Access to Finance in the Cultural and Creative Sectors:

A Practical Approach

22 April 2013

Marija PopovicEuropean Design Centre

Investments potential of the CCI

Which CCI sub-sectors are targeted for finance, which sub-sectors are not?

Top 3:• software &computer

services (23%)• film (12%)• video games (11%)

Least attractive 3:• performing arts /

arts & antiques (4%)• crafts (3%)• architecture (2%)

Investors’ assessment of the risks compared to return in the CCI

Perceived top risks for investing in CCI businesses:

• Unlikely to find exit• Business not scalable• Lack of skilled

management teams• Revenue generating

business models

Source: C-I Factor Database

Popular incentives encouraging investment into the CCI

 

Both VCs and BAs favour guarantee funds and co-investment of public/private funds

next important for BAs next important for VCs

risk reduction through filtering process (incubators, etc.)

risk reduction through public seed funds

•

Both VCs and BAs prefer enterprises that are internationally investment ready a chance to invest alongside a reputable investor

BAs are more enthusiastic about incentives than were VCs. BAs also are overwhelmingly in favour of sector specific tax incentives.

Lenders‘ assessment of the risks compared to return in CCI

Perceived top risks for lending to CCI businesses

• Lack of skilled management teams

• Solid business plans• Protectable IP• Revenue generating

business models

Source: C-I Factor Survey

Popular incentives encouraging lending to the CCI

Lenders support risk reduction through 3rd party guarantees, including a 50% guarantee.

next important for Public Funds Lenders

next important for “Other Sources” groups

Group co-lending with an expert in the sub-sector and risk reduction through participation in projects led by a public/reputable bank

Place access to expertise at a reasonable price ahead of a 3rd party guarantee

Cross-border lendingMost lenders are not willing to lend outside their countries

but follow existing clients to make cross-border loans in CCI.

Alternative platforms‘ assessment of the risks compared to return in the CCI

Perceived top risks:

Investor platforms• Lack of revenue generating business

models, • Lack of skilled management teams,• Lack of a likely exit. Donation platforms • Same top two as investor’s concerns • 3.) too much regulation. Lending platforms• Same top two as investor’s concerns • 3.) long periods of product development

1,00 2,00 3,00 4,00 5,00

Mgmt teams

Lack of IP

Not scalable

Lifestyle

No guar'tees

Regulation

Low revenue

Supply costs

Sunk costs

Long dvlpmt

Size

Hard to value

Unlikely exit

Sub-sectors too risky due to(Ratings: 1 not very important - 5 highly important) -

Average ratings

crowd lending

crowd donation

crowd investor

Alternative platforms show interest in: Co-investment alongside a dedicated pan-European co-

investment fund, Raising a pan-European fund, Lending platforms: favour tax incentives and harmonisation

of tax regulations.

Cross-border transactionsCross-border deals appealing when

projects/businesses are internationally investment ready and/or when

cooperating with mainstream investors from outside their country.

Incentives to cross-border transactions for alternative platforms

Connectivity between finance resources

• Largely corresponding with opinions

stated in the survey: - Crowd-funding is useful and of increasing importance, - Especially for projects and early stage financing, - Recipients tested the market,• Crowdfunding/peer2-peer could

take the place of bank financing for smaller businesses.

• Investor concerns: - Company valuation, - Unclear relation between crowd & investor, - Legal and regulatory problems,• Slowing down the investment

process,• Alternative and traditional financing

may be incompatible.

Assessment of Alternative Financing

• ~60% of VCs surveyed see potential in crowd-funding, but only 15% have real experience with it,• 19% of BA respondents have experience in investing in businesses that received non-traditional

financing, but are more negative about the alternative.

Provide market intelligence on CCI to investors

Online showcasing of CI entrepreneurs seeking finance

Market Intelligence as part of online pitching and showcasing (clusters, incubators etc.)

Create an online CCI investor community

Sharing intelligence and deals and creating better connectivity between finance sources

Support to Development of new CCI Co-investment Fund of Funds

Develop potential of national co-investment approaches that encourage syndication between BAs and VCs to develop specific models dedicated to CCI

Recommedations (Investors)

Support to Development and Enhancement of the new Creative Sectors Loan Guarantee Facility 

Raising awareness of and obtaining commitments from banks and other institutions to support the new guarantee facility (i.e. capacity building for lenders)

Raising awareness of the changes and identifying opportunities afforded by the new CSF financial instruments for Managing Authorities (i.e. capacity building for public authorities)

Consider potential funding enhancements attributed at a regional/national level to further support CCI

Recommendations (Lenders)

Support better connectivity among traditional investors and alternative platforms for CCI finance

Develop and support proliferation of alternative platforms’ networks

Acquaint investors with alternative (equity-based) platforms

Increase transparency of alternative platforms’ business models

Introduce successful (scalable) crowd-funded projects to investors for 2nd round of financing

Recommendations (Platforms)

Recommendations (CCI Businesses)

Support CCI businesses seeking finance

Develop an integrated programme of finance awareness and investment readiness

Getting in early in CCI vocational training and support to entrepreneurs

Raise awareness of the availability and relevance of alternative finance resources

Thanks for your kind attention!

marija@edc.nl