Connecting Investment to the Creative Industries

- a set of challenges, opportunities & ideas

for: South Yorkshire Investment Fund

by: Sarah Thelwall
date: July 2009

1
Contents
Executive Summary .......................................................................................................4
Investment challenges & needs in the Creative Industries...................................................6
Early stage profile & needs ..........................................................................................7
Growth stage profile & needs .......................................................................................8
Ideas & approaches for the development of investment in the Creative Industries in Yorkshire
................................................................................................................................. 10
General recommendations ......................................................................................... 10
1. Communication............................................................................................... 10
2. Locating suitable experts ................................................................................. 11
3. A gap in the offering........................................................................................ 11
4. From serendipitous connections to regular contacts............................................. 12
5. The need to get to critical mass in the region ..................................................... 12
Micro-finance ........................................................................................................... 13
6. High risk, fast burn rate ‘hit based’ sub-sectors .................................................. 13
7. Understanding the role of money in building a business ....................................... 13
Seedcorn ................................................................................................................. 14
8. Managing CI entrepreneurs expectations of what investors need........................... 14
9. Becoming familiar with how CI businesses work.................................................. 15
10. A need for more non-execs............................................................................. 15
Equity Fund ............................................................................................................. 16
11. Deal with the Medium & Large firms individually................................................ 16
12. The lack of assets challenge ........................................................................... 16
13. A co-investment partner................................................................................. 17
Loan Fund ............................................................................................................... 17
14. Research the medium & large businesses in the region separately....................... 17
Barriers & Challenges ................................................................................................... 18
Lack of familiarity ..................................................................................................... 18
Language differences ................................................................................................ 18
Three Ideas to Pilot ...................................................................................................... 20
Conclusion .................................................................................................................. 21
Appendix 1 - Yorkshire based Creative Industries support organisations & intermediaries ..... 22
Appendix 2 – Fit of SYIF funds to Creative Industries sectors ............................................ 24
Appendix 3 – Overview of SYIF funds & their investment criteria ....................................... 25

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Eligibility ................................................................................................................. 25
Location .................................................................................................................. 25
Viability................................................................................................................... 25
Ineligible Activities.................................................................................................... 25
Type and amount of Investments ............................................................................... 26
15. Business Loans ............................................................................................. 26
16. Equity linked investments............................................................................... 26
17. Seedcorn Fund .............................................................................................. 27
18. Microloans .................................................................................................... 27
19. 6.1 BiG Business Loan Details – ...................................................................... 28
20. Donbac Loan Details ...................................................................................... 28

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Executive Summary
As 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 Yorkshire
Investment 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 the
region (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 advising
accountants firms who have specialist
knowledge of the CI’s and their needs.
Furthermore the business and social networks
of the CI’s 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 CI’s
have also grown significantly in the last five
years 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 SME’s at this level have
already become familiar with the preparation
of 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. The
interviews with development organisations
4
made it very clear that there is one gap in o A micro-finance approach
particular which SYIF would be well placed to
These pilot activities can build directly on the
fill – companies with a turnover in the region
CI structures in the region which will increase
of £250-750,000 who are on the verge of a
the speed to market and the timeframe in
significant growth spurt but who currently do
which results can be demonstrated.
not have the financial resources to make the
Nonetheless all of these pilots should be
investments necessary for growth. Investing in
expected to take 12 months to integrate into
companies with this profile would fit well with
the CI structures and a further 12-24 months
Yorkshire Forward’s strategic priorities, would
to start demonstrating the first results.
marry up with the outputs from more project
based activities supported through These pilot activities will also form the
organisations such as Screen Yorkshire and structure for tackling a number of the
MELT and would match up with the focus of infrastructural gaps such as the lack of
locally oriented organisations such as Creative appropriate experts to assist in due diligence
Sheffield and Electric Works. The goal would be processes, the shortage of suitable non-exec
to invest in these firms so that they grow to directors and the need for investment
the £1-3m turnover level where they would be readiness coaching for SME’s.
more likely to be successful in bidding into For the purposes of this report when we refer
framework agreements and other large project to the ‘Creative Industries’ we mean the 13
structures which would then help them support sectors identified by DCMS. However it is likely
their own growth through the profits from that SYIF will prioritise a smaller number of
larger contracts. sectors based on the matching of the profile of
This regional CI growth opportunity is likely to the funds to the profile of sectors. The
yield SME’s with a company profile which priorities for the organisation as a whole are
meets SYIF’s investment criteria and, provided likely to be architecture, design, software &
that SYIF works in collaboration with regional publishing but a wider range for the microloan
CI development organisations, SYIF can be scheme. Please see Appendix 2 for an analysis
confident that it will be able to access of fit of funds to sectors.
appropriate 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 SME’s links into the earlier stage
firms through microfinance opportunities also
need to be built into SYIF’s 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

