Connecting Investment to the Creative Industries in Yorkshire

8/9/2019 Connecting Investment to the Creative Industries in Yorkshire

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Connecting Investment to the Creative Industries

- a set of challenges, opportunities & ideas

for: South Yorkshire Investment Fund

by: Sarah Thelwall

date: July 2009


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Contents

Executive Summary .......................................................................................................4 Investment challenges & needs in the Creative Industries...................................................6

Early stage profile & needs ..........................................................................................7

Growth stage profile & needs .......................................................................................8Ideas & approaches for the development of investment in the Creative Industries in Yorkshire

................................................................................................................................. 10General recommendations ......................................................................................... 10

1. Communication............................................................................................... 102. Locating suitable experts ................................................................................. 113. A gap in the offering........................................................................................ 114.

From serendipitous connections to regular contacts............................................. 12

5. The need to get to critical mass in the region ..................................................... 12

Micro-finance ...........................................................................................................136. High risk, fast burn rate hit based sub-sectors ..................................................137. Understanding the role of money in building a business ....................................... 13

Seedcorn................................................................................................................. 148. Managing CI entrepreneurs expectations of what investors need........................... 149. Becoming familiar with how CI businesses work..................................................1510. A need for more non-execs............................................................................. 15

Equity Fund .............................................................................................................1611. Deal with the Medium & Large firms individually................................................1612. The lack of assets challenge ...........................................................................1613. A co-investment partner................................................................................. 17

Loan Fund ............................................................................................................... 1714. Research the medium & large businesses in the region separately....................... 17

Barriers & Challenges ................................................................................................... 18Lack of familiarity ..................................................................................................... 18Language differences ................................................................................................ 18

Three Ideas to Pilot ...................................................................................................... 20Conclusion .................................................................................................................. 21Appendix 1 - Yorkshire based Creative Industries support organisations & intermediaries ..... 22Appendix 2 Fit of SYIF funds to Creative Industries sectors ............................................ 24Appendix 3 Overview of SYIF funds & their investment criteria ....................................... 25


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Eligibility ................................................................................................................. 25Location .................................................................................................................. 25Viability................................................................................................................... 25Ineligible Activities.................................................................................................... 25Type and amount of Investments ............................................................................... 26

15. Business Loans ............................................................................................. 2616. Equity linked investments............................................................................... 2617. Seedcorn Fund.............................................................................................. 2718. Microloans .................................................................................................... 2719. 6.1 BiG Business Loan Details ...................................................................... 2820. Donbac Loan Details ...................................................................................... 28


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Executive SummaryAs the Creative Industries (CI) and the sectors

and businesses within them continue to grow

so does their need for appropriate sources of

finance & investment. The South YorkshireInvestment Fund (SYIF) has recognised this

need and whilst it has already provided finance

to creative businesses such as Zoo Digital

(over 900,000 in equity related and loan

based finance) SYIF wishes to specifically

address the finance needs of the Creative

Industries in Yorkshire and Humber.

This report presents the findings of a short

piece of research and indicates a number of

opportunities for SYIF to work more closely

with broad based business development

organisations such as Yorkshire Forward and

Business Link, sector specific organisations

such as Screen Yorkshire, Game Republic, the

Creative Industries Development Agency,

Inspiral & Creative Sheffield and sector leading

organisations such as Just-B, QUBA and Zoo

Digital.

The Creative Industries in Yorkshire & Humber

currently turn over some 11 billion which is

generated by some 23,000 companies in theregion (a 23% growth rate since 2006)1.

Approximately 90% of these businesses

employ less than 10 people. Whilst this is a

common profile for the Creative Industries it is

an uncommon sector profile from an

investment perspective. However it is the

growth and future potential which makes it a

sector worthy of specific focus for investors

going forward. Unlike many of the sectors

which SYIF has worked with to date there are

very few corporate financiers or advisingaccountants firms who have specialist

knowledge of the CIs and their needs.

Furthermore the business and social networks

of the CIs and the investors do not overlap at

present so the benefits of investment and the

1 Quoted from The Creative & Digital

Industries in Yorkshire & Humber: 1998-

2006, prepared by BOP for Yorkshire

Forward

returns this could achieve are simply not well

known to any except the most specialist of

investors. These are key reasons why

investment in this sector has not grown thus

far but need not be major obstacles to growth

in deal flow going forward.It is also worth noting that it is only in the last

few years that the Creative Industries have

achieved recognition for their contribution to

the economy and that in depth studies of the

business models, sector profiles and regional

specialisms has been undertaken. It would

therefore have been difficult for organisations

such as SYIF to identify the size and scope of

the opportunity and risk & return profiles of

the various sub-sectors. Furthermore the CIs

have also grown significantly in the last fiveyears and there are now a greater number of

profitable, substantial businesses with the

management expertise to successfully manage

the growth and ROI that investors such as

SYIF require in return for their investment.

2009 is therefore a good time to review the

methods by which SYIF interacts with the

Creative Industries in Yorkshire and to plan a

strategy for the SYIF to establish a greater

number of more in depth relationships with the

sectors, their support organisations and the

businesses.

The interviews with development organisations

indicate that there is an increasing demand for

structures which enable investment in those

companies who have outgrown the project

support funds and whose investment needs

now run to hundreds rather than tens of

thousands. The SMEs at this level have

already become familiar with the preparation

of business plans and are better equipped topredict the likely return on investment that

they could achieve. The larger equity and loan

funds within the SYIF portfolio would be the

most appropriate fit for these firms.

Whilst the microfinance & seedcorn areas are

where the majority of new deals would come

from in the Creative Industries in Yorkshire the

new and growing area of work is the next

stage on of larger scale investments. The

interviews with development organisations


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made it very clear that there is one gap in

particular which SYIF would be well placed to

fill companies with a turnover in the region

of 250-750,000 who are on the verge of a

significant growth spurt but who currently do

not have the financial resources to make theinvestments necessary for growth. Investing in

companies with this profile would fit well with

Yorkshire Forwards strategic priorities, would

marry up with the outputs from more project

based activities supported through

organisations such as Screen Yorkshire and

MELT and would match up with the focus of

locally oriented organisations such as Creative

Sheffield and Electric Works. The goal would be

to invest in these firms so that they grow to

the 1-3m turnover level where they would bemore likely to be successful in bidding into

framework agreements and other large project

structures which would then help them support

their own growth through the profits from

larger contracts.

This regional CI growth opportunity is likely to

yield SMEs with a company profile which

meets SYIFs investment criteria and, provided

that SYIF works in collaboration with regional

CI development organisations, SYIF can be

confident that it will be able to accessappropriate sector experts and non-exec

directors to help assess and later manage

investments made.

Working more closely with the Creative

Industries offers SYIF the possibility of

increased deal flow with this growing sector

and offers the Creative a missing piece of the

puzzle which is needed for individual firms to

expand. Whilst the main focus will be on

growth stage SMEs links into the earlier stage

firms through microfinance opportunities also

need to be built into SYIFs plans.

A single strand of activity is unlikely to reach

enough of the businesses or development

organisations and risks so three pilot activities

are proposed:

o A sector lead approach

o A geographically or space based

approach

o A micro-finance approach

These pilot activities can build directly on the

CI structures in the region which will increase

the speed to market and the timeframe in

which results can be demonstrated.

Nonetheless all of these pilots should beexpected to take 12 months to integrate into

the CI structures and a further 12-24 months

to start demonstrating the first results.

