4 Funding and finance |
83. According to written evidence from DCMS, the
creative sector's ability to access finance is one of the key
issues for the Creative Industries Council, a Government-industry
forum. An Access to Finance working group presented a report to
the Council in June 2012 which was subsequently published in December
2012. The report
made six recommendations to be taken forward by both Government
and industry. . It identified potential gaps in the understanding
of investors of how creative businesses work and recommended that
the sector and Government worked together to champion investment
opportunities in this sector, improve existing business financing
interventions and establish new funding solutions.
84. Substantial sums of public money are invested
in the creative arts. The Arts Councils from all four UK nations
help fund creative risk-taking in areas that the commercial sector
might be reluctant to support.
Arts Council England told us of the loans and business support
According to the written evidence from DCMS, the Technology Strategy
Board granted over £30m in funding for over 300 creative
industries-related projects between 2007 and December 2012.
Local authorities have responsibilities, not to mention economic
promote cultural activity in their areas. The BBC, funded by
the television licence fee, is of course a major source of public
funding for the creative sector. Channel 4's Alpha fund helps
support small companies and start ups. 
Sources of support for the film industry include the BFI, a charity
governed by a Royal Charter, which awards Lottery funding to film
production, distribution, education, audience development and
market intelligence and research.
85. Inevitably public funding is under pressure,
a point illustrated by cuts in the budget of Arts Council England.
Given the essential role of public funding in sustaining the wider
creative economy, it is crucial that adequate resources are available.
Of course, the private sector should be encouraged as much as
possible to invest in the creative industries. One good example
is provided by advertising, which not only provides a major source
of funding but is a creative industry in its own right. Evidence
from the Advertising Association points to advertising as "a
major creative industry and a critical source of funding for other
creative industries". The Advertising Association's evidence
goes on to express deep concern about draft EU Data Protection
Regulation "which could damage direct marketing, internet
advertising, and the UK economy both off and online".
Increasing use is being made of personal data to target online
advertising better. While concerns around this have prompted
reviews of data protection legislation, we do not think
the targeting of appropriate advertisingessential to so
many business models represents the greatest threat to
86. The investment and advisory firm, Ingenious Media,
noted that banks have largely withdrawn from providing debt finance
and the availability of venture capital funding has declined sharply.
Project finance is frequently a necessity, but can be expensive
and is hard to find. Ingenious stated: "Meanwhile financing
from within 'the trade', meaning the largely US-owned 'majors',
usually comes at a big price in terms of loss of control."
They further comment on investors' lack of understanding of the
creative industries but consider there to be no simple or obvious
solution. Ian Livingstone pointed out to us the investable nature
of the computer games industry
and mooted the possibility of establishing a creative industries
So, making sure that we are an investable sector,
perhaps have a creative institute or a creative industries bank,
in addition to crowd-funding to make sure that people see the
real value and it is no more risky than any other traditional
industries in the analogue world. The digital creative industry
is very investable, because of the global potential of the content
it is creating. We are so good at creating content, but we always
seem to lose it, having to sell it short-term in return for project
finance rather than going the whole hog and scaling it to its
87. We are disappointed by the blinkered and unimaginative
approach of lending institutions. Investors need to talk to and
engage with the creative industries which represent no higher
risk than many accepted by the banks and which may produce considerable
88. The Enterprise Investment Scheme (EIS) offers
tax incentives to investors buying shares in small companies.
Tax efficient benefits are also available to investors taking
advantage of the Seed Enterprise Investment Scheme (SEIS) introduced
by the Chancellor in his 2011 Autumn Statement; this aims to encourage
investment in very small (fewer than 25 employees) new companies.
Both the Enterprise Investment Scheme and the Seed Enterprise
Investment Scheme were described by the DCMS Minister, Edward
Vaizey, as the funding "front door" for the creative
Minister did acknowledge the need better to communicate information
about these schemes.
89. Ian Livingstone raised a concern about the bureaucracy
around the application of the SEIS and EIS, arguing that it should
not overburden small companies.
Ingenious described the EIS as being "gummed up": "Not
for the first time we observe an apparent disconnect between Treasury
intentions and the will of Parliament on one hand, and the day
to day practice of HMRC on the other, apparently aggravated by
internal bottlenecks. This is a major concern for the sector."
