Introduction

Charter cities are still too new to have a developed financing ecosystem. Instead, they must currently rely on a loose patchwork of investors who invest for a wide variety of different reasons.

While there are a few dedicated charter city investment funds such as Pronomos, NeWAY Capital, and StatZero’s charter cities fund, none yet have the scale necessary to fully finance any projects. Charter cities are funded by a hodge-podge of angel investment, private equity, bank debt, government subsidies, and VC investment.

Who Invests in Charter Cities?

Charter city investors are individuals and groups that provide the capital necessary to build a charter city. Examples include venture capital or angel investors, commercial or investment banks, real estate or private equity funds. Depending on the fundraising model, it may also be none of the above.

Investors Versus Tenants

It is important to note that charter city tenants and investors are different. Tenants are businesses that hope to reside within a charter city, whereas investors finance the creation of the city itself. While certain traditional SEZs exist where the tenants are also investors, this occurs very rarely.

What needs to be funded?

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Building a charter city is expensive. Small business parks typically cost between $50 million USD and $150 million USD. Charter cities, by virtue of scale, are necessarily significantly larger. By contrast, many master-planned city projects such as Saudi Arabia’s King Abdullah Economic City, Egypt’s New Administrative Capital, and Indonesia’s new capital in the East Kalimantan province will all cost hundreds of billions of dollars.

Here is a list of some of the costs that even the smallest charter cities must necessarily incur:

●     Preliminary Planning and Feasibility

●     Securing Regulatory Independence

●     Creating an appropriate Set of Regulations

●     Building supporting (Digital & Physical) Infrastructure

●     Physical Site Expenses (Purchase, Construction)

●     Legal costs

●     Staffing

●     Marketing and Management

●     Other ongoing Expenses

The planning and feasibility stage is usually necessary in order to communicate to host governments why a charter city project makes sense. This includes economic, political, environmental, and engineering studies. It may be necessary for accredited partners to be included, as the host will not accept otherwise.

The process of securing regulatory independence and forming appropriate regulations is a process which demands on-site presence, building relationships, and further expense. Experts such as policymakers, lawyers, and others are necessary to create regulations that will be economically and politically sustainable.

The largest cost is always the development of physical infrastructure. According to a 2020 Adrianople Group study, in traditional SEZs this cost typically amounts to between 80% to 90% of the entire project’s budget.

Which Fundraising Models exist?

Varied models exist that may match the city’s preferences and needs. Venture Capital funds (such as Pronomos Capital) often incubate their investments, providing insights, contacts and knowledge. A similar model is exercised by angel investors. Charter cities are a high-risk investment, and many individual or institutional investors may be uninterested.

Another model is debt financing, particularly from banking institutions. This requires little explanation, but it is worth noting that many banking institutions offer consultations to their borrowers - after all, it’s in their best interest to have them succeed.

Finally, mass-market financing is an approach marked by a large number of small shareholders. IPOs, crowdfunding, co-operative finance agreements, and more cutting-edge models are available.

What is Pronomos’ Role in Financing Charter Cities?

Pronomos provides seed capital to charter cities.

The purpose of this capital is not to build the entire city; instead it is to provide a basis that the project can use for future fundraising and expansion. This capital must be used to finance feasibility studies, creating marketing materials, pass legislation, and undertake the necessary steps to raise more financing.

If you have a charter city project and would like to pitch to Pronomos, please contact us here.