These pilot activities will also form the

structure for tackling a number of the

infrastructural gaps such as the lack of

appropriate experts to assist in due diligence

processes, the shortage of suitable non-exec

directors and the need for investment

readiness coaching for SMEs.

For the purposes of this report when we refer

to the Creative Industries we mean the 13

sectors identified by DCMS. However it is likely

that SYIF will prioritise a smaller number of

sectors based on the matching of the profile of

the funds to the profile of sectors. The

priorities for the organisation as a whole are

likely to be architecture, design, software &

publishing but a wider range for the microloan

scheme. Please see Appendix 2 for an analysis

of fit of funds to sectors.


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Investment challenges &

needs in the Creative

Industries

The Creative Industries are known for theirrapid & iterative development processes, their

use and progression of technology and their

dependence on a highly skilled labour force.

Whilst intellectual property has a role to play it

is often not the foundation upon which a

company is built. Creative companies are more

commonly built around a creative process than

a market opportunity in their early stages. The

barriers to entry in many creative sectors are

relatively low i.e. little is required in the way of

manufacturing assets to get to market. Boththe nature of the sectors in the Creative

Industries and the processes & business

models which they use mean that there is

often little in the way of tangible assets. Once

the creative entrepreneur starts considering

profit rather than cashflow, growth rather than

subsistence then they may start to review the

customer base and USP and their position in

the market.

These make for challenging investment

conditions as the Creative Industries provide

few of the normal opportunities for risk

mitigation or security no IP to sell off, no

manufacturing assets to buy out and the

competitive advantage being held in the heads

of the employees.

In addition to this few Creative Industries

entrepreneurs have worked for venture

capitalist backed firms or have others in their

network whove been through the investment

process. The impact of this is that they are

relatively unlikely to have witnessed the

difference between businesses that have

bootstrapped their way through growth vs.

those who have taken in investment. It doesnt

necessarily occur to creative entrepreneurs to

look at investment finance as a possible

growth route for their business, their network

doesnt extend into it and they dont know how

to articulate the investment opportunity in

terms that would appeal to an investor. The

Creative Industries are in this sense an

immature investment market.

The majority of specialist investors in the

Creative Industries are based around a small

number of sector specialists who have

knowledge of both the history of how thesector has been developed (what has been

tried before and the reasons for successes and

failures) and who are sufficiently connected in

to the current debate and technology

developments to be in a position to judge the

markets likely reaction to new ideas. Ingenious

Media is one such example of a successful

specialist CI investment firm whose investment

managers are drawn from the film and new

media sectors. This is not to say that you have

to be from the sector to understand it merelythat, to date, the Creative Industries have

seemed to present high or difficult risks for

investors and an investment profile which has

not fitted the norms and models of investment

in other sectors. This has put off investment

from all but those who have a prior working

knowledge of the Creative Industries. This

position is starting to change as the growth of

the Creative Industries becomes more easily

visible and its contribution to UK GDP

continues to grow.

This level of specialism is unusual in other

investment fields with perhaps the exception of

the way Biotech venture capitalists specialised

in the 1990s and early 00s. SYIF, like many

other investment vehicles, operates a structure

of investment managers whose network is

based around a series of introducers and

filtering mechanisms. The most common

connections are with firms of accountants and

related corporate finance specialists. This

model will also suit SYIF as it prevents the

investment managers from spending too much

time on very early stage due diligence on a

very large number of deals and instead

connects them in to a series of pre-filtered

investment opportunities. From the investors

perspective this approach works very well.

However the Creative Industries do not

typically make use of corporate financiers and

therefore the question asked of the Creative


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Industries is who are the appropriate

introducers to SYIF?

SYIF currently operate four distinct funds each

with its own due diligence process, risk profile

and preferred type & level of investment. A

matrix of the expected fit of these funds to theDCMS set of Creative Industries sectors can be

found in Appendix 2.

Not all sectors match up neatly against existing

fund structures. For example the financing of

films is unlikely to fit into SYIFs funds or plans

investments in this area require a great

depth of knowledge of the rest of the film

financing arena as well as a deep

understanding of the risk profile of film at the

different stages from idea to distribution. SYIF

is unlikely to be in a position to commit

sufficient resources long term and to

participate on the periphery would be likely to

result in shouldering unnecessary risk without

sufficient chance of return to make it

worthwhile.

The Creative Industries in Yorkshire are

supported by a wide array of CPD and sector

development bodies. In some cases these

operate their own project development funds

e.g. MELT and in other cases they signpost toregional or national initiatives such as the

Technology Strategy Board or developmental

funds from Business Link. Either way both the

support organisations and the SMEs are

familiar with project based & very early stage

finance. Whilst the Creative Industries are

more familiar with grant based finance than

debt or equity nonetheless this familiarity with

funding at the 5-50,000 level means that it

should be a relatively straight forward task to

connect the microfinance (and to some extentSeedcorn) funds in to the existing sector

structures. Integration of SYIF microfinance

and seedcorn marketing materials into the CPD

organisations rosta of options presented to

clients would therefore be the most efficient

way to promote SYIF activities. A more

detailed set of ideas for the implementation of

this is given in section 4.

The interviews with development organisations

indicate that there is a increasing demand for

structures which enable investment in those

companies who have outgrown the project

support funds and whose investment needs

now run to hundreds rather than tens of

thousands. The SMEs at this level have

already become familiar with the preparationof business plans and are better equipped to

predict the likely return on investment that

they could achieve. The larger equity and loan

funds within the SYIF portfolio would be the

most appropriate fit for these firms.

Whilst the microfinance & seedcorn areas are

where the majority of new deals would come

from in the Creative Industries in Yorkshire the

new and growing area of work is the next

stage on of larger scale investments.

Early stage profile & needs

The interviews with regional sector support

organisations indicate a clear demand from the

Creative Industries at this level of investment

and at these early stages of a companys

growth. Not all the firms will be young in terms

of the time that theyve been in the market or

the age of the owners however the common

factor will be that they are new to the idea of

investment of money (via loan or equity

routes) into the business as a catalyst &

enabler and thus as a key tool for growth of

their business.

The received wisdom, particularly in those

Creative Industries where the start up costs

are low, is that entrepreneurs in these fields

boot-strap their way through growth. Whilst

this can work in the early stages there comes a

point where the lack of access to larger sums

than the business can deliver acts as a brakeon development of the business. Furthermore

Creative Industries businesses find it very hard

to access bank debt so they have very few

routes open to them to acquire the necessary

injection of cash. It is for these reasons that

the sector specific project funds have been so

valuable programmes such as MELT and now

4IP fulfil a crucial role as they fund

development when it appears to be too high a

risk for any other organisation.


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In order to acquire these grants SMEs have to

learn how to prepare business plans, generate

financial forecasts which demonstrate the

market need and viability of their innovation as

well as being able to manage the draw down of

funds and delivery of results against agreedmilestones.

The challenge however with the grant based

approach is that, ultimately, SMEs do not need

to deliver a financial return on the funds

there is no payback, no interest, no ROI. At a

minimum this means that they are not familiar

with the management of the risk associated

with loan funds for example. It is also a

question as to whether the business advisors,

mentors and coaches at this level are

experienced in advising their clients on how tohandle debt and its associated risks. If the

advisors are only experienced in providing

advice on grants debt will appear to be very

high risk by comparison and equity investment

will seem too hard to predict the outcome of

(in terms of dilution). Whilst loans are indeed

more risky than grants this is simply not the

basis on which to decide whether a loan makes

sense!

