Access to Finance in the Cultural and Creative Sectors: A Practical Approach 22 April 2013 Marija Popovic European Design Centre

Investments potential of the CCI Which CCI sub-sectors are targeted for finance, which sub-sectors are not? Top 3: software &computer services (23%) film (12%) video games (11%) Least attractive 3: performing arts / arts & antiques (4%) crafts (3%) architecture (2%)

Investors’ assessment of the risks compared to return in the CCI Perceived top risks for investing in CCI businesses: Unlikely to find exit Business not scalable Lack of skilled management teams Revenue generating business models Source: C-I Factor Database

Popular incentives encouraging investment into the CCI Both VCs and BAs favour guarantee funds and co- investment of public/private funds next important for BAsnext important for VCs risk reduction through filtering process (incubators, etc.) risk reduction through public seed funds Both VCs and BAs prefer  enterprises that are internationally investment ready  a chance to invest alongside a reputable investor BAs are more enthusiastic about incentives than were VCs. BAs also are overwhelmingly in favour of sector specific tax incentives.

Lenders‘ assessment of the risks compared to return in CCI Perceived top risks for lending to CCI businesses Lack of skilled management teams Solid business plans Protectable IP Revenue generating business models Source: C-I Factor Survey

Popular incentives encouraging lending to the CCI Lenders support risk reduction through 3rd party guarantees, including a 50% guarantee. next important for Public Funds Lenders next important for “Other Sources” groups Group co-lending with an expert in the sub-sector and risk reduction through participation in projects led by a public/reputable bank Place access to expertise at a reasonable price ahead of a 3 rd party guarantee Cross-border lending Most lenders are not willing to lend outside their countries but follow existing clients to make cross-border loans in CCI.

Alternative platforms‘ assessment of the risks compared to return in the CCI Perceived top risks: Investor platforms Lack of revenue generating business models, Lack of skilled management teams, Lack of a likely exit. Donation platforms Same top two as investor’s concerns 3.) too much regulation. Lending platforms Same top two as investor’s concerns 3.) long periods of product development

Alternative platforms show interest in:  Co-investment alongside a dedicated pan-European co- investment fund,  Raising a pan-European fund,  Lending platforms: favour tax incentives and harmonisation of tax regulations. Cross-border transactions Cross-border deals appealing when projects/businesses are internationally investment ready and/or when cooperating with mainstream investors from outside their country. Incentives to cross-border transactions for alternative platforms

Connectivity between finance resources Largely corresponding with opinions stated in the survey: - Crowd-funding is useful and of increasing importance, - Especially for projects and early stage financing, - Recipients tested the market, Crowdfunding/peer2-peer could take the place of bank financing for smaller businesses. Investor concerns: - Company valuation, - Unclear relation between crowd & investor, - Legal and regulatory problems, Slowing down the investment process, Alternative and traditional financing may be incompatible. Assessment of Alternative Financing ~60% of VCs surveyed see potential in crowd-funding, but only 15% have real experience with it, 19% of BA respondents have experience in investing in businesses that received non-traditional financing, but are more negative about the alternative.

 Provide market intelligence on CCI to investors  Online showcasing of CI entrepreneurs seeking finance  Market Intelligence as part of online pitching and showcasing (clusters, incubators etc.)  Create an online CCI investor community  Sharing intelligence and deals and creating better connectivity between finance sources  Support to Development of new CCI Co-investment Fund of Funds  Develop potential of national co-investment approaches that encourage syndication between BAs and VCs to develop specific models dedicated to CCI Recommedations (Investors)

 Support to Development and Enhancement of the new Creative Sectors Loan Guarantee Facility  Raising awareness of and obtaining commitments from banks and other institutions to support the new guarantee facility (i.e. capacity building for lenders)  Raising awareness of the changes and identifying opportunities afforded by the new CSF financial instruments for Managing Authorities (i.e. capacity building for public authorities)  Consider potential funding enhancements attributed at a regional/national level to further support CCI Recommendations (Lenders)

 Support better connectivity among traditional investors and alternative platforms for CCI finance  Develop and support proliferation of alternative platforms’ networks  Acquaint investors with alternative (equity-based) platforms  Increase transparency of alternative platforms’ business models  Introduce successful (scalable) crowd-funded projects to investors for 2 nd round of financing Recommendations (Platforms)

Recommendations (CCI Businesses)  Support CCI businesses seeking finance  Develop an integrated programme of finance awareness and investment readiness  Getting in early in CCI vocational training and support to entrepreneurs  Raise awareness of the availability and relevance of alternative finance resources

Thanks for your kind attention!