5

Investment challenges &
needs in the Creative
Industries
The Creative Industries are known for their
rapid & 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. Both
the 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 who’ve 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 doesn’t
necessarily occur to creative entrepreneurs to
look at investment finance as a possible
growth route for their business, their network
doesn’t extend into it and they don’t 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 the
sector 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 merely
that, 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 it’s 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 1990’s and early 00’s. 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
6
Industries is who are the appropriate
introducers to SYIF?
SYIF currently operate four distinct funds each
with it’s own due diligence process, risk profile
and preferred type & level of investment. A
matrix of the expected fit of these funds to the
DCMS 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 SYIF’s 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 to
regional or national initiatives such as the
Technology Strategy Board or developmental
funds from Business Link. Either way both the
support organisations and the SME’s 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 extent
Seedcorn) 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 SME’s at this level have
already become familiar with the preparation
of 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 company’s
growth. Not all the firms will be young in terms
of the time that they’ve 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 brake
on 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.
7
In order to acquire these grants SME’s 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 agreed
milestones.
The challenge however with the grant based
approach is that, ultimately, SME’s 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 to
handle 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 SME’s 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 the
time 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.
SME’s will therefore need to learn to cost and
deliver 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 the
SYIF 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 SME’s are often
not as clearly articulated (or on occasion
developed) as the creative capabilities. This is
because many CI SME’s are started by
creatives as a way to take control of the
creative direction of their work. It is less
common for CI SME’s to be started as a
response to an identified market need. This
impacts the balance of skills held within CI
SME’s 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 SYIF’s
8
investment thus far it is relatively new territory
for the Creative Industries both regionally and
nationally. There are very few specialist VC’s
operating in the Creative Industries though
there is a natural overlap with the BVCA’s
classification of photography & media. RDA
backed VC’s 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 development
organisations 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 is
interest 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 this
approach 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 activities
into 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).
9
from the Technology Strategy Board’s first
round of CI grants and the panel structures
used to determine who to award to, there are
lessons to be learnt from NESTA’s Creative
Pioneer Programme and the subsequent move
out of direct contact with entrepreneurs and a
focus 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
NStar’s Digital and Creative Fund the
investment 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
10
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
Yorkshire
Many 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 not
only 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 isn’t
suitable it won’t adversely affect a working
relationship. Referrers often don’t 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/loaned
to 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 the
investment 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
Funds & Sectors: All
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 be
addressed:
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 SME’s)
11
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 contribute
suggestions 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 may
also 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
Funds & Sectors: All
SYIF’s current model assumes that SME’s 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.
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 with
Business 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 CI’s 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 an
attractive 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. Currently
these networks include very few individuals
from the CI’s. Equally there are very few
individuals with in the CI’s 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 SYIF’s goal of increasing the deal
12
flow with the CI’s and the CI’s 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 which