That said SMEs are familiar with the

leveraging of one set of funds to acquire other

match or further (usually grant or sponsorship)

investment. This is a key skill when putting

together packages of finance & investment.

The other notable challenge at this level is that

the grant based & project focussed funds often

fund only the R&D portion of the activities. It is

relatively unusual (though now changing) for

these funds to recognise let alone cover the

sales & marketing costs to the same extent

that they cover R&D. The greatest risk at thetime is that the firm has done the market

research, built the product or at least the

prototype but that they have insufficient funds

to launch it into the market properly. Without a

proper launch, sales push and follow up it is

unlikely that any new product or service would

achieve its full potential. Funding programmes

at this level often state that their goal is to

encourage innovation and support early stage

developments rather than to support the full

market launch. This leaves a gap between their

areas of interest and coverage and those of

investors who are absolutely focussed on

market success as it is this that drives the ROI

capability of the investee.

SMEs will therefore need to learn to cost anddeliver the marketing and sales elements as

they move on from these project grant funds

into debt and equity investments. The costs of

this will often move an SME out of the micro-

loan territory into the larger scale investment

& loan funds ie if 25,000 is needed for the

R&D then sales & marketing could easily

demand 25-50,000. This needs to be

considered when matching up the Creative

Industries support & development

organisations with their counterparts in theSYIF structures for whilst it makes sense to

leverage both types of funds at once the total

size of the deal may be substantially larger

than the grant funding assessment

mechanisms may recognise.

It is also worth noting that the sales &

marketing capabilities of CI SMEs are often

not as clearly articulated (or on occasion

developed) as the creative capabilities. This is

because many CI SMEs are started by

creatives as a way to take control of the

creative direction of their work. It is less

common for CI SMEs to be started as a

response to an identified market need. This

impacts the balance of skills held within CI

SMEs at the 2-10 employee stage and is likely

to mean that at the point at which significant

investment is being considered there will be a

need to bolster the business skills in the firm

both through employment of people in sales,

marketing (and perhaps finance) functions.

This is very much about making the shift from

learning how to leverage funds to increase the

spend on R&D to learning how to invest in the

company to achieve sustainable growth and

thus to achieve a return.

Growth stage profile & needs

Whilst equity based investment in the 200k-

1m range has been the core of SYIFs


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investment thus far it is relatively new territory

for the Creative Industries both regionally and

nationally. There are very few specialist VCs

operating in the Creative Industries though

there is a natural overlap with the BVCAs

classification of photography & media. RDAbacked VCs such as NStar Finance and

Advantage West Midlands have set up

specialist CI funds though most have capped

their level of investment to approximately

200,000 due to EU regulations.

Until the last two to three years it is unlikely

that there would have been sufficient appetite

for investment in the 200k-1m level within

the CI in Yorkshire for it to have merited

attention from SYIF or other investors. This is

now changing and estimates from developmentorganisations in the region indicate that

organisations such as Screen Yorkshire, CIDA

and JustB could act as introducers to 3-4 deals

per annum.

The deal flow is mostly likely to come through

sector support and development organisations.

This would suit SYIF well as it results in a set

of pre-filtered opportunities being presented

rather than SYIF undertaking the early due

diligence themselves. This approach also

means that it is likely that those companies

looking for larger scale investment will already

be known to the support organisations and

may well have received project funds

previously2. The companies are therefore more

likely to be investment ready in the sense that

they will be able to present the investment

opportunity in terms of the ROI that SYIF could

achieve through a clearly defined exit strategy

and backed up with a robust set of financials

plans. Additionally the business model is likely

to be clearer and the senior team more stable.

That said because this is new territory for the

companies and the sector and because very

few corporate financiers operate in this sector

it is likely that some investment readiness

work will still be needed. The ability to access

2 From programmes such as MELT or 4IP

which fund projects rather than

companies

the 3,000 Business Link grants will be a key

step in enabling these firms to prepare fully

and with professional assistance.

Based on interviews with organisations such as

Creative Sheffield, Yorkshire Forward and

Electric Works it would appear that there isinterest in developing a regional approach (for

Yorkshire rather than just Leeds or Sheffield)

or strategy group focussed on developing CI

firms from the 300-700k (turnover) stage

through to the 1-3m stage. There is definitely

a role for investment in this growth stage. The

question now is who will bring this group

together and how soon can it start delivering

benefit to companies in the region? It is also

worth noting that the growth agenda was a

consistent strand in Creative Britain so thisapproach would be consistent with the national

sector plans.

An alternate route at this level, particularly

given the small percentage of businesses in

the medium & large business size bands is that

these companies may well be identified as a

result of Yorkshire Forward backed research

into the companies operating at this level in

the region3. A development of connections

between SYIF and the sector support

organisations might also lead to the inclusion

of more finance oriented research questions in

CI sector studies such as the Sero report on

the basis that it would be a regular part of the

ecosystem to a greater extent than it is at

present.

In order for SYIF to invest successfully at this

level (indeed at any level) they will need to

establish a larger pool of sector experts who

can assist with due diligence research. This

would be true of any expansion of activitiesinto less familiar territory but it is particularly

true when investing in sectors with such a fast

pace of development and high rate of

obsolescence. There are lessons to be learnt

3 E.g. the South Yorkshire Creative &

Digital Industries Study by Sero with

Ekos & Inspiral. (p4 of section 1 & P22 of

Section 3 indicates the companies

researched for this section of the report).


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from the Technology Strategy Boards first

round of CI grants and the panel structures

used to determine who to award to, there are

lessons to be learnt from NESTAs Creative

Pioneer Programme and the subsequent move

out of direct contact with entrepreneurs and afocus on collaborations with sector bodies.

With an experienced team of investment

managers the greatest risk is not a lottery of

semi-random investments but instead the risk

that great intentions are not followed through

with a series of deals.

This is likely to mean that SYIF needs to select

a number of sectors and indeed sub-sectors to

focus on which have a good fit to the risk and

return profile of the fund. For example with

NStars Digital and Creative Fund theinvestment manager chose to focus on serious

games rather than those designed for Wii etc

because the cost of getting to market was

lower and thus the investments he could make

were sufficient to get a product to market

whereas in the larger entertainment games

market 200k is a small investment and does

not cover development, launch and marketing.

For an overview of the fit of current SYIF funds

to CI sectors see Appendix 2.

Given that it is normal for a business (or their

corporate finance advisors) to build an

investment package from multiple sources

(both as a means to spread risk and a

mechanism to raise the total value of the sum

invested) it would also make sense for SYIF to

start to partner with the CI investment

specialists such as Ingenious Media. This would

have the added benefit of enabling SYIF

investment managers to learn from their

counterparts in these firms.

It is also worth noting that the interviews with

sector support organisations carried out for

this report did not result in a clear articulation

of the needs of larger firms such as Zoo Digital,

perhaps in part because the greater volume of

companies in the region are in the micro-

business category and their development

needs are very different to those in the

medium business size category. Further work

would be required to better understand the

medium sized businesses as this study

focussed on researching the sector support

organisations.

Ideas & approaches for the

development of investment

in the Creative Industries in

YorkshireMany of the interviews conducted with both

SYIF staff and sector support organisations

resulted in ideas for mechanisms to improve

the relationship between SYIF and the Creative

Industries in the region. This section provides

a summary of the current status and connects

this to ideas for the improvement of deal flow.Those proposals which are applicable across

more than one type of fund are outlined first

and those which are applicable only to one or

two fund types are outlined under the first

fund heading to which they relate.

