3 Jun 2016 09:18am

Creating an impression

The creative sector is a key part of the UK economy but navigating the financing options can be a tortuous business. Nick Martindale looks at the current situation and speaks to key figures in the industry about how to stand out

The UK’s creative sector is thriving. Whether it’s singers like Ed Sheeran and Adele, films in the mould of Harry Potter or James Bond, television such as ITV’s Downton Abbey (which has been sold to more than 220 territories) or gaming applications, the country is a hive of creativity.
This isn’t just good news for film buffs or cultural protagonists; the sector also has a significant impact on the UK’s economy. According to 2015 figures from the Department for Culture, Media & Sport, it accounted for £76.9bn in terms of gross added value to the UK economy in 2013, and employed 1.8 million people.

Yet many businesses complain of a difficulty in accessing finance, particularly at an early stage, and struggle to navigate the various options that do exist. “With the creative industries, more than any other sector, it’s about putting together a jigsaw of different forms of private and public funding, particularly for early-stage and growing, entrepreneurial businesses,” says Shaun Beaney, manager of the Corporate Finance Faculty at ICAEW. “When it works really well, those different forms of funding complement each other, but often the tricky bit is getting the right pieces of
the jigsaw together.”

It was this complicated picture that prompted ICAEW to produce the guide Creative Industries – Routes to Finance, which outlines the various funding options – or combinations thereof – open to the sector. This includes both equity and debt finance as well as highlighting any tax reliefs, and suggests which ones might be best suited to organisations at particular stages.

“One of the key reasons we were looking at this was because we have to get away from this idea that in one place there is high-tech, in another there are the creative industries and skills, and in a third there are financial skills,” explains Beaney, who wrote the guide. The funding that is available differs according to the type of business and its particular niche, he continues. “At one end are
the out-and-out arts, so galleries or theatres, and they tend to be more dependent on public funding and philanthropy, as well as a bit of corporate sponsorship,” he says. “Towards the more commercial end, such as film, TV, video games and publishing, you’re shifting more towards private and equity investment.” In all there are around 100 possible sources of finance, he adds.

The creative industry can help itself by competing for more funding when it becomes available. “There’s a £400m funding allocation to the Northern Powerhouse and in the Budget £250m was provided for the Midlands Engine,” Beaney says. “It’s important that the creative industries make a case for access to those sorts of investment.”


There are a number of elements that make the creative sector unique and, by extension, hard to finance, says Mehjabeen Patrick, CFO at Creative England. “Traditional investors or banks all want a clean trajectory in terms of growth of the business with ‘hockey sticks’ of profits and a clear exit, but creative companies cannot always offer that,” she says.

“On top of that, they often don’t have assets that are marketable that they can use as collateral for banks.” The sector itself is incredibly diverse, she adds, and in some areas is wrestling with new business models, which again can make investors nervous.

Creative England was set up in 2011, and has so far provided almost £25m to around 440 businesses in the sector, through a combination of Regional Growth Fund loans, EU funding, National Lottery money and finance from larger businesses. Successful firms receive between £25,000 and £250,000 either as grants, loans or equity investment, says Patrick, but also benefit from broader support such as introducing creative firms to talented individuals or other businesses.

“What we have seen is that there’s a good provision of seed financing, and people are usually able to find £10,000 or £15,000 from friends and families,” she says. “There’s also provision for larger amounts of £2m or £5m. Where there’s a lack of investment is in that middle stage where they need between £100,000 and £500,000 or £1m, because traditional investors are not usually willing to take the risk.”

The most important aspect when looking at whether to invest in a business is the people behind it, says Patrick, adding that Creative England can sometimes take on risks that other investors may not be able to. “They are calculated risks, but if there is an idea that we think will have an impact on the industry, then that will have some traction,” she says.

Beyond Creative England, there are a number of other government schemes, says Patrick, including the Start Up Loans scheme and Innovate UK, as well as initiatives such as Tech City UK and Tech North, which focus on building an ecosystem in which creative firms can thrive. “The tax relief that we have for the film, television and game sectors has also been hugely beneficial, and we are seeing the impact of that now,” she adds.


Andy Wafer set up Pixel Toys in September 2012 with his business partner Alex Zoro, having spent almost a decade working in and around the games development industry.

The business first sought funding to help bring its flagship product GunFinger to market, but found this hard to come by. “The climate for getting finance from investment groups, business angels or venture capitalists was much harder than we anticipated, and certainly traditional finance institutions were not interested in lending us money without any trading history or intellectual property or other collateral,” says Wafer.

The duo began looking for grants and eventually came across Creative England and its Greenshoots scheme, which is aimed specifically at start-ups and provides a mixture of financial and practical support from Microsoft.

“We applied for £25,000 with a very simple prototype, and got accepted,” he says. “That allowed us to hire our first programmer and bring that prototype towards something resembling an actual game.”

