Historically, VCs love hardware startups when someone else is paying for the hardware. This class of startup is known as “asset-light”. The financing of these assets happens outside of the venture capital ecosystem by asset finance firms, such as banks that specialize in mortgages or auto finance, for example.
But what about new types of assets like irrigation controllers, residential batteries or co-living spaces that won’t get VC money and are unfamiliar to traditional asset finance firms? The value of these assets is hard to predict. If the startup fails, can the assets be resold? What if the hardware itself fails in some way? Can it be repaired within a reasonable time or cost?
These assets are not only new, they are ubiquitous. We know series B companies managing nearly 500k assets. Furthermore, these assets generate a lot of data, are distributed geographically and are often easily redeployed from one location to another.
While these urbantech assets are becoming the new city infrastructure, very few investors want to fund them directly because of the perceived operating risk of early stage urbantech startups. To respond to this challenge, we launched Perl Street to answer the following questions:
- Can we help early stage urbantech startups by funding their assets?
- Can we identify useful insights from the data generated by these assets?
- Will these insights be valuable to founders and investors?
Our First Few Months
We started this journey by providing project finance to startups we know well. This allows us to concentrate our energies by closely observing how non-dilutive capital lifts these startups and allows them to focus traditional VC equity on growth, R&D and team. To facilitate Perl Street’s financing role, we have created a POC fund with a small group of investors. It is our expectation that future funds will be created as the demand for early stage non-dilutive capital grows.
In addition to funding assets, Perl Street is entering into data agreements with each startup. These data will help us understand how asset value changes under different use cases and how those changes may affect investor decision-making. Finally, we hope to provide useful analysis and decision-making tools to the startups who provide these data, so they can better scale and solve customer issues.
Where Could This Go?
There is a long history of turning expensive assets into services but it usually takes a long time to prove out the model, Our intention is to accelerate the adoption of new types of assets that solve problems in energy, water, logistics, and transportation in cities across the globe.
There is also an opportunity to define who owns these assets and how they’re governed. Some asset owners might purchase assets to maximize their return, while others could fund the assets to provide low cost or free services. Imagine real estate owners pooling resources to fund free, self-driving electric buses or electric utilities to subsidize residential battery networks!
Over the next few months, we’ll introduce the Perl Street team and share our progress. If you’re a founder and you’d like to work with Perl Street, please reach out to firstname.lastname@example.org. If you’d like to join the conversation and help bring new urbantech assets to cities, get regular updates and/or join us on Slack, please let us know.