General recommendations

1.Communication

Funds & Sectors: All

Several of the SYIF investment manages

commented that one of the greatest challenges

is one of communication letting other

organisations and businesses know that SYIF is

interested in a sector or type of company to

invest in.

This is in some senses a straightforward

marketing issue. However as most businesses

are referred by a third party it is also a

question of relationships. A referrer needs notonly to be clear about the criteria of the fund

but also the flexibility of it i.e. whilst most loan

fund recipients will have a business which is at

least 3 years old perhaps 20% of loans are to

higher risk younger companies. A referrer

needs to be clear that in such cases the loan

amounts are typically smaller but they also

need to feel that they can suggest higher risk

opportunities and that if the business isnt

suitable it wont adversely affect a working


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relationship. Referrers often dont wish to risk

getting it wrong, raising the hopes of a client

business and making themselves look stupid.

In this sense it is also important to

communicate the ratio of businesses who are

referred vs. those who are invested in/loanedto make it clear that failure to achieve funding

is pretty common!

Recommendation: whilst the training for CI

advisors should probably be designed and

delivered by a third party it would make sense

for the training to combine theory with lived

experience & case studies. These latter two

elements could be delivered with the

assistance of SYIF investment managers. This

would not only bring the examples to life but

also provide a key opportunity for theinvestment managers and CI advisors to

explore these further.

Potential Partners: as wide a variety of CI

support & development organisations as

possible

2.Locating suitable experts


Investment managers often call on the

assistance of sector experts when completing

their due diligence processes. Given the

breadth of technology, the speed of change

and the varied business models employed in

the Creative Industries SYIF needs a collection

of sector experts to draw upon and whilst

individual investment managers have one or

two such contacts they do not currently have a

sufficiently diverse group to draw upon, nor

are they clear as to how they would meet

individuals to add to their current panel. There

are a number of ways in which this could beaddressed:

o a mixing of smart money which brings

experts with it

o extension of current networks via events

such as b.tween (where SYIF could run a

panel or workshop as a means of meeting

both experts and SMEs)

o better connection into various sector

specific bodies who could either act as

experts or refer to others in their network

Recommendation: Having identified the key

CI sectors & stages of interest to SYIF (see

Appendix 2) ask the sector bodies to contributesuggestions of expert individuals along with a

short overview of their expertise and key

strengths. As conversations with these

individuals progress it would be worth knowing

the main elements of their network as a double

check to ensure that the group of experts

covers the region adequately and also covers

the major sources of potential deals e.g. 4IP,

universities etc. In addition it would be worth

developing relationships directly with CI firms

as their senior management & owners mayalso be sources of expertise and non-execs.

Potential Partners: a wide array of support &

development organisations in the region. There

may also be reason to include national

organisations such as TIGA (games) as a route

in to individual firms.

3.A gap in the offering


SYIFs current model assumes that SMEs in

dialogue with SYIF or PIF will have already

located sources of assistance to steer them

through the process of becoming investment

ready. Such assistance is often provided as

part of commercial services from the corporate

finance arms of the larger accounting firms

where these corporate financiers play a dual

role of advisor to the client and introducer to

investor. Where these services are not charged

as a day rate they may be paid for as a

percentage of investment monies raised.Neither of these routes are familiar to the

Creative Industries or the CI specific

development organisations. Furthermore

relatively few CI firms make regular use of

consultants (financial or otherwise) so would

be relatively unlike to be advised in this

direction. For these reasons it is likely that

fewer of the CI firms that SYIF meets will be

investment ready or know where to go for

assistance at this point.


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In prior incarnations of the SYIF funds monies

have been made available via SYIF to use

specifically for the purpose of engaging a

consultant to prepare the firm. This is no

longer the case yet the need remains.

Recommendation: SYIF could liaise withBusiness Link so that CI firms who approach

SYIF but are not ready could apply for funds.

SYIF could also recommend appropriate

consultants. What is not clear at this stage is

whether corporate financiers in the region

would be see value in extending their client

base into the CIs and if so which sectors

would be their focus. This would of course

need to be a business decision for the

corporate financiers and accountancy firms. It

would be worth exploring whether this is anattractive market for these service providers so

that SYIF can be clear as to who has the

greatest to gain from this market development

i.e. does SYIF need the consultants to operate

in this sphere more than the consultants need

the income it would bring or is there a realistic

opportunity for sector growth that happens to

be beneficial to SYIF as a by product?

Potential Partners: advising accountants,

corporate fiananciers, Business Link, CI

support & development organisations

4.From serendipitous

connections to regular

contacts

Sectors & Funds: All sectors, all funds

The work based networks of the investment

managers include accountants, corporate

financiers, bankers and sectors experts from

the sectors most familiar to them. Currentlythese networks include very few individuals

from the CIs. Equally there are very few

individuals with in the CIs whose network

extends into the investment community. In the

main this is simply because the investment

and CI events calendars do not overlap and

both parties are so busy in their current

networks that they have relatively little need

to extend them into unfamiliar territories.

However with SYIFs goal of increasing the deal

flow with the CIs and the CIs need to achieve

growth finance it is time to change the current

patterns from serendipitous meetings to

opportunities for regular contact.

Recommendation: Are there events in the

current CI or investment calendars whichwould be of use and interest to the other? Are

there forthcoming opportunities to invite

investors in to CI events as audience or

speakers where the event should offer

connections to new deals? Are there key

individuals from the CIs who could be invited

to investment oriented events where the

knowledge they would acquire would either

help them prepare for investment or would

help them prepare others?

Would it be possible and useful to develop a

12-18month calendar of key events that help

extend the networks of CI entrepreneurs,

development organisations and SYIF

investment managers? It is worth noting that a

number of the events in this calendar will occur

outside of the region and some will be

international.

The end goal is to extend both CI and

investment managers networks through

regular contact so that there is a sufficientlytrusted relationship in both directions that each

side can bring ideas and deals to the other.

Potential Partners: Technology Strategy

Board, CITIN, NESTA, sector bodies (both

regional and national)

5.The need to get to critical

mass in the region

Sectors & Funds: Key sectors for the region,

all funds

SYIF has a key contribution to make to the

region in terms of helping it achieve critical

mass of growing and successful CI businesses.

However this contribution is unlikely to be

successfully harnessed unless SYIFs attention

can be focussed on the sectors which have

been identified as the regions particular

strengths.


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Recommendation: Clear agreement as to the

role that SYIF can play in developing the key

sectors in the region and a 2-3 year plan for

achieving this. SYIF would need the freedom to

review the sector development plans and

comment on whether the investment vehiclesthey offer are capable of helping to achieve the

development goals based on the company

profiles of businesses in these sectors. Better

yet would be to involve SYIF in discussions

when sector development plans are being

made so that both parties can work to ensure

that the investment approaches support the

plans in a way that suits both sets of needs.

Potential Partners: Yorkshire Forward,

Business Link, Higher Education Institutions,

Sector development bodies

Micro-finance

Interviews with the loan scheme managers

indicated that loans are being made to

Creative Industries based organisations.

Interviews with sector support organisations

however revealed that few were familiar with

the current microfinance schemes and that

whilst they were not currently referring deals

to the fund they felt there would be a demand

for micro-loans amongst their client base.