Wafer believes one reason his proposition stood out from others looking for funding was due to his previous experience in the industry. “A lot of creative businesses are started by people who come direct from university, but I think the fact that I have had more commercial experience meant we were able to put together quite a credible business proposal,” he says. “If you have the experience of making and releasing successful products in the past, you’re probably going to be in a better position than people who are doing it more as a hobby.” The fact the business had a working prototype was also significant, he says.

After the successful launch of GunFinger, Pixel Toys also sourced funding through a private individual using the government’s Seed Entrepreneurs Investment Scheme in exchange for a minority stake in the business, and later took out a loan from Creative England to help it take on more developers and work on other games, including its Freeblade product.

The business currently employs 20 people but is increasing headcount by two or three a month, says Wafer. Turnover for the last financial year was a healthy £500,000, but Wafer believes the huge success of Freeblade will see this increase significantly in the current year’s figures.

The company’s reputation is also growing internationally, and Wafer himself recently shared a platform with Apple at the launch of its iPhone 6s in San Francisco. “I was on-stage demonstrating the game in conjunction with their new hardware and we were the only third-party product shown on the iPhone,” he says. “It was an incredible experience that was broadcast around the world.”

He is only too aware, though, that things could have been very different had the business not received funding in the early days. “You never know what would have happened if we hadn’t had the money,” he says. “We may have found something else, but I don’t want to think about it too much.”


Edge Investments is a rare example of a financing organisation that specialises in the creative sector. In November 2015 it launched the Edge Creative Enterprise Fund, a £40m fund bringing together private sector funding from institutions and high net worth individuals, backed by an investment by the government’s British Business Bank. The intention is to back between 10 and 20 promising young enterprises from the creative sector, investing between £500,000 and £5m.

“The problem is that the creative industries are simply under-served and overlooked by the investment community,” says David Glick, CEO. “There is a market failure and that’s why we’ve raised a fund to invest in this space.” There is a general misconception that such businesses are risky, he says, although statistics suggest otherwise.

The fund primarily invests in businesses that create, manage and exploit intellectual property, including sectors such as television, radio, computer games, music, fashion, advertising and branded content, as well as those that create the technologies that power these. The firm has already made a number of investments, including family entertainment business Coolabi and computer vision advertisement firm Mirriad.

The important element for Glick is that any potential business has already proved there is a market for its product.

“We understand that early-stage businesses will have to learn as they go along, but we look for businesses where people are already buying something at a price and we can see there is a way to make it bigger,” he explains.

“For us, it’s all about management; finding talented entrepreneurs and providing them with capital, expertise, experience and breathing space to create the environment in which they can best succeed.” Businesses often approach the fund looking for capital, but fail to realise they also need time to develop products, without coming under pressure to deliver to traditional quarterly accounting practices, he adds.

Having the ability to scale up is also important, with a view to an exit after five to seven years. “There are too many people in the creative industries who have a product or a project but not a business,” says Glick. “We may get people with a tremendous opportunity to run an event with no competition, but it’s a one-off project.”

Glick believes his fund is the only one targeting early-stage businesses, although he says there is a greater willingness from private equity investors to finance more established companies. “There is a wall of money available for a business like Coolabi, which is turning over £10m and making £5.5m profit,” he says. “Lots of businesses think they can take something like that and turn it into the next Disney. But they’re not there at the early stage.”


Bobby Lane is a partner in Shelley Stock Hutter, an accountancy practice that has a number of clients in the creative sector. He agrees that navigating the various funding options can be a minefield, but also stresses that creative firms need to help themselves too.

“The starting point is to put together a business plan, ideally for three years, which shows the trajectory of the business and where it’s going, but more importantly the financials of the business and what you might need,” he says.

“I hear from a lot of bank managers who have had creative businesses in front of them. They ask: ‘how much do you need?’ and the response is ‘how much will you give me?’ The bank needs to know what you need and why, and how you’re going to pay it back.”

Many creative people tend to focus more on their products than the financials, he adds, and some organisations mix up funding for working capital with growth finance. “A lot of people think if they put an invoice finance facility in place it will give them the money they need to open a new office, rather than giving them the working capital to fund their overheads and the running of the business,” he says. He believes companies should seek help from accountants, who would be able to advise on the most appropriate forms of funding, as well the various schemes that exist.

They can also help themselves by ensuring they have a strong balance sheet. “Often businesses in this sector are undercapitalised, so they don’t have enough money in the business to begin with,” he says. “They need to be careful to make sure they’re storing things up for a rainy day.”

There are a number of sources of finance that can help those in the creative sector, Lane says, particularly the government’s Enterprise Investment Scheme and Seed Enterprise Investment Scheme, while crowdfunding and asset-based lending are also serious options for some businesses.

“Fifteen or 20 years ago factoring or invoice discounting was a dirty word, but the sector itself has done a huge amount of work in raising its profile,” he says. “It can be the best form of finance for a growing business.”

Creative Industries – Routes to Finance can be downloaded free at icaew.com/creativeindustries.

Nick Martindale

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