Cordoba Smart City Fund - Observatory of Public Sector Innovation

In order to implement innovative solutions in the city of Córdoba under an open innovation approach, the local government launched the Córdoba Smart City Fund, the first Govtech fund in Latin America, to invest and partner with impact startups that contribute to the development of a smarter, more inclusive and sustainable city.

Innovation Summary

Innovation Overview

The rapid technological change and growing expectations of citizens make innovation increasingly important for government across the region. Along these lines, the government of the city of Cordoba has prioritized the construction of a smart city and the modernization of the State-region with the aim at improving its citizens' quality of life.

This is a one-of-its-kind process that implies a disruptive transformation across all the city's processes. In that sense, the city authorities decided to implement an open innovation strategy with Govtech as its main flag. Govtech showcases several benefits to achieve the city's goals: first, it offers a unique opportunity to put the State in "entrepreneurial mode"and hack the current institutional and procedural status-quo in which the public administration is organized. second, it speeds-up the building of new kinds of public-private partnerships together with socially-driven startups, thus facilitating both public and social innovation.

For the Govtech strategy to work, the city of Cordoba had already identified several barriers that are required to overcome, and that they are committed to tackle with a smart financing approach to:

-Expand the investment offer for Govtech startups: the current status on this kind of financing mechanisms is unclear, mostly due to the risks associated with a startup business model, the lack of opportunities to implement pilots and the limited knowledge to go through complex public procurement processes.

-Contribute to bridge the innovation gap that exists in cities (and local governments): currently several impactful solutions developed by startups are available in the market, which fail to be incorporated into the public sector.

Under this framework the city of Cordoba has received technical assistance of CAF - the Development Bank of Latin America, and two venture capital funds (ALAYA Capital Partners and Dux Capital) to launch the "Cordoba Smart City" (CCI Fund - Fondo CCI), which is the first Govtech-targeting fund in Latin America. The fund pursues 3 strategic objectives:

-Promoting the modernization of the public sector and its innovation capacity.

-Contributing to the development of Cordoba as a smart-city.

-Supporting the growth of startups with Govtech and Smart-city solutions and

-Transforming the city of Córdoba into a regional innovation hub.

The CCI Fund was created in June 2021 under the city Ordinance 13156, which was supported by the majority of the political parties represented in the legislative body. Given its transformative nature, the mechanism is funded annually with up to 1% (Approx. USD 2 million) of the city levies collection from Commercial, Industrial and Service Activities sectors. The Fund allows too for the incorporation of external institutional investors, as in the case of the IDB Lab, which in May 2022 committed a contribution of USD 600,000. The Fund as a financial mechanism puts the city of Cordoba at the forefront of public innovation by promoting investments in:

-Govtech and smart-city oriented startups and solutions.

-The growth and strengthening of the entrepreneurship and innovation ecosystem by pulling in capital and entrepreneurial support from third-party institutions.

-Non-traditional areas and environments under the mechanism of "investment with solution implementation" so that the city opens the space for the startups to validate their solutions in situ.

-Solutions that will impact the quality of life of its citizens and that can generate a demonstration effect within the administration.

-New processes of public procurement to adapt to the Govtech and Smart City solutions.

The CCI Fund operates through calls for proposals based in two main criteria: 1) the recipients profile fit, and 2) the fulfillment of a specific set of conditions that make the candidates elegible for obtaining and leveraging from the benefits of the Fund. All the startups and institutions' projects go through a selection process and funnel that involves, among several entry checklist and basic conditions, the evaluation of a selected advisory board of experts from the public and private sectors, as well as from the academia. They evaluate the potential of the project to receive the investment, to escalate its solution and, ultimately, to deliver impact.

So far, the CCI Fund has already executed a successful first call for projects, in which 45 local startups together with applications from Colombia, Chile, Costa Rica and Spain sent applications. 9 startups were carefully selected out from that first badge of applicants and the Fund is currently working on the implementation of their solutions in the city of Cordoba. The 9 proposed solutions represent a total investment of USD 1,055,502.

The vision for the next 10 years is to invest in 10 to 15 startups per year, so that the city of Cordoba would become a hub for the provision and application of innovative and smart solutions for cities and local governments. In this way, the ultimate aim of the Fund is to position Cordoba as THE innovation Lab for Latin America.

Innovation Description

What Makes Your Project Innovative?

CCI Fund is innovative in several ways:

-It is the first investment fund specialized in Govtech and smart-city startups in Latin America.

-It equips its investments with a unique mechanism that converts single contributions into equity participation in the startups, something rather novel as in the past the investment process was channeled through traditional public-private co-investment mechanisms in the form of subsidies, loans, and/or contingent recovery financing.

-An independent Management Trust was created in order to enable efficiency and agility at the managerial level.

-It is a smart and strategic investment policy: it supplies with funds that target not only the growth of the selected startups, it also enables the implementation of Govtech and Smart City solutions, as well as promoting the transformation of the city of Cordoba into a region innovation hub.

What is the current status of your innovation?

In the aftermath of a first successful call, the CCI Fund is currently working with the 9 selected startups in the implementation of their innovations in the city of Cordoba. In addition to this, the technical team of the Municipality is designing new calls to be launched within October and November:

-Call 2022 for Govtech and Smart City startups.