There would be value in looking at how the

micro-loan scheme might complement existing

grant based project funds such as 4IP as a

means both to mitigate the risk and to extend

the capacity of the projects funded. This would

also form a route in to loan based business

development for those who are currently

unfamiliar with debt & gearing processes and

the associated financial planning for payback.

6.High risk, fast burn rate hit

based sub-sectors

Sectors & Funds: Games, Film & some digital,

Microfinance & Seedcorn

Some of the CI sectors have a very hit based

model. Film and games in particular operate in

this way. The development & production costs

are very high and there are very few

opportunities to market test a concept prior to

the full launch. These are very high risk sub-

sectors for non-specialist investors. Even

specialist investors tend to operate a slate

approach ie they fund a number of

games/films on the basis that whilst very fewwill be successful the successes will pay for the

losses and still leave a reasonable ROI.

It should of course be noted that these hit-

based sub sectors e.g. console games are very

different to other parts of the wider games

sector e.g. serious games and that the key

capability is that of knowing the boundaries of

different sub-sectors, their models and to

avoid confusing a hit based sub-sector with

other less risky sub-sectors.

Recommendation: This risk profile is unlikely

to suit SYIF and it would be better to avoid

sectors where this hit based approach is the

dominant model.

7.Understanding the role of

money in building a business

Sectors & Funds: Early stage across many

sectors; Microfinance & Seedcorn funds

One of the challenges in working with CIbusiness advisors whose background is work in

the cultural and creative sectors is that many

have not worked with businesses who have

taken in investment or used debt finance to

growth their business. Indeed they may not

understand the difference between an

overdraft and structured debt.

This lack of experience is often combined with

a lack of business theory ie this crowd dont

typically undertake MBAs or use similar

sources of business education. Thus they maywell lack both the theoretical and practical

knowledge of the role of finance in enabling

growth.

The advantage of the CI specific business

advisors/coaches/mentors is that they are very

good at communicating with CI businesses in a

language which engenders trust and which

translates business jargon into a terminology

which creatives are more familiar with.


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Recommendation: Development of a one day

training module for CI advisors, mentors &

coaches in collaboration with key CI CPD &

sector organisations. This would look at the

different types of funds & investment

mechanisms covering grant, micro-loan, equityinvestment, bank debt and larger SYIF loans.

It would also cover a number of elements of

basic finance theory e.g. gearing ratios & risk

and calculations of payback of debts on the

basis that whilst advisors do need to

understand the different types of funds and

investment available unless they understand

the principles of gearing and debt then they

will still not be in a position to advise

effectively on these topics.

Possible partners: CIDA, Screen Yorkshire

Seedcorn

If the businesses in discussion have a model

and growth opportunity which is sufficiently

scalable as to make them attractive to the

larger equity fund in the future then

historically SYIF has been keen to introduce

them to the seedcorn fund at an early stage on

the basis that the equity arrangements and

return on investment are better if the deal is

made at an early stage in the businesss

growth.

The challenge with the above in the Creative

Industries is that whilst some new companies

follow a similar model for research and launch

as say science innovation based spin-outs

many companies do not seek to protect their

IP and simply boot-strap their way through

growth. This means that such businesses

simply do not seek investment to cover R&Dthe way a biotech company would as there are

not the long years of R&D to fund before a

product is launched. They do however seek

funds to cover R&D innovations once they are

more established in the market. If this profile

of development is eligible for the seedcorn

fund then the opportunities for investment will

be wider.

8.Managing CI entrepreneurs

expectations of what

investors need

Funds & Sectors: Seedcorn & Equity

Many entrepreneurs in the CIs have a career

path that takes them straight from art college

into either freelancing and then into building

their own firm or into a small creative firm

which has grown through bootstrapping. Very

few work for large corporates or other entities

with an ongoing relationship with investors or

the City. This in means that few of their

colleagues and work associates have

experience of investment deal structures,

equity negotiations and the related success

goals. So if they are looking for models for how

to grow their firm there are few in their

network from whom they can learn or to whom

they can turn for advice. This in turn means

that they have no sounding board for

discussions on whether a 10% stake or a 40%

stake would be reasonable in return for the

investment funds, nor can they draw on others

experience of why dilution matters.

Entrepreneurs need to be able to learn from

those whove gone before them and even with

the best network in the world given that CIinvestment by VCs is still a relatively new and

immature market there are simply fewer

opportunities for entrepreneurs to meet those

whove been through the process and who

have experience of doing so within a CI setting.

Recommendation: Identify a series of CI

investment examples where both the

entrepreneur and the investor would be willing

to tell the story of the companys journey to an

audience. Identify or establish an event which

provides the setting for entrepreneurs within

the region to meet, hear these examples (the

warts and all versions not the PR versions) and

put questions to those involved. It would be

reasonable to suggest that this process alone

will lead not only to increased understanding of

investment deal structures but will also enable

regional entrepreneurs to compare notes about

different growth routes & plans (both with each

other and with other advisors).


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Potential Partners: The NStar CDI fund,

West Midlands Creative Advantage, Ingenious

Media, 4IP, Pembridge Partners

9.Becoming familiar with how

CI businesses workSectors & Funds: All sectors, Seedcorn &

Equity funds

Just as CI entrepreneurs are insufficiently

familiar with investors and their needs so too

do investment managers need to better

understand the specificities of how CI

businesses operate. This is not just a question

of understanding the business model and the

factors which influence the accuracy of the

financial projections it is about understandingwhat motivates creative entrepreneurs. Many

professional service providers feel

uncomfortably out of place in the senior team

meetings of creative firms. There are a number

of possible reasons for this but the conclusion

remains the same for an investor placed

board member to be able to accelerate the

success of the firm they need the respect &

support of the rest of the board and this is best

achieved if it is born out of mutual

understanding.Recommendation: Identify a number of

successful & growing CI firms (perhaps at the

500k-1m or 1-3m turnover level) who

would be willing to include SYIF investment

managers either in board development days or

as advisor/observers in board level discussions.

The purpose of this would be a two way

exchange SYIF investment managers would

have expertise to offer in terms of use of

capital, the CI boards would offer an

opportunity to see how decisions are madewithin these successful firms. These exchanges

might lead on to longer term relationships but

would not need to. Nonetheless this needs to

be more than just a single meeting perhaps

one meeting per quarter for a year with each

investment manager working with 2-3 firms.

Potential Partners: medium sized CI firms in

the region (perhaps with introductions from

sector development organisations)

10. A need for more non-

execs

Funds & Sectors: All sectors, Seedcorn,

Equity & Loan

Investors commonly place a non-exec on theboard to help manage the funds they invest.

The challenge in doing so in CI firms is that the

organisational style, management processes

and language are often quite different from

that found in more traditional sectors. So

whilst many of the same rules of business

apply the need for profit, the ability to

deliver ROI etc the manner in which these

areas are addressed is different enough to

become a stumbling block for the unfamiliar.

Furthermore CI firms will not tolerate thepowerpoint and jargon approach to

communication of information.

At a minimum this means that non-execs from

other sectors take time to acclimatise and at

worst one risks the assumption that because

they dont speak the language of business that

creatives are poor business people.

This is more than just an acclimatisation issue

however as CI businesses often focus a higher

proportion of their time on the creative &innovation parts of their product & service

development processes. This is of course a

reflection of both the sector they work in and

the motivations of many of the founders of

these businesses. This results in a cost base

which is structured somewhat differently to

manufacturing based businesses. Again this

means that non-execs from other sectors need

to change their frame of reference.

