Creative sofa

ECONOMIC GROWTH AMBITIONS IN THE CREATIVE INDUSTRIESMASTERCLASS BUSINESSMODEL INNOVATION CULTURAL SECTOR

ⓒ BY KAO AND CI 3 CREATIVE DEVELOPMENT | AMSTERDAM | 2011

DR ADRIAAN KUKLER - 22 SEPTEMBER

MIND THE

GAP!

vrijdag 30 september 2011

• Management science

• Philosophy of science / in business

• Financial economics

• PhD Basel II / Economic Capital

• 13 years Rabobank International, credit risk management & modelling

• Since 2008: Kukler Advies & Ontwikkeling BV

• Since 2006: co-founder CI Sofa, with Walter Amerika

• Since 2008: partner in Applied Ethics Associates BV

INTRODUCTION ADRIAAN

Adriaan Kukler | KAO

creatieve economie, maatschappelijk verantwoord

ondernemen, risico management, filosofie in bedrijf


AGENDA

• Dominant thinking in banks after Basel II

• Credit crisis and Basel III

• Financial transformation Creative Industries

• Creative thinking

• What is required to bridge the gap

• Examples of bridges: Knowledge / Crowd Funding / Creative Industry Sofa


BASEL II: CALCULATED RISK

DNB requires banks to calculate their credit risk using this formulaRisk weight (RW) =(LGD x N [(1 - R)^- 0.5 x G (PD) + (R / (1 - R))^ 0.5 x G (0.999)] – PD*LGD) x (1 - 1.5 x b)^- 1 x (1 + (M - 2.5) x b) x 12.5 X 1.06

Correlation (R) =0.12 x (1 - EXP(-50 x PD)) / (1 - EXP (-50)) + 0.24 x [1 - (1 - EXP(-50 x PD)) / (1 - EXP(-50))]

Maturity PD Factor (b) = (0.11852 - 0.05478 x ln (PD))^2

risk is:

1. a deviation form the mean,

2. objective

DO YOU FIT IN?


CREATIVE THINKING

• Holistic - not reductionist, like mainstream. creativity comes from anywhere

and everything can play a role

• No control over creative process, as it is open

• Not algorithmic means outcomes can be different, irrational

• Deviating from the mean, ie in the fat tail, where the mainstream model

doesnot work

• Creating new things that may surprise


CREDIT CRISIS AND BASEL III

• Heavy losses for banks -> Governments -> Local Governments -> Consumers

-> Double dip?

• IASB: Banks should write off more (Greece, RE)

Fragile equity position

• Basel III to repair Basel II: Higher requirements

Goverments and banks are weak source of funds


WHY INVESTORS?

Investments are needed when there is a profitable opportunity where costs proceed sales

An investor provides risk bearing capital and/or finance for businesses if he sees more returns

than risks

A bank provides credit only when someone else will carry the business risks, ie. when risk

bearing capital is supplied by others

THIS IS THE AMOUNT OF LOSSES THIS

COMPANY CAN ABSORP BEFORE BEING

BANKRUPT

EG banks: 10 %

Industrial company: 45%

Design starter: 100%


CI RISK IDENTIFICATION

Risks of creative products are indeed higher in respects like:

• Audience preparation (do consumers appreciate it, ie buy?)

• Operational excellence in execution, but also

• Concerning the timing of reaching markets with these highly symbolical

products or services

• Since the CI as a whole are characterised by first mover advantage and a

winner takes all form: creating the wrong thing for the wrong moment creates

near to 100% losses, ie a high downside

• This high risk is reflected in the industry structure, with less than 1% of

companies > 100 employees and more than 2/3 < 5 employees.

> Can you grow and remain creative?


