We’re excited for the new year. We expect to see a lot more evidence about how startups are helping cities. We think most founders will still achieve impact by selling to business and consumers directly. Robots, safety, logistics and food will be top of mind entering 2016. We’ll share more details the state of urbantech and a lot more detail on where we see opportunities.

Startups will mostly opt not to sell to cities

In 2016 we expect most opportunities for city impact to come from companies selling to consumers and businesses.

From the startups we’ve been tracking, just under 12% count local government as their primary customer. The rest are evenly split between selling to consumers or selling to enterprises. This tracks closely with our portfolio to date, where 3 of 19 firms sell to local government.

FOG (fear of government) remains quite real in the world of venture capital. We’re likely still far from having large exits to counter some of the FOG, but given investments from firms like Sequoia and a16z in B2G, there may be a bit more willingness for other investors to look at B2G opportunities.

Despite some improvement, FOG is likely to remain in 2016 and so we don’t expect to see a big uptick in B2G opportunities.

Urbantech customer mix

urbantech customer mix
Source: Urban.Us Urbantech company list and Mattermark company data.

Robots, safety, logistics and food are top of mind

We asked members of the Urban.Us Network for their thoughts on what we should be paying attention to in the new year. Here are some of the themes they surfaced:

Public Safety – with Paris and San Bernardino still very fresh in people’s minds and a likelihood that US presidential elections will keep this issue in focus, we expect to see more applications of technology to physical safety.

Robots are coming – coupling low-cost data acquisition (and actuators) with various forms of AI can be used to create fun and engaging characters like BB-8 but we think many will be quietly operating in the background much like algorithmic trading.

Logistics – how we move around tends to get more of the attention, but we think 2016 will see more focus on how our stuff moves around.

Food – touches on a number of themes from resilience to health to quality of life for some of the world’s poorest city inhabitants. An obsession with food delivery seems to have given way to a broader exploration of “agtech” opportunities.

Less visible themes included:

Utilities – like water, electricity, waste and connectivity weren’t mentioned very much but 40% of the startups we currently track are focused on these problems. Perhaps there is a sense that most of these problems are already being addressed?

Climate Adaptation – perhaps most people associate adaptation with hard, capital-intensive infrastructure? We think some of the efforts announced at COP21 will inspire more work on adaptation and on building soft infrastructure (more sensors and and AI).

More demonstrations of impact

At the seed stage, the only impacts we want founders to worry about are things like cash flow, customer acquisition costs and lifetime value. They just need to survive the seed-stage “valley of death” to have a shot at scaling and delivering on their potential. But as more firms begin to scale, we think we’ll begin to see a deeper understanding of the potential impact of startups on cities.

Direct measures are the easiest to understand. In our portfolio Rachio estimates that its Iro irrigation controller has led to over 440 million gallons of water saved. HandUp has helped get almost $1 million to more than 3,000 San Francisco neighbors in need. Radiator Labs has demonstrated 40% savings on heating fuel in New York City. Blocpower now serves 300 small and medium-sized buildings, helping them reduce energy costs and emissions and the firm is already contracted to retrofit 1,000 to 2,000 buildings over the next three years.

Other firms have yet report their impacts publicly. Mark43 has shown impressive time savings for police administrative work. Skycatch continues to grow, in part because of the time savings afforded by the data collected and processed by its fleet of drones, which enable partners like Autodesk and Komatsu to speed up construction.

Some impacts are likely to remain stubbornly hard to get at. Electric rideables like the Onewheel are epic and, despite sidewalk bans and cheapo combustible hoverboard toys, we think this category will ultimately change last-mile mobility—it just might take a while to measure impact. Ditto for Seamlessdocs’ impact on time and money savings for local governments that automate online forms and workflows. For some context on how hard it is to understand some types of impact, Uber’s impact on traffic and emissions is just now being studied.

Why do we care so much about impact? We’re eager to show that startups can have an outsize positive impact on cities while generating competitive returns for investors. Ultimately we think this just increases the number of talented investors and founders who will focus on city problems.

What Urban.Us will be doing in 2016

Our ability to impact cities is defined by the opportunities we can find, fund and support. On the funding side, our efforts are well underway in the form of a new, larger venture fund. As we’ve written elsewhere, the Micro VC space is competitive but we’ve had some success differentiating our thesis and approach. More on that in 2016.  

To find opportunities, we’ll continue to tinker with ways to grow the effectiveness of the Urban.Us Network. This means we’ll continue to interview and add people to the network, but it also means we’ll continue to tinker with ways to help people help us—from startup candidate introductions to increasing use of analytics and feedback to understand how we’re doing.

We think there is also a lot more we can do to encourage and support founders and investors who might be interested in urbantech. Our next iteration of our Urbantech Radar will benefit from Mattermark data, which will enable a lot more detail about the urbantech landscape from the most active early stage and corporate investors to relatively less-unexplored opportunities. In fact, we’re preparing a more formal request for urbantech startups—it might take the form of a prize-led challenge or simply a list of opportunities we’d like to fund.

If you’re working on something to make cities better (or know someone who is), please say hello.

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