Recommendation: Of course the solution to

this imperfect fit between sectors is to developa larger pool of non-execs who are already

familiar with the business models, working

processes and management styles of the

Creative Industries. This will require SYIF to

extend their network though it is likely that the

network which yields more experts would also

yield a clutch of non-execs. Collaboration with

sector leading events & conferences would be

a relatively quick way to develop this pool.


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Possible Partners: regional but also national

sector support & development organisations

See also section:

3.2.1 High risk, fast burn rate hit based

sub-sectors

Equity Fund

Although the BOP report indicates that only a

very small proportion of Yorkshire based

Creative Industries businesses can be included

in the medium or large categories according to

the number of employees there is an ongoing

trend within the sector to prepare companies

for larger scale equity investment. Anecdotal

information suggests that many of the casestudies and speakers on the CI conference

circuit are those who speak about the use of

finance for growth are examples of equity

investment.

This relative familiarity with equity and related

convertible loan based investments will

certainly help SYIF connect its equity

structures in to development programmes in

the support organisations. It will also mean

that entrepreneurs will have a degree of

familiarity with the equity investments of other

businesses in their sector and will have peers

they can reference when considering their own

deals.

11. Deal with the Medium &

Large firms individually

Funds & Sectors: All sectors, Equity &

Loan fund

The BOP 2008 report indicates that only 2.3%

of Creative & Digital Industries businesses fall

into the medium (50-199 employees) or large

(200+ employees) range in Yorkshire

approximately 320 businesses in the region.

Whilst there are variations by sector (for

example electronics has 6.9% of businesses in

these two bands) this is still a sufficiently small

number to enable marketing activities to be

undertaken on an individual basis.

An analysis of Companies House data would

likely show which of these businesses have a

financial profile suited to the loan fund and

given the size of these companies it is

reasonable to expect that they will have a

Financial Director who could be approacheddirect in order to research their needs.

Furthermore it would be possible to convene

discussion groups comprising senior executives

from these firms to research their immediate

and future finance & investment needs and

better understand the relationship that they

would like to have with SYIF.

Recommendation: acquire detailed

information on firms in these bands through

Companies House or other data houses &

undertake analysis to inform marketing

strategies. Work with Yorkshire Forward and

regional sector bodies to convene a series of

discussion meetings to research the needs of

this sub-set of the CI firms in the region.

Potential Partners: It would be important to

understand how the sector support

organisations split their resources between the

support of micro & small businesses vs. the

support of medium & large businesses.

12. The lack of assets

challenge

Sectors &Funds: All sectors, Equity funds (&

to some extent Seedcorn)

It is common for CI firms to own very little in

the way of assets. Where IP is involved it is

often in the form of trade marks rather than

patents and even this is of debatable value if

the technology and market are moving so fast

that obsolescence can occur before a firm hashad time to achieve a return on the investment

theyve made in their intellectual property.

Market leadership depends as much on the

quality of the senior teams network (so that

they can be in the right place at the right time),

their feel for the zeitgeist and their ability to

develop new ideas as it does on a strong

management team and efficient management

of resources.


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Recommendation: As CI firms have found it

difficult to attract investment to date and the

most common reason given is the lack of

assets it would be useful to clarify SYIFs

position on this issue so that a clear message

can be given in any marketing materials usedand in any presentations given.

13. A co-investment partner

Sectors & Funds: All sectors, Equity & Loan

Given the agreed lack of familiarity with CI

business lifecycles and growth patterns

amongst SYIF investment managers one route

to improving the knowledge base would be for

SYIF to co-invest with a sector specialist such

as Ingenious Media. This would allow

experiential learning for SYIF investment

managers whilst delivering the desired deal

flow. This would either allow SYIF to increase

the value of investments made or allow them

to reduce the risk by splitting the standard

investment levels between two parties.

Working with a national specialist investor

would have the added benefit of bringing other

investors into the region as well as showing

case studies of success beyond the region.

Recommendation: Review the coverage andspecialisms of the CI investors nationally and

identify those with a similar investment profile

to SYIF before starting discussions.

Potential Partners: Ingenious Media,

Pembridge Partners, regional & national

business angel networks

See also sections:

o 3.3.1 Managing CI entrepreneurs

expectations of what investors need

o 3.3.2 Becoming familiar with how CI

businesses work

o 3.3.3 A need for more non-execs

Loan Fund

The challenge here is that larger loan based

development routes are unfamiliar territory for

the Creative Industries and the related support

organisations. The examples of existing deals

such as SYIFs deal with Zoo Digital are not

commonly used as case studies in conferences

and entrepreneurs are not as comfortable

talking about debt as they are about

investment.

14. Research the medium &

large businesses in the

region separately

Sectors & funds: all sectors but only the

larger businesses within them, Loan fund

Recommendation: The interviews with

sector support & development organisations

did not identify loans to larger businesses as a

particular need. However it is worth noting that

the majority of conversations focussed on theareas of greatest need which was commonly

seen to be the growth of the 2-10 employee

stage firms. This is not to say that a need does

not exist for larger loans but simply that the

larger firms should probably be researched

individually to better understand their needs

and that the results of any such work be

discussed with the sector support organisations

as well as within SYIF & PIF.

Potential Partners: Business Link, Yorkshire

Forward, and in particular the Seros & BOP

sector reports and any organisations involved

in this work

See also sections:

o 3.4.1 Deal with the medium & large

firms individually

o 3.4.3 A co-investment partner


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Barriers & ChallengesWhilst the immaturity of the CI is a reasonable

explanation for the lack of deal flow with

investors (both SYIF and others) to date there

is a growing demand both at the micro-financelevel and for larger sums. It is therefore

important to not only improve the connections

between the Creative Industries and the

investment community but to ensure that any

barriers to success are identified and removed.

Prior work has identified the following as the

most likely to impede relationships.

Lack of familiarity

This works in both directions and is as much a

social as a business barrier. At present the

investment teams and the development

organisations dont overlap in terms of their

social & business circles. This means that the

informal conversations which occur over a

glass of wine and which result in the building

of rapport simply dont happen as often as

would be useful. Indeed at the moment if they

happen at all it is serendipity not planning. The

impact on deal flow is that neither party is

likely to take a risk in suggesting anopportunity unless they are relatively certain

that it is a good fit; neither party wants to look

like a fool either for misunderstanding the

others needs or interests or for recommending

a company who are inappropriate or not yet

ready for investment.

Yet rapport could be built if both parties were

able to find a place to start and could work

towards improving the quality of deal flow over

time.

Recommendations:

A. Ask SYIF investment managers to sit on

the selection panels for project funding

programmes such as 4IP and MELT

B. Invite investment managers to key

industry events e.g. awards dinners so

that they can see the showcases of the

best & most innovative work in the sector

C. Progress these invites into requests for

presentations & professional advice to

businesses in the CI only once the

investment managers are more familiar

with the sector

D. Initiate a peer to peer two waytraining/briefing/exchange event so that

investment managers and CI

development experts can understand

each others needs in much more depth (if

necessary extend this into peer

mentoring between CI advisors and

investment managers)

E. Provide training for business advisors,

mentors and coaches in the CI across

Yorkshire on the different types of

investment available, the different roles

of debt & equity and demonstrate how

business models & pricing structures

change to ensure sufficient ROI

F. Ensure that CI advisors have met

companies whove taken in investment

and have seen first hand how it changes

a business

Language differencesWhilst those in the CIs understand business

and those in investment & finance definitely

know how to assess innovation the language is

often surprisingly different. This is due in part

to the differing motivations between those who

are creatively driven vs those who are business

lead. However once businesses get beyond the

early phases and become more sales oriented

(in part because their cost base has gone up

and they need a steady pipeline of new work to

cover it) it starts to become easier for creativebusinesses to see financial success as a route

to creative freedom rather than a dampener of

their best ideas (the early stereotype of selling

out). Equally it becomes easier for the finance

oriented folks to see a stable business rather

than one which risks spending its scant

reserves on pursuing an innovation for which

there is no market research and no formal plan

to fund its development and launch.


