability.

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At the beginning of March we warned of the dangers of rushing the development of Smart Cities, and how that could cause more problems than it solves. How every city is vastly different and trying to apply the same Smart City model to each is destined for failure. A concept reinforced by the slower than expected start to the implementation of Smart Cities in many places around the world.

Then two weeks ago we looked at how, in the common approach to Smart Cities, companies are trying to find uses for new technologies rather than discovering technologies that can solve actual problems, and too often emphasising marketing and promotion at the expense of hard evidence and testing solutions in the real world.

It takes a Smart Community to make a Smart City, going back to the organic growth model that will give us a city that truly seeks to solve the problems of its inhabitants. When we talk about solutions emerging from its citizens we are really talking about the emergence of start-ups and social enterprises, supported, hopefully, by a technological platform developed by governments and large IT firms.

Large corporations can lose their ability to innovate. Conglomerates, which were the engines of growth and vitality in the twentieth century, have mostly proven themselves unable to innovate, and have a tarnished public image due to issues like corporate inversion and offshoring of jobs. Most now routinely buy start-ups for new technology and new products.

We are in an era of start-ups, encouraged by government policy and built on the unprecedented ability to source funding through crowd-funding portals such as Kickstarter. According to the Kaufman Index of Entrepreneurial Activity (KIEA), the entrepreneurial rate in the U.S. is already well above the dot.com bubble of 15 years ago. The same could be said for Europe and Oceania, in addition to the emerging markets of Asia, Africa and South America, in our ever more global marketplace.

Smart Cities are fast becoming the ideal stage for start-ups, thanks in large part to the incredible drop in the price of sensors. Back when sensors cost $100 each only the biggest corporations could dream of the 10,000 sensor rollout that even a fairly modest Smart City project might require. However, now we have deposable sensors, and many costing as little as one dollar each, it opens up the market for citizen driven start-ups to tackle local urban issues within the network of start-ups on a wider Smart City scale.

“Start-ups are the only way that global cities are going to be able to adopt a new smart approach”, says Laurence Kemball-Cook, the founder and CEO of Pavegen, the producer of flooring that generates energy from footsteps. Given they have much slower innovation cycles, it’s harder for corporates to run the kinds of rapid iterative experiments done by their small counterparts.

This means start-ups have a pivotal role to play in driving the sector forward. “You need disruptors in the market to facilitate this”, he adds. “It’s not possible without start-ups”.

Despite their importance in developing true smart cities, funding is still a relatively uphill struggle for start-ups. Compared to other high-potential verticals like FinTech, there is still a considerable lack of funding available for those creating Smart City innovations. “There are early-stage investors and VC firms investing in these companies but we definitely need more in this space”, says Russ Shaw, founder of Tech London Advocates, the organisation that promotes and champions London’s tech industry.

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Whilst there may be lots of firms eager to invest in Smart City related start-ups, an industry with comparatively few exits, it remains difficult to envisage ROI timescales. “The return-on-investment time horizon may be longer than in other sectors”, Shaw says, and “that can be a limiting factor”. However, even with a somewhat immature investment landscape, there are still plenty of bigger players coming together to help innovative start-ups bring their solutions to market.

“There’s now a lot of support available for start-ups in the form of very specialised hubs for FinTech, Smart Cities and, in our case, geolocation data”, says Gerrit Boehm, founder and CEO of OpenCapacity, a start-up that measures and forecasts capacity on public transport. Whether it’s Level39’s Cognicity Hub or the Future Cities Catapult, many resources have emerged to advise and encourage start-ups operating in the sector, but also to put them in contact with the larger players that may be able to utilise and deploy their technology. “These people can help mentor start-ups and guide them in the right direction,” he says.

The evolution of the urban landscape depends on true Smart City development. As outlined, a true Smart City needs organic, bottom-up growth emerging from its inhabitants, and start-ups (including social enterprises) are the portal with which to make this happen. As always, in the world as it operates today, we depend on national and municipal governments to create the platform on which start-ups can emerge and thrive.