would 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 CI’s 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 sufficiently
trusted 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 SYIF’s attention
can be focussed on the sectors which have
been identified as the region’s particular
strengths.
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 vehicles
they 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
13
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 few
will 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 CI
business 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 don’t
typically undertake MBA’s or use similar
sources of business education. Thus they may
well 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.
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, equity
investment, 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 business’s
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&D
the 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.
14
8. Managing CI entrepreneurs
expectations of what
investors need
Funds & Sectors: Seedcorn & Equity
Many entrepreneurs in the CI’s 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 who’ve gone before them and even with
the best network in the world given that CI
investment by VC’s is still a relatively new and
immature market there are simply fewer
opportunities for entrepreneurs to meet those
who’ve 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 company’s 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).
Potential Partners: The NStar CDI fund,
West Midlands Creative Advantage, Ingenious
Media, 4IP, Pembridge Partners
9. Becoming familiar with how
CI businesses work
Sectors & 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 understanding
what 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 made
within 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)
15
10. A need for more non-
execs
Funds & Sectors: All sectors, Seedcorn,
Equity & Loan
Investors commonly place a non-exec on the
board 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 the
‘powerpoint 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 don’t 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 develop
a 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.
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 case
studies 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 it’s 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.
16
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 approached
direct 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 has
had time to achieve a return on the investment
they’ve made in their intellectual property.
Market leadership depends as much on the
quality of the senior team’s 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.
Recommendation: As CI firms have found it such as SYIF’s deal with Zoo Digital are not
difficult to attract investment to date and the commonly used as case studies in conferences
most common reason given is the lack of and entrepreneurs are not as comfortable
assets it would be useful to clarify SYIF’s talking about debt as they are about
position on this issue so that a clear message investment.
can be given in any marketing materials used
and in any presentations given. 14. Research the medium &
large businesses in the
13. A co-investment partner
region separately
Sectors & Funds: All sectors, Equity & Loan
Sectors & funds: all sectors but only the
Given the agreed lack of familiarity with CI larger businesses within them, Loan fund
business lifecycles and growth patterns
Recommendation: The interviews with
amongst SYIF investment managers one route
sector support & development organisations
to improving the knowledge base would be for
did not identify loans to larger businesses as a
SYIF to co-invest with a sector specialist such
particular need. However it is worth noting that
as Ingenious Media. This would allow
the majority of conversations focussed on the
experiential learning for SYIF investment
areas of greatest need which was commonly
managers whilst delivering the desired deal
seen to be the growth of the 2-10 employee
flow. This would either allow SYIF to increase
stage firms. This is not to say that a need does
the value of investments made or allow them
not exist for larger loans but simply that the
to reduce the risk by splitting the standard
larger firms should probably be researched
investment levels between two parties.
individually to better understand their needs
Working with a national specialist investor
and that the results of any such work be
would have the added benefit of bringing other
discussed with the sector support organisations
investors into the region as well as showing
as well as within SYIF & PIF.
case studies of success beyond the region.
Potential Partners: Business Link, Yorkshire
Recommendation: Review the coverage and
Forward, and in particular the Seros & BOP
specialisms of the CI investors nationally and
sector reports and any organisations involved
identify those with a similar investment profile
in this work
to SYIF before starting discussions.
See also sections:
Potential Partners: Ingenious Media,
Pembridge Partners, regional & national o 3.4.1 – Deal with the medium & large
business angel networks firms individually
See also sections: o 3.4.3 – A co-investment partner
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