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There are some out-dated stereotypes on both

sides which are easily fuelled when creatives

talk about the idea first and financiers talk

about the money first. This is simply where

each side feels most comfortable, it does not

mean that they are not perfectly capable oftalking about a wider set of success factors

and weighing them all up when making

decisions about the future direction of a

company, its investment needs and the

likelihood of success of the various options.

As became clear at Investment Matters4 it is

not the lack of money that hinders deal flow in

the Creative Industries investment arena but

the lack of understanding of the folks on the

other side of the table. How can we change

this?

Recommendations:

G. Development of case studies/vox pops on

CI firms whove taken in investment.

Perhaps lead by a coach/mentor from a

CI development organisation but with the

assistance of the investment manager.

The goal being not only to produce a case

study but also to give a clear reason for

the mentor and investor to understand

each other enough to understand and beable to communicate the others

perspective when talking about the case

study.

H. Focus these stories on the investment

process the challenges, new learnings,

areas of discomfort and what they did

about them there is no point in having

stories that just talk about the gold at the

end of the rainbow, whats needed is to

better understand how to make decisions

through the process on things such as the

percentage of equity that it is reasonable

4 The conference on investment

structures in the Creative Industries held

in Brussels in 2008 for an international

delegate base from UK, France, Holland &

Germany. Run by CIDA as part of the

ECCE programme. The speaker videos

may be found on CIDAs Youtube account.

to exchange for the investment at

different stages of a companys growth.

I. The above should lead to CI mentors

becoming more fluent in finance speak

and being better able to represent the

investors position when coaching a firm.It should also assist investment

managers in arguing the case for CI firms

who have been recogised as both

innovative and successful in their sector

but whose business model or lack of

tangible assets makes them a

tougher/riskier choice by comparison to

investments in other sectors

J. Develop a mechanism that enables

investment managers to see how mature,

successful & innovative CI firms make

decisions and manage risk. This probably

isnt asking them to become board

members of regionally based CI firms but

might be joining a sector panel or event

advisory board e.g. joining the JustB

advisory board for b.tween as this would

bring them into contact with senior

executives from nationally successful CI

firms e.g. Morgan Holt at Huge, Michael

Nutley from New Media Age. The

investment managers would be in a peer

group with individuals who daily manage

the balance between creative and

business needs. The key here is making it

a senior group of people who are carrying

on a high level discussion - so it is

unlikely to be useful to add them into the

Technology Strategy Board review panels

as although they would be amongst peers

the discussion focuses around funding

choices for early stage initiatives.

Interviews with both investors and creative

development organisations in the region

suggests that these are relevant to the current

situation in Yorkshire.


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Three Ideas to PilotWorking more closely with the Creative

Industries offers SYIF the possibility of

increased deal flow with this growing sector

and offers the Creative a missing piece of thepuzzle which is needed for individual firms to

expand. Whilst the main focus will be on

growth stage SMEs links into the earlier stage

firms through microfinance opportunities also

need to be built into SYIFs plans.

Three pilot activities are proposed:

o A sector lead approach

o A geographically or space based approach

o

A micro-finance approachThe region has demonstrated a commitment to

the screen based industries over a number of

years both through programme lead activities

such as MELT and now 4IP but also through

the strength of leadership of the sector bodies

such as Screen Yorkshire. This means that the

businesses in these sectors have had exposure

to investment processes and are perhaps more

investment ready than their counterparts in

other sectors. It makes sense to build on this

strength by working with key sectororganisations such as Screen Yorkshire and

Just B to assist those firms whove already

benefited from project funds to prepare for a

next round of investment in the firm itself. This

pilot would target those companies who are

already stable and sustainable enough to take

in a combination of equity and debt investment

which would be used to either take new

products to market or to expand the reach of

the sales & marketing operation.

There are a number of physical hubs for

Creative Industries firms in the region such as

the Media Centre in Huddersfield and the

Workstation and Electric Works in Sheffield.

Whilst the cost/sq ft and lease terms mean

that the constituent businesses may vary

dramatically between different hubs there is

very clearly a sense of community in each

cluster. Entrepreneurs benefit from being able

to see how investment has assisted other

similar firms in their growth. By working with a

hub and the community of businesses

associated with it SYIF can not only build local

case studies but also leverage the word of

mouth grapevine that operates in these micro-

climates to identify potential investment clients.

The main target would again be businesseswho are ready for a significant growth spurt

but need an investment in order to achieve

their potential.

Both of these pilots would also benefit from the

close and detailed knowledge that both sector

development organisations and hub managers

have of their client base. This would help in the

process of identifying investment ready

businesses as well as in the assessment of

risks and management of the ongoing

relationship with investees.

If the first two pilots offer depth & focus the

third offers breadth and easier access for

SMEs at an earlier stage of development.

Organisations such as CIDA and Inspiral

interact with a very broad range of Creative

Industries businesses across many sectors but

in particular have working relationships with a

large number of micro-businesses. They are

therefore well placed to work with SYIF on the

expansion of the reach of the micro-loan fund.The benefits in the short term would be to

familiarise and prepare micro and small

businesses with mechanisms of financing

growth beyond the limited grant based

approach. In the long term the building of a

set of relationships with early stage, micro and

small businesses would probably increase the

deal flow of CI businesses into other fund

areas within the SYIF portfolio.

Each pilot would have an agreed set of targets

in terms of numbers of investments, profile of

businesses etc. Each pilot would need to run

for 2-3 years in order to embed it in the sector

and deliver measurable benefit within the time

scale of the pilot.

Whilst each pilot would be run separately there

would of course be benefit in these being

joined up activities and marketing them as

such.


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ConclusionThe interviews undertaken for this study

indicate an appetite both from investment

managers and sector specialists to improve the

working relationship between investors andCreative Industries businesses and support &

development organisations.

The lack of connection between investment

and sector is notable both in the prior reports

on the CIs in the region, in the paucity of

social connections (as well as business

connections) and the lack of understanding by

each side of the other.

Whilst it is notable it need not be a significant

hurdle going forward. Both investors andsector specialists see an alignment of goals

when it comes to speeding up the growth and

improving the sustainability of CI businesses.

Firms in the 300-750k turnover range have

been identified as one particular area of need

which would benefit from a concerted joint

effort and which would provide a focus for

harnessing both equity and loan methods.

Existing activities in micro-finance could be

extended through improved connections to a

wider range of sector developmentorganisations and there might well be an

approach which matches up existing

programmes such as 4IP with microloans or

seedcorn equity investments to extend the

capabilities of the businesses involved. As the

number of larger firms increases so will the

scope for larger scale equity and loan

investments along the lines of the recent deals

with Zoo Digital.

However, rather than speculate further upon

the outcomes of improved relationships

perhaps it is more appropriate to focus on the

means by which the relationships may be

improved. There is clearly a desire to align

programmes to investment approaches and a

willingness to explore how these relationships

could be developed to mutual benefit. The

ideas proposed above are in many cases based

on suggestions made during the interviews by

both investment managers and sector

specialists. Few require substantial financial

resources to implement them successfully

though most require time to be committed and

that commitment sustained over months and

years in order to achieve results.

