access to finance in the cultural and creative sectors: a practical approach 22 april 2013 marija...
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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