Patrick Bradley, Director of Ventures, Ingenious, added that
modifications could be made to the EIS to allow dividends to be
paid in a tax-beneficial way thereby discouraging investors from
making an early capital exit.
Changes such as these might go some way towards solving what
Ingenious describes as the most intractable problem facing the
UK's creative business sector: "its inability to grow companies
to a scale at which they are capable of competing globally by
retaining for re-investment the commercial returns generated by
their creative successes."
90. Notwithstanding the limitations of EIS and SEIS,
they offer substantial incentives for investors to engage with
the creative sector companies, many of them small and medium enterprises
traditionally viewed as being relatively high risk particularly
by blinkered financial institutions. Yet we were told that some
potential investors are hesitant to engage with these schemes
because of recent crack-downs on illegitimate schemes floated
for tax evasion purposes. Of course, any tax relief schemes,
however genuine, are open to abuse and HM Revenue and Customs
are no doubt alert to this. However, these schemes are legitimate
and should be promoted.
91. The Government should vigorously promote both
the Enterprise Investment Scheme and the Seed Enterprise Investment
Scheme. Given their particular importance to creative industries
it is essential that their availability, and legitimacy, be communicated
to the widest possible range of potential investors.
92. Among the novel alternatives to traditional financing
models that are emerging is crowd-funding, which involves collective
contributions from a wide range of individuals. Dr Jo Twist of
the Association for UK Interactive Entertainment (Ukie) identified
to us three models for this:
There are basically three models that crowd-funding
platforms operate largely, and Kickstarter falls under the first
one, which is a donations model. This is where people will back
a project and get a perk or something in return that is not equity-based.
As I said, Kickstarter is the classic example of this model. In
the US, under the Jobs Act, they are trying to change legislation
so that they can allow or operate an equity-based model. The second
is the debt model, where a wide pool of investors will loan money
on agreed repayment terms and Funding Circle operates that model
in the UK. Then we have the equity model, where people will take
a stake in the company in return for an investment, and Seedrs
is an example of a crowd-funding platform that operates this model.
Crowd-funding has been broadly welcomed by all
political parties, and the internet has enabled crowd-funding
to happen in a way that is more structured. Unfortunately, FSA
regulation hasn't kept up in step and in time with the digital
economy and things that the internet allows people to be able
to do. I think there is a bit of misunderstanding and a bit of
fear factor, and what needs to happen is more guidance and more
acceptance and recognition of crowd-funding as a legitimate way
to get investment.
93. Ukie acknowledges the Government's enthusiasm
about the potential for crowd-funding to support the creative
economy but notes that "there has been little coordination
between Government departments to understand either the implications
of crowd-funding or the regulatory changes needed to ensure UK
businesses can make the most of this opportunity."
We believe that crowd-funding has significant potential, not
least in that it might allow small creative start-up companies
to retain control of their IP. The Government needs to examine
whether existing financial regulation is hampering the growth
of crowd-funding and whether more guidance can be made available
to potential investors.
94. The DCMS Minister, Edward Vaizey, referred
to the "many different business support schemes" for
different sectors and acknowledged a need for "an element
of coherence about the number of potential funds that are available."
Access to information on how to start up a business, gain funding
and understanding intellectual property are all of vital importance
to creative start-ups. The British Library's Business and IP
Centre is one promising initiative in this area and we hope other
libraries will follow suit. The Government has also been contributing
to the training of business advisers.
The concept of virtual boards for SMEs also has promise: these
boards will match entrepreneurs with experienced financial directors.
John McVay told us that Pact would be investing in this initiative
and working with Skillset and the Creative Industries Council
to develop the concept.
95. We recommend that the Government open and
promote a clear channel of advice to creative individuals interested
in setting up businessa creative business 'hub'. We anticipate
this will include a key supporting role for public libraries as
long-established knowledge centres.
Q 311 Back
Q 141 Back
Ev 203 (DCMS) Back
Q 126 Back
Qq 613-616 Back
Q 30 Back
Q 126 Back
Ev w128 (Advertising Association) Back
Ev 247 (Ingenious Media) Back
Q 556 Back
Q 570 Back
Qq 840, 842 Back
Q 842 Back
Q 587 Back
Ev 249 Back
Q 304 Back
Ev 246 (Ingenious) Back
Qq 522, 530 Back
Q 571 [The FSA has now become two separate regulatory authorities] Back
Ev 312 Back
Q 840 Back
Q 847 Back
Q 175 Back