-Call for biotechnology-specialized startups.

-Call for institutions with projects to promote the growth of angel investments in the local ecosystem.

Innovation Development

Collaborations & Partnerships

-The Municipal technical team is responsible for the Fund structuring and management.

-IDB Lab is a recent investor in the Fund. It co-financed the Córdoba Govtech program.

-CAF-Development Bank of Latin America: provided technical and financial assistance in the design of the Fund.

-Advisory Board of experts (representatives from universities, venture capital funds, accelerators and unicorns): evaluated the startups.

-Startups and local and international experts: collaborated in the design and validation of the govtech strategy and the Fund.

Users, Stakeholders & Beneficiaries

-Citizens are expected to evidence and experience substantive improvements in their quality of life thanks to the ongoing modernization process of the State-region and the future impact of the innovations implemented. Specifically we will target environmental, social inclusion and economic growth/recovery sectors.

-The private sector is to be revitalized by an innovative entrepreneurial ecosystem. We expect 20 to 30 startups to receive investments in the first 3 years.

Innovation Reflections

Results, Outcomes & Impacts

Current impacts:

-First ITC Fund Call: 45 startups from Argentina, Chile, Colombia, Spain and Costa Rica applied and 9 were selected, whose innovative Govtech and smart-city solutions are being implemented in the city of Córdoba, with a total investment of USD 1,055,520 (USD 117280 per startup).

-The Inter-American Development Bank Innovation Lab (IDB Lab) committed to contribute to the ITC Fund up to USD 600000 in the next 3 years with the Contingent Recovery Financing modality for Investment and USD 230,000 to co-finance the Córdoba Govtech Program to enhance innovative collaboration between startups, companies, institutions and public sector.

Expected impacts:

-Invest between 20 and 30 startups in the first 3 years.

-To increase the percentage of startups with a B2G (Business to Government) business model.

-To add new institutional investors to the ITC Fund.

-To turn the city of Cordoba into a regional innovation hub.

Challenges and Failures

The first challenge was to guarantee the regular allocation of public resources to the CCI Fund and ensure the continuity of this public policy amid the changes in government. To this end, the Fund was created through a Municipal Ordinance approved by the majority of the political parties in the local legislative body, which established a specific mechanism for financing the Fund.

Another challenge was to generate trust among startups so that they would accept the investment under the form of a new public fund. To this end, startups, experts and representatives of the innovation ecosystem were involved in the process of designing and validating the Fund. Likewise, the integration of IDB Lab as a contributor to the CCI Fund contributed to the generation of trust.

A current challenge is to ensure the quality and quantity of the flow of startups with govtech and smart-city solutions. To this end, within the framework of the Córdoba Govtech Program, bootcamps and startup incubation and acceleration programs will be carried out.

Conditions for Success

-Political decision: the Mayor's leadership was key to the rapid implementation of the Fund, as it made it possible to overcome the usual obstacles from the politics and the policy process.

-Clear rules: the ITC Fund was established by an ordinance of the local legislative body creating the regulatory framework for its operation, which provides transparency and predictability.

-Technical team: the Public and Social Innovation Laboratory of the city of Córdoba (CorLab) was created as a transversal support space for the management of innovation and digital transformation in other areas of government and is responsible for the implementation of the CCI Fund. It plays a key role in the articulation between the Municipality and the entrepreneurial ecosystem.

-Transparency: the startup selection process was certified by BDO International.

-Strategic alliances: they contribute to the design, validation, implementation and expansion of the CCI Fund.

Replication

The CCI Fund arises from adapting and replicating for the first time in the public sector in Latin America the policy of incorporating third-party funding institutions as participants in the startups shareholding structure. It assures that both the strategic solutions and the operations run according to their expected business models. This is a model of corporate venture.

IDB Lab and CAF are key players driving the growth of the Govtech ecosystem in the region and are following closely to collaborate with the ITC Fund to replicate its implementation across the region. As part of this framework of collaboration, CCI Fund was presented at the South Summit Brazil, the International Congress Metrópolis por la Gobernanza (El Salvador), the Municipal Public Innovation Meeting of Chile (CORFO). Furthermore, CCI Fund is member of the Govtech Leaders Alliance sponsored by CAF.

Currently, other local and national governments are analyzing the Fund to implement similar initiatives in their territories, with the case of the Colombian government, through Innpulsa Colombia and its Govtech Lab, standing out.

Lessons Learned

-Open innovation: working with startups with innovative solutions for the city allows expanding the management capacity of local government and improving the quality of life of citizens.

-Strategic alliances with international organizations, universities, companies and civil society are success factors for this type of public policies.

-To become smart, cities should not become technological developers but focus on changing the organization and learning to dialogue and generate dynamic interfaces between the public and private sectors.

-It is key to stimulate entrepreneurship and innovation ecosystems that the State generates policies oriented to the growth of startups, encouraging their expansion at regional and global level.

-The State can play the role of investor to accelerate innovation processes, financing high-impact projects and sharing risks and benefits in the framework of partnerships with the private sector.