There are a couple of areas where more work

would help bring together investors and sectorspecialists. An articulation of typical business

lifecycles in key sectors would aid investors

understanding of the hurdles faced by

companies and the risks at key stages. CPD for

sector specialist mentors and business advisors

on the types of investment available and the

means by which investment may be used to

grow a business should improve the abilities of

business advisors to move clients beyond a

grant based approach. A better understanding

of the needs of larger companies in the regionvia direct research of these firms would extend

the knowledge beyond that which sector

support organisations can provide (one of the

constraints of this current piece of work).

Even without this additional work it is

reasonable to suggest that this report indicates

sufficient opportunity and appetite to justify

SYIFs focus on this sector going forward.

Through collaboration with Business Link and

the sector development organisations in the

region the investment opportunities and sector

needs can be married up to achieve both

SYIFs financial returns and the sectors growth

goals.


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Appendix 1 - Yorkshire based Creative Industries support

organisations & intermediaries

Clearly the list below will change over time and will become out of date. For a managed list ofsector support organisations please see www.digitalyorkshire.org.uk .

Digital Campus Media Enquiries: Cipher

Marketing Ltd, 32 Carleton Mill, Carleton,

Skipton, North Yorks, BD23 3EG

UK Trade Invest 1 Capitol Court, Capitol

Business Park, Dodworth, BARNSLEY, S75 3TZ

Fabric Arts Forum Yorkshire Craft Centre,

Carlton Street, Bradford, BD7 1AY

Inspiral The Workstation, 15 Paternoster Row,

Sheffield, S1 2BX

Innovation Halifax The Elsie Whiteley

Innovation Centre, Hopwood Lane, Halifax,

HX1 5ER,

Yorkshire Forward Victoria House, 2 Victoria

Place, Leeds, LS11 5AE

Game Republic Studio 22, 46 The Calls,

Leeds, LS2 7EY,

Creative Sheffield 1st Floor,1 St James Row,

Sheffield S1 2EU

Barnsley Development Agency Westgate Plaza

One, PO Box 609, Barnsley, S70 9FH

Creative Industries Group 161 Albert Road,

Sheffield, S8 9QX

Digital Media Centre County Way, Barnsley,

South Yorkshire, S70 2JW

www.ntileeds.co.uk - Old Broadcasting

House, 148 Woodhouse Lane, Leeds LS2 9EN

Coutts Bank 96 Long Row, Horsforth, Leeds,

West Yorkshire, LS18 5AT

West Yorkshire Lifelong Learning Network,

University of Huddersfield, Floor 10, Central

Services Building, Queensgate, Huddersfield,

HD1 3DH

Electronics Yorkshire Airedale House, Clayton

Wood, West Park, Leeds, LS16 6RF

Learning Light Sheaf Suite,Albion House,

Saville Street, Sheffield S4 7UD

Screen Yorkshire Studio 22, 46 The Calls,

Leeds, LS2 7EY

Cultivate BeepDomains Service, BeepWeb

Limited, PO Box 21285, London, W9 1YW,

United Kingdom

Yorkshire Forward Victoria House, 2 VictoriaPlace, Leeds, LS11 5AE

RTC Yorkshire, Round Foundry Media Centre,Foundry Street, Leeds, LS11 5QP

Melt The Workstation, Sheffield, S1 2BX Leeds Media White Rose House. 28a York

Place, Leeds, LS1 2EZ

South Yorkshire Filmmakers Network Unit 1,

Site Gallery, 1 Brown Street, Sheffield, South

Yorkshire, S1 2BS

CITIN - Unit 211, Business Design Centre,

Upper Street, Islington, London, N1 0QH

Wired Workplace The Quadrant Business Leeds Art Blenheim Walk, Leeds,LS2 9AQ,


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Centre, 99 Parkway Avenue, Sheffield, S9

4WG

United Kingdom

Just-b. Productions, The Workstation,

Paternoster Row, Sheffield, S1 2BX

CIDA (Creative Industries Development

Agency), The Media Centre, Northumberland

Street, Huddersfield, HD1 1RL

Inspiral, The Workstation, 15 Paternoster

Row, Sheffield S1 2BX

Science City York - Enterprise House

Innovation Way, Heslington, York, YO10

Artsmix Unit 26, 30-38 Dock Street, Leeds,

LS10 1JF

Graduates Yorkshire University of Sheffield, 4

Hounsfield Road, Sheffield, S3

Arts Council 21 Bond Street, Dewsbury, West

Yorkshire, WF13 1AX

Business Link - 1 Capitol Court, Capitol

Business Park, Dodworth, BARNSLEY, S75 3TZ

NB a proportion of these organisations participated in a Leeds based event in early 2009

which showcased CI support organisations to Leeds students. The organisations list wassourced from that event but has been checked neither for accuracy nor completeness.


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Appendix 2 Fit of SYIF funds to Creative Industries sectorsCREATIVE

INDUSTRIES

SECTOR

SEEDCORN MICROLOANBUSINESS

LOANS

EQUITY

LINKED

FINANCE

Advertising [Technology and intermediation

but probably not content deals e.g.

Ensembli, Vidiactive]

YES YES NO

Architecture [Technology e.g. Limitstate] YES YES YES

Arts and antique

markets (see also

Restoration)

[Unlikely due to barriers to entry

and problems obtaining exit.]

YES NO NO

Crafts [Unlikely due to barriers to entry


YES NO (Lifestyles) NO

Design (see also

communication

design)

[Design, especially UX design is a

major part of many investments]

YES YES YES ?

Designer Fashion [Unlikely due to barriers to entry


YES NO NO

Film, video and

photography

[Intermediation or technology

platforms- e.g. Vidiative]

YES NO NO

Software, computergames and

electronic

publishing

Yes, although probably only withhigh barriers to competitors e.g.

Magic Curves etc

YES YES YES

Music and the visual

and performing arts

[Intermediation or technology

platforms rather than content]

YES NO NO

Publishing [Intermediation or technology


YES YES YES

Television and radio [Intermediation or technology


YES NO NO


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Appendix 3 Overview of SYIF funds & their investment criteria

Eligibility

South Yorkshire Investment Fund (SYIF) provides finance to businesses in South Yorkshire

who are unable to raise sufficient finance from existing conventional sources. The Fund works

with conventional financiers to enable funding packages to be completed.

To receive funding from the Fund your business must:

o be in, or relocating to South Yorkshire

o be preserving jobs or creating new permanent jobs in South Yorkshire

o be eligible for European funding

o be undertaking a specific project, e.g. developing or implementing new technologies,

expanding, relocating, etc.

Location

Investments will only be made in businesses with a material part of their operations, people or

trading already or proposing to be based within South Yorkshire.

Viability

Applicants must be commercially viable and have reasonable growth potential. In the case of

a proposal involving a rescue, the business must be able to show how changes will enable it to

overcome the problems that led to its original denouement.

Business loans and equity investments may normally only be made in post or near revenue

stream proposals.

Ineligible Activities

SYIF cannot help the following:

o Businesses who do not pay business rates in South Yorkshire

o Non SMEs - An SME is a business employing less than 250 employees, with an annual

turnover of less than 50m Euros (~36m*) or have balance

Documents

Connecting Investment to the Creative Industries in Yorkshire