CI DUTCH CONTEXT

Cultural Transformation: Coming From

• AUTONOMY: Art comes from within, is not driven by any demand

• RESENTMENT AGAINST COMMERCE: Koons/Hirsch; Emancipation, Not

Profit

• HERITAGE OF SUBSIDY-CULTURE: Compare modern paintings UK - NL

• LACK OF BUSINESS EDUCATION

• LACK OF BUSINESS INSTITUTES FOR KNOWLEDGE TRANSFER/

ACCUMULATION

• LACK OF ROLE/BUSINESS MODELS


THE GAP

• Greenpaper Creative Industries of the European Committee in 2010,

p11:“Access to finance is a core barrier to growth for many businesses within

the sector”.

• p12: “The world of creation and the world of finance – which are often

"worlds apart" – need help to find a common language, through which CCIs

can have fairer access to funding.”

• Required:

- learn to speak each other’s language,

- mutual respect for arguments and expectations,

- customisation,

- knowledge transfer,

- intensive monitoring and feedback,

- plan based work


HOW DO WE MIND THE GAP?

1. Decrease risk by increasing knowledge (risk as uncertainty is the inverse of

knowledge)

2. Use hightech to address alternative funding sources

3. Customise investment approach to CI (the active banker)


RISK IDENTIFICATION IS RISK MODELLING

As we can’t see risks, we need a model to talk about it and address it

creative process

inputmaterials

labourtechnology

capitalinspiration

outputproduct

BUSINESS MODEL


RISK IDENTIFICATION IS RISK MODELLING

creative process

inputmaterials

labourtechnology

capitalinspiration

outputproduct

BUSINESS MODEL

ARE INPUTS SECURED

IS THE PROCESS EXCELLENT?

IS THE PRODUCT (READY TO BE) SOLD?

WHERE IS MY MARKET?

SOURCING MANAGEMENT MARKET


RISK AND RETURN

Investors want to be compensated for the risk they run by providing (risk

bearing) capital

Venture capitalists expect 25% return on their investment in startups


VARIOUS TYPES OF RETURN

Investors want to be compensated for the risk they run by providing capital

Compensation can be more than just financially:

• Insight in newest developments, be in touch with new talent or trends

• Participate by providing management support, develop strategy and/or

marketing

• Paying back, having earned in the CI, wealthy creative people like to give the

young a chance

• Do good by helping an appealing sector, sustainable product and/or

promising starter




knowledge)


2. Use hightech to address alternative funding sources


CROWD FUNDING

Based on the wisdom and power of the crowd

• Financial contributions from a large number of stakeholders / online investors, sponsors or donors to fund for-profit or non-profit initiatives or enterprises.

•Three types of crowdfunding models:1. Donations, Philanthropy and Sponsorship where there is no expected financial return,2. Lending (Microfinance) and 3. Investment in exchange for equity, profit or revenue sharing

• Pro: it allows good ideas which do not fit the pattern required by conventional financiers to break through and attract cash through the wisdom of the crowd. Next to that, it may also secure evidence of backing from potential customers and benefit from word of mouth promotion

• Con: requirement to disclose the idea at a very early stage. Risk of the idea being copied and developed ahead of them by better-financed competitors

• Soliciting investments from the general public is usually illegal by Security laws (SEC, FSA) Security: if there is (1) an exchange of money (2) with an expectation of profits arising (3) from a common enterprise (4) which depends solely on the efforts of a promoter or third party


http://en.wikipedia.org/wiki/Wisdom_of_the_crowd

http://en.wikipedia.org/wiki/Wisdom_of_the_crowd

http://en.wikipedia.org/wiki/Word_of_mouth

http://en.wikipedia.org/wiki/Word_of_mouth



knowledge)

2. Use hightech to adress alternative funding sources



ONLINE SCANSELF ASSESSMTOUT

GO

FACTCHECKAMBITION CLIP

GO

OUT

PEER TALK

BACK

MILESTONE PROGRAM

GO

GODEAL

STRUCTURING

PEER SUPPORT

BUSINESSSTART

TABS PROGRAM

QUARTERLY IP UPLOAD

CI SOFAEXIT

GROW ONROUND 2

CI SOFA ADVICES

OUT

OUT CI SOFA GROWTH FUND FLOW CHART


THANK YOU

http://www.creativeindustrysofa.com

[email protected]






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