17

Barriers & Challenges
Whilst 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-finance
level 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 don’t 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 don’t 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 an
opportunity 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
18
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 way
training/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 who’ve taken in investment
and have seen first hand how it changes
a business
Language differences
Whilst those in the CI’s 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 creative
businesses 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.
There are some out-dated stereotypes on both to exchange for the investment at
sides which are easily fuelled when creatives different stages of a company’s growth.
talk about the idea first and financiers talk
I. The above should lead to CI mentors
about the money first. This is simply where
becoming more fluent in finance speak
each side feels most comfortable, it does not
and being better able to represent the
mean that they are not perfectly capable of
investors position when coaching a firm.
talking about a wider set of success factors
It should also assist investment
and weighing them all up when making
managers in arguing the case for CI firms
decisions about the future direction of a
who have been recogised as both
company, its investment needs and the
innovative and successful in their sector
likelihood of success of the various options.
but whose business model or lack of
As became clear at Investment Matters4 it is tangible assets makes them a
not the lack of money that hinders deal flow in tougher/riskier choice by comparison to
the Creative Industries investment arena but investments in other sectors
the lack of understanding of the folks on the
J. Develop a mechanism that enables
other side of the table. How can we change
investment managers to see how mature,
this?
successful & innovative CI firms make
Recommendations: decisions and manage risk. This probably
isn’t asking them to become board
G. Development of case studies/vox pops on
members of regionally based CI firms but
CI firms who’ve taken in investment.
might be joining a sector panel or event
Perhaps lead by a coach/mentor from a
advisory board e.g. joining the JustB
CI development organisation but with the
advisory board for b.tween as this would
assistance of the investment manager.
bring them into contact with senior
The goal being not only to produce a case
executives from nationally successful CI
study but also to give a clear reason for
firms e.g. Morgan Holt at Huge, Michael
the mentor and investor to understand
Nutley from New Media Age. The
each other enough to understand and be
investment managers would be in a peer
able to communicate the other’s
group with individuals who daily manage
perspective when talking about the case
the balance between creative and
study.
business needs. The key here is making it
H. Focus these stories on the investment a senior group of people who are carrying
process – the challenges, new learnings, on a high level discussion - so it is
areas of discomfort and what they did unlikely to be useful to add them into the
about them … there is no point in having Technology Strategy Board review panels
stories that just talk about the gold at the as although they would be amongst peers
end of the rainbow, what’s needed is to the discussion focuses around funding
better understand how to make decisions choices for early stage initiatives.
through the process on things such as the
Interviews with both investors and creative
percentage of equity that it is reasonable
development organisations in the region
suggests that these are relevant to the current
4 situation in Yorkshire.
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 CIDA’s Youtube account.

19

Three Ideas to Pilot
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 SME’s links into the earlier stage
firms through microfinance opportunities also
need to be built into SYIF’s plans.
Three pilot activities are proposed:
o A sector lead approach
o A geographically or space based approach
o A micro-finance approach
The 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 sector
organisations such as Screen Yorkshire and
Just B to assist those firms who’ve 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
20
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 businesses
who 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
SME’s 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.

Conclusion
The interviews undertaken for this study
indicate an appetite both from investment
managers and sector specialists to improve the
working relationship between investors and
Creative Industries businesses and support &
development organisations.
The lack of connection between investment
and sector is notable both in the prior reports
on the CI’s 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 and
sector 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 development
organisations 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
21
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 sector
specialists. 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 region
via 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
SYIF’s 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
SYIF’s financial returns and the sector’s growth
goals.
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 of
sector support organisations please see www.digitalyorkshire.org.uk.

Digital Campus Media Enquiries: Cipher UK Trade Invest 1 Capitol Court, Capitol
Marketing Ltd, 32 Carleton Mill, Carleton, Business Park, Dodworth, BARNSLEY, S75 3TZ
Skipton, North Yorks, BD23 3EG

Fabric Arts Forum Yorkshire Craft Centre, Inspiral The Workstation, 15 Paternoster Row,
Carlton Street, Bradford, BD7 1AY Sheffield, S1 2BX

Innovation Halifax The Elsie Whiteley Yorkshire Forward Victoria House, 2 Victoria
Innovation Centre, Hopwood Lane, Halifax, Place, Leeds, LS11 5AE
HX1 5ER,

Game Republic Studio 22, 46 The Calls, Creative Sheffield 1st Floor,1 St James Row,
Leeds, LS2 7EY, Sheffield S1 2EU

Barnsley Development Agency Westgate Plaza Creative Industries Group 161 Albert Road,
One, PO Box 609, Barnsley, S70 9FH Sheffield, S8 9QX

Digital Media Centre County Way, Barnsley, www.ntileeds.co.uk - Old Broadcasting

South Yorkshire, S70 2JW House, 148 Woodhouse Lane, Leeds LS2 9EN

Coutts Bank 96 Long Row, Horsforth, Leeds, West Yorkshire Lifelong Learning Network,
West Yorkshire, LS18 5AT University of Huddersfield, Floor 10, Central
Services Building, Queensgate, Huddersfield,
HD1 3DH

Electronics Yorkshire Airedale House, Clayton Learning Light Sheaf Suite,Albion House,
Wood, West Park, Leeds, LS16 6RF Saville Street, Sheffield S4 7UD

Screen Yorkshire Studio 22, 46 The Calls, Cultivate BeepDomains Service, BeepWeb
Leeds, LS2 7EY Limited, PO Box 21285, London, W9 1YW,
United Kingdom

