Startups are the future of finance.
This trend is not limited to fintech startups. While fintech companies will play essential roles in financial inclusion and alternative finance, startups that specialize in the smart grid and internet of things are positioned to make markets.
If you are considering founding or supporting startups, you should seriously consider entering the data space. Put on your scuba gear.
Using examples from water markets, we are about to dive into data.
How can startups make markets?
Market Development Hierarchy of Needs
Investors need data if markets are going to emerge and this is where innovative startups play a role.
At the base of the hierarchy, internet-of-things and smart-grid startups need to collect data on relevant information, such as water flow and electricity use.
Once sufficient data is in place, basic commodity markets can emerge to facilitate trading of water, using spot prices and forward contracts.
According to Investopedia, “A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date.”
These contracts are sold over-the-counter, without exchanges, and can be used for hedging or speculation. As more data is gathered, the public and private sectors can collaborate to create regulated exchanges. Once exchanges have been developed, market participants can trade futures, which are essentially standardized forward contracts, and other derivatives of the underlying commodity.
If markets develop for water, then water pricing will theoretically become more efficient. Through the use of financial instruments, industries that rely on water, such as the agriculture and energy sectors, will be able to hedge their exposure to fluctuations in water supply and price.
Governments can also craft better resource policies as water markets become more mature. Utility companies will also face higher incentives to minimize leakages and use electricity more efficiently for water pumping and processing.
Water Sector Startups
Numerous startups have already begun gathering data in the water sector.
As you can see, these startups utilize leading-edge technologies to capture water data. They comprise the first level of the market development hierarchy.
The next steps are market creation and water trading.
Water will become the next oil.
Do you agree?
Multiple factors are converging to create water trading markets.
On one hand, data on water usage and weather patterns is becoming more abundant. Additionally, water is becoming a scarcer resource as global population increases strain water supplies, due to both agricultural production and household consumption.
According to the United Nations, the world population was 7.3 billion in 2015, and it is expected to reach 9.7 billion by 2050.
The United Nations says, “With the existing climate change scenario, almost half the world's population will be living in areas of high water stress by 2030.”
Additionally, “the world needs to produce at least 50% more food to feed 9 billion people by 2050.”
As these factors converge, governments will recognize the need to manage water resources, companies will search for efficient water pricing, and traders will find fortunes to be made.
Emerging Commodity Markets
The same principles that apply to water markets can be applied whenever demand exists for scarce resources. When resources fail to exist in abundance, conditions become ripe for market development. As people develop new resources, such as technical apparatuses and pharmaceutical products, new commodity markets will emerge.
People will also undeniably find new applications for previously unused natural resources. Oil markets did not exist until people started using oil for energy. As new applications and innovations emerge, new commodity markets will come into existence.
Who will make the next markets?
Startup Commons with his startup development phases framework can help to plan the journey.
Startup Commons has released entire Growth Academy innovation entrepreneurship curriculum training materials with more than 700+ slides, along with supporting booklets for free co-development and use.
All is released under Creative Commons licensing and in editable format.
The curriculum is built, designed and refined over the years to increase the volume of entrepreneurship and likelihood of startup success by focusing on removing or reducing the biggest “universal risks” and to educate about optimal methods and structures.
The base knowledge shared via these trainings is accumulation of more than twenty years of international serial entrepreneurship experience combined with more than ten years of parallel experience on startup advisory.
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