Page 31 - A U4SSC deliverable - Guidelines on tools and mechanisms to finance Smart Sustainable Cities projects

by personal goals, such as financing the purchase of a real estate portfolio or making profits through
the production of real estate assets to sell or lease.

Other “smaller” investors

These could comprise family and friends, “business angels” (individual financers), family offices,
or trusts and foundations. None of these are typical urban development investors. However, if
they are geographically or sentimentally close to the environment of the project, they may invest,
with their main objective being to help the project progress. Generally, these investors lend small
amounts of money in the short term during the first life cycles of the project, in exchange for a
very small (sometimes even zero) return. In urban development projects, these tend to take the
form of cooperative investments, crowdfunding structures, microfinance, or direct sponsorship/
donations to projects.

Smaller investors also sometimes invest in innovative companies during their initial stages of
development. If these investors have economic and management knowledge, as well as experience,
contacts, resources etc., their contribution to urban development projects can go beyond their
capital contribution, involving performance control or even including lobbying capacity for larger
projects. Otherwise, they tend to set up SPVs to deliver the operating assets, before transferring
the liabilities and guarantees to larger investors and exiting with a financial return and reputational
gain. Business angels are especially important as a source of capital for “smart” solution creators,
since they tend to focus on innovative technologies.

A special type of “small” private investor with greater potential impact on urban development is
philanthropist structures created by wealthy individuals and families. These usually take the form
of foundations. They prioritize financial control over asset performance, and tend to get involved in
projects where they have gained an insight into the needs of a community and feel certain about
the impact their investment will have on these. Philanthropic investments in urban development
can provide capital, and therefore help realize projects, in places where not even governments
would invest due to a lack of guarantee on investment returns.

U4SSC: Guidelines on tools and mechanisms to finance Smart Sustainable Cities projects 13