Yorkshire Forward Victoria House, 2 Victoria RTC Yorkshire, Round Foundry Media Centre,
Place, Leeds, LS11 5AE 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, CITIN - Unit 211, Business Design Centre,
Site Gallery, 1 Brown Street, Sheffield, South Upper Street, Islington, London, N1 0QH
Yorkshire, S1 2BS

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

22
Centre, 99 Parkway Avenue, Sheffield, S9 United Kingdom
4WG

Just-b. Productions, The Workstation, CIDA (Creative Industries Development

Agency), The Media Centre, Northumberland
Paternoster Row, Sheffield, S1 2BX
Street, Huddersfield, HD1 1RL

Inspiral, The Workstation, 15 Paternoster Science City York - Enterprise House

Row, Sheffield S1 2BX Innovation Way, Heslington, York, YO10

Artsmix Unit 26, 30-38 Dock Street, Leeds, Graduates Yorkshire University of Sheffield, 4
LS10 1JF Hounsfield Road, Sheffield, S3

Arts Council 21 Bond Street, Dewsbury, West Business Link - 1 Capitol Court, Capitol
Yorkshire, WF13 1AX 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 was
sourced 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 sectors
CREATIVE EQUITY
BUSINESS
INDUSTRIES SEEDCORN MICROLOAN LINKED
LOANS
SECTOR FINANCE
Advertising [Technology and intermediation YES YES NO
but probably not content deals e.g.
Ensembli, Vidiactive]
Architecture [Technology e.g. Limitstate] YES YES YES

Arts and antique [Unlikely due to barriers to entry YES NO NO

markets (see also and problems obtaining exit.]
Restoration)
Crafts [Unlikely due to barriers to entry YES NO (Lifestyles) NO
and problems obtaining exit.]

Design (see also [Design, especially UX design is a YES YES YES ?

communication major part of many investments]
design)
Designer Fashion [Unlikely due to barriers to entry YES NO NO
and problems obtaining exit.]

Film, video and [Intermediation or technology YES NO NO

photography platforms- e.g. Vidiative]

Software, computer Yes, although probably only with YES YES YES
games and high barriers to competitors e.g.
electronic Magic Curves etc
publishing
Music and the visual [Intermediation or technology YES NO NO
and performing arts platforms rather than content]

Publishing [Intermediation or technology YES YES YES

platforms rather than content]

Television and radio [Intermediation or technology YES NO NO

platforms rather than content]

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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 sheet net assets of less
than 43m Euros (~£31m*). The business cannot be part of a larger group employing
more than 250 employees where the group owns at least a 25% share of the business.
o Retail
o Pre-start businesses (excluding Seedcorn Fund)
o Property development
o Sports and leisure
o Primary industries

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 o Refinancing

Type and amount of Investments

South Yorkshire Investment Fund comprises three sub funds – Business Loans, Equity Linked
Investments and the Seedcorn Fund

15. Business Loans

Typically unsecured loans ranging from £15k to £50k for early stage businesses, and from
£15k to £150k for established and profitable businesses.
SYIF business loans are available for a wide range of purposes including working capital,
expansion projects, management buy-outs, commercial premises and asset acquisitions.
Business Loan Details
Loan Amount £15k to £50k
(Early stage)
Loan Amount £15k to £150k
(Established and Profitable businesses)
Early Repayment Penalty: None
Interest Rates Established and profitable businesses – 6%
Established businesses – 8%
Early Stage – 10%
Personal Guarantees May be taken in certain circumstances

Definitions of Business Stage

o Established and profitable business - three years profitable trading, forecasts and
commensurate with the proposed debt levels
o Established business - three years trading
o Early stage businesses - trading for less than three years

16. Equity linked investments

From £100k to £1m and mezzanine loans (with equity options or redemption penalties) from
£150k to £1.5m.
SYIF can offer a mix of both loan and equity linked investments and back businesses,
management teams and entrepreneurs who are seeking an investment of up to £2.5m.
SYIF can also invest in much larger transactions alongside other finance providers. The size of
the equity share will depend on a number of factors including the size of the investment, the
perceived level of risk and the valuation of the company.
Equity Linked Investment Details

