The funding gap – #RailTechIsRising

The funding gap – #RailTechIsRising

River Tamoor-Baig looks at the problems for start-ups wanting to enter the rail market and announces Hack Partners’ new approaches to driving forward innovation…

When we first started the HackTrain initiative, we had a concrete plan. Get a dozen challenges from the rail industry, run a hackathon, help implement the best ideas via the accelerator and celebrate with a bottle of shandy. We did the first three, but couldn’t bring ourselves to open the shandy.

The accelerator brought 10 incredibly innovative startups to the industry, but, one year on, not a single one of them considers rail to be a viable major market opportunity for growth. Though three of the companies won contracts with Toc’s and have deployed their technology in live environments they are still focusing their efforts on other industries such as aviation, roads and even construction.

Why? Because at the end of the day, market opportunity and demand are what drive startups the most and as a result they will go where these are largest and fastest to achieve. Startups don’t have the luxury to wait around, they simply don’t have the money to survive an 18-month procurement cycle. So, as a result, they go where they’re able to grow the fastest. It sucks for us as an industry. We have market opportunity and demand…but in terms of speed, we’re not there yet.

One of the industry’s fastest growing technology companies – SilverRail raised $9million within its first year. They spent a lot of that on product development, but I’m willing to bet Aaron Gowell, their CEO, a successful serial entrepreneur knew his new venture would need a large amount of capital to survive the lengthy procurement cycles rail would put them through.

Other startups that could have a massive impact in rail simply focus their efforts elsewhere. Vivacity, which ran trials for four Toc’s during our accelerator has seen a lot of demand from Toc’s and Network Rail. But, while they were waiting to hear back from the industry, a compelling opportunity for roads opened up, and the team shifted their focus there. One could argue that the team are merely attracted by shiny pots of cash – but, a typical startup’s cash reserves only last them three to six months, thus founders do whatever it takes to stay afloat. Sometimes that means pivoting and going after a market that’s easier to enter.

Vivacity’s founders are now closing off a £1m round of investment so that they are able to further develop their technology and also take a more long-term view on entering into markets. Pointr, whose wayfinding technology was procured by Virgin have left the rail market doubling down on their efforts in aviation, as dealing with airlines and airports was much simpler than trying to deal with Network Rail and Toc’s who were at odds on who should pay for the technology.

Both of these companies can really help transform customer experience and operational efficiency, but simply saying we’re interested isn’t enough to convince them to invest their time and efforts; we, the rail industry, need to invest in companies to show that we are not only interested in procuring innovative solutions, but are also willing to help develop them from the bottom up. Otherwise, we’ll keep losing the best startups to other markets.

Preventing young innovators

This gap doesn’t just exist in with existing companies wanting to enter the rail industry, it also prevents young innovators who attend hackathons, like ours, from transitioning their prototype into a fully-fledged solution deployed in the market.

We hypothesised that the £25,000 investment would be enough for these newly formed teams to develop their prototype into a fully working solution – that, we got right, with the team who came from the hackathon building out a working product.

What we didn’t take into consideration was the time it would take the industry to procure these solutions. £25,000 suddenly seems dauntingly small through the lens of a six to18 month procurement cycle. Many tell me and the startups that they should apply for the numerous innovation funds ran by industry’s various trade bodies. But the funds themselves take six to18 months of applications, presentations and business cases before they release any money to the startup. By the time money hits a young entrepreneurs account, they’ll have already went through a birthday, Christmas, Eid and Hanukkah!

New venture capital fund

To address both of these gaps we are innovating our own approaches to driving forward innovation in rail. Moving forward we’ll be tweaking how we run our hackathons and also launching a new venture capital fund.

Firstly, we’ll be setting aside a post-hackathon investment fund, where participants will be able to receive quick bursts of small amountS of money to help them carry their idea forward. We’re already exploring how we do this with the Department for Transport after running their first ever external hackathon, DfT Hacks. By the time HackTrain 4.0 rolls around, we’ll have the necessary structure in place to easily fund the most promising ideas.

Secondly, we as HackTrain, are launching a new RailTech Investment Fund, specifically geared towards investing £100,000 – £500,000 in early stage startups whose technology can have a massive impact in rail. The fund will be run by technology professionals and venture capitalists with experience in investing in high-growth companies. We’ll be working with Toc’s, Rosco’s, OEM’s and government to ensure we invest in the right startups have that are solving industry problems and can potentially be procured by them.

What this means for the industry is that we’ll now have a funnel from start to finish that attracts young innovators with new fresh thinking ideas, gives them the platform to turn these ideas into prototypes, provides guidance and financial support to develop these prototypes into working products and then venture capital funding to help these products be commercialised and procured.

This approach will address the various gaps a startup must jump across before their technology lands in the hands of passengers or rail staff.

River Tamoor Baig is chief executive and founder , Hack Partners

2017-09-15T12:02:04+00:00April 26th, 2017|May 2017|