Funding the Internet of Things Roger Bickerstaff – 15 March 2016

Funding the Internet of Things Page 2 © Bird & Bird LLP 2015 Agenda: Current funding arrangements for the IoT Applying funding techniques from energy renewables projects Specific financing models Concluding thoughts

Current IoT Funding Arrangements

Funding the Internet of Things Page 1 © Bird & Bird LLP 2015 Current funding arrangements - Internet of Things ●Funding available for Tech development Funding for Tech development tends to be smaller-scale than for roll-out IoT implementation costs – very high: generally involves implementation of sensors/networking etc ●Across Europe – public authority funding is being focused on core services: less funding available for IoT projects ●Some IoT projects funded through a combination of private funding and various public sector grants ●Other IoT projects funded through larger companies investing in smaller technology companies – NB. 5G – who pays?

Funding Examples from the Cleantech World

Funding the Internet of Things Page 6 © Bird & Bird LLP 2015 Funding for IoT Implementation is at a similar state of development as funding for Cleantech implementation 7 or 8 years ago.

Over £12bn debt funded solar deals in the UK Early debt-funded solar deals £36m Formation of EIS solar funds Listed YieldCos Forward funding Durrants Farm, Isle of Wight (Dec 2011) – "one of the first PV plants in the UK to receive project finance for the UK Feed in Tariff scheme" Funding the Internet of Things Page 2 © Bird & Bird LLP 2015 x 25 construction financing for solar parks in the UK $50m financing for two of the first 55 MW solar parks in Jordan Evolution of funding techniques – lessons learnt from renewables sector MONTH 1 Long-dated debt arrangements WORK IN PROGRESS £53.25m bridging financing for the construction of the UK's largest solar plant No. 1

SPV Asset financeEquity Grid connection Planning permission Landlord LANDLORD/ FEEDSTOCK SUPPLIER/FARMER (Often the same entity but may be different) O&M CONTRACTOR OFFTAKER FiTs/ROCs/RHi Shareholder loans O&M Contract Feedstock supply Agreement and Operations Contract PPA EPC Contract Evolution of funding techniques – lessons learnt from anaerobic digestion plants EPC CONTRACTOR Heat supply arrangement Lease Funding the Internet of Things Page 3 © Bird & Bird LLP 2015

Funding for the IoT

Funding the Internet of Things Page 10 © Bird & Bird LLP 2015 Types of Funding for IoT Implementation: Corporate equity Nb. Tech "giants" have big reserves Possibility of venture capital investment Expensive – potential for high growth or high rate of return is required Public Sector It is happening on a limited scale: Finland and Korea Public resources generally limited – saving based schemes are possible – but need private finance Third Party Funding Likely to be needed "in the mix"

IoT Performance Contract for provision/management of IoT services IoT Services Sub- Contract IoT payments (based on share of savings? Key Contract Payment Payment under potential arrangement FINANCE PROVIDER Payment for services which may include design and build, operation and maintenance and other services in relation to the IoT Saving Measures Financing Arrangement Investment Contribution? Receivables (whole or fixed portion) otherwise due from the Customer to IoTCo under the IoT Performance Contract are redirected under Financing Arrangement Potential IoT third party financing structure IoT PROJECT CO IoT CONTRACTOR Customer

Key issues associated with Financing for IoT Implementation Security of revenue stream Dependent on private sector/consumer customer demand take-up? Cf. Feed-in tariff for clean-tech: effectively guaranteed demand – is there an IoT equivalent Strength 0f Customer covenant Public sector underwritten projects Smart-meters: regulatory compulsion Common platform Multiple solutions, not customer specific Finding the Internet of Things Page 12 © Bird & Bird LLP 2015

Sources of Third Party Finance Venture Debt Early stage debt Mixture of debt and equity Growth Stage Funding – Fund investment Cf Cleantech/Solar – Bluefield; Foresight Does beneficial tax environment extend to IoT? EIS schemes Finding the Internet of Things Page 13 © Bird & Bird LLP 2015

Concluding Thoughts

Innovation needed to unlock the potential of the IoT Many IoT solutions are available or are relative quick to develop – the roll-out of these solutions is being hindered by lack of funding The IoT is in a similar position to Cleantech 5-10 years ago Perception of lack of viabilility Difficulties in obtaining funding Cleantech has developed funding arrangements which are now mainstream and viable Can the IoT develop along similar lines? Finding the Internet of Things Page 15 © Bird & Bird LLP 2015

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