Loan with Equity Options £100k to £1.5m

Equity Investment £100k to £1m
Joint Equity Linked Package: £100k to £2.5m
Effective Fixed Annual Interest rates: Each investment is dealt with on a bespoke
basis
Exit: Exit targeted within 5 years

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17. Seedcorn Fund
The Seedcorn Fund invests in new and early stage technology-based businesses and fills a gap
in the local finance market for business ideas that are often seen as too risky for mainstream
providers and are still too early stage for other SYIF funds.
Convertible loans or equity linked investments ranging from £15k to £500k are available for
proof of concept developments. Equity investments from £100K to £500k are available for
product commercialisation.
Clients will be companies that are based on new and innovative technology with ideas that
have strong potential and once in the market, are capable of rapid growth and returns of many
multiples of their original investment.
Seedcorn Fund can invest in:
o Pre-revenue, start up or early stage technology business
o Based on strong and unique technological or 'know-how' content that will be usually be
protectable by a patent or copyright
o Beyond R & D stage but need help to find and exploit your market
o Have potential for rapid growth and returns of many multiples of the original
investment
o Based in or have significant activity in South Yorkshire
o And you have a gap in funding where conventional sources of finance are insufficient or
unavailable.
Seedcorn Fund Details

Amount POC - £15k - £100k convertible loans or equity

Commercialisation - £100k – £500k equity linked investments
Repayments POC – repayments may be deferred or converted into equity based investment.
18. M Commercialisation - Larger investments to be made in phased payments dependent on
progress against agreed development milestones
icrol POC Interest Rates Negotiable
oans Stake Sought: Minority equity stake sought dependent on level of risk
SYIF also Exit for equity linked Exit targeted between 5 - 7 years
work with investments
the BiG Term for loans Up to 3 years
Business
Loan Fund in Sheffield and Donbac in Doncaster to provide microloans to new start up and
existing businesses in the region.
Microloans are for small and medium sized enterprises, which are unable to raise all or part of
the finance they need from their bank have access to funds.

27
19. 6.1 BiG Business Loan Details –
BiG Business loans are available to sole traders, partnerships or owner-managers, either
starting a new business or developing an existing business, living or working in the designated
“closing the gap” areas of Sheffield. The BiG Business loan can be used for almost any
legitimate business transaction including:
o Start up costs including franchises and the purchase of existing going concern
businesses.
o Provision of working capital.
o Asset purchase, excluding purchase of non-commercial vehicles.
o Property purchase, property extensions or alterations.
o Amount: minimum £1,000 maximum £5,000, for new start businesses. Once a
business has completed 6 months trading applications will be considered up to £15,000.
Consideration will be given to lending more that £5,000 where the client is purchasing a
legitimate existing business that is a going concern, or a well researched legitimate
franchise.
o Interest Rate: 10%, 11% or 12% per annum depending upon the perceived risk. As
there is no arrangement fee to pay, the APRs are 10.5%, 11.6% or 12.7% respectively.
Businesses excluded are:
o Betting and Gaming.
o Activities involving politics, religion or pornography.
o Any other activity deemed inappropriate by the Board.
o BiG Business loans may not be used to re-finance existing loans.

20. Donbac Loan Details

Donbac is a lender of last resort for people who are unable to raise all or part of the finance
that they need from their bank, It is not an alternative to a bank for finance.
Donbac can provide new start up businesses or those trading for up to six months, with loans
between £1,000 and £5,000. Businesses that have completed six months of trading are eligible
for loans of up to £15,000.
The loan can be used for any legitimate business purpose including:
o working capital,
o purchase equipment, machinery, commercial vehicles,
o property purchase, property extensions or alterations.
Few businesses are excluded from applying and they are:
o Betting and Gaming.
o Activities involving politics, religion or pornography.
o Any other activity deemed inappropriate by the Board.
Donbac Microloans cannot be used to re-finance existing loans.

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The loan Interest Rate charged is 15% per annum and an Arrangement Fee of a minimum of
1% of the amount borrowed will be deducted from the loan amount. Typical APR 16.9%
(based on a loan repayable in 36 monthly instalments).

29