We launched ASCEND last night at an event held at the offices of our friends at Arbuthnot in the City.
It was a great evening and for those that are interested I reproduce the text of my address below.
The Creative Industries
The Creative Industries – what are they?
Well if we use the DCMS definition it’s all of these: Advertising, Architecture, Art and Antiques Markets, Crafts, Design, Designer Fashion, Film and Video, Interactive Leisure Software, Music, Performing Arts, Publishing, Software and Computer Services, Television and Radio.
These industries are vital to the UK economy, amounting to £59bn or around 7% of UK GDP, and forecast to grow over the next 4 years according to PricewaterhouseCoopers who produce a comprehensive survey of Global Media and Entertainment trends every year.
However within that overall sector growth there are subsectors that are high-growth: in particular e-commerce, online marketing services, digital media, video games, live entertainment. Online fashion for example is forecast to grow at 9.9% per annum over the next 4 years.
The UK has a long tradition of creativity and British creative talent is recognised around the world. You can see that in the comparative data and in awards British creative businesses win. The UK creative industries are a major earner of foreign income: exports of services by the creative industries totalled around £9.0 billion in 2009, equating to 10.6% of all services exported. The Government has identified “Digital and Creative Industries” as a “key growth industry.”
The Equity Gap
However access to finance for small companies has long been, and remains, a structural challenge for the creative sector: the creative sector is made up of a range of businesses that vary in size, scale, and business model, with which many institutional investors have less experience and confidence in financing.
Compounding this is the fact that many creative companies require relatively small amounts of investment, usually falling in the few hundreds of thousands of pounds to £1-2m range. This is precisely the equity gap that small and medium-sized enterprises, of which there are a disproportionately high number in the creative sector, have to contend with.
Past Governments have sought to address the issue through tax incentives, such as capital allowances for film investment and the VCT and EIS regimes. These have led to the development of a number of tax-structured offerings which focus on project financing rather than building sustainable companies in the creative sector and where the tax tail has been all too often been wagging the investment dog.
Entrepreneurs in the creative industries have also sought investment from within the industry itself from the “majors” – most of which are overseas multinationals. In doing so they face losing their independence and limiting their future strategic options and the opportunity to maximise value for themselves.
There is therefore an opportunity for an independently managed fund, managed by a manager with extensive industry credentials and know-how, to bridge the equity gap in the UK creative industries, to invest behind the best entrepreneurs and ventures in the sector to create value and earnings growth and allow them to retain their independence and thus opportunities to maximise value on exit – for the benefit of all the equity holders in the business.
Creativity and Business
The creative industries are populated with a great many businesses which excel in their creativity but all too often suffer from insufficient depth in business skills and experience; the best and most successful creative businesses marry both. It is a mix of capital, experience, know-how and access to key decision-makers in the industry together that make the difference between success and failure, and we partner with creative entrepreneurs and their businesses to ensure they have the sufficient wherewithal and skills to capture maximum value from their creative endeavours. We aim to help enterprises to build sustainable businesses ultimately to become world-class companies promoting the best of British creativity and enterprise.
The smaller end of the creative sector is the most exciting, because this is where innovation really takes place. It is small independent companies that foster the right environment for creativity to flourish – small companies are fleet of foot, don’t have legacy business models to protect and hence can harness the disruptive force of new technology in the creative industries to maximum effect. Spotify, Zynga, Netflix, Last.fm, Mind Candy and many more besides were borne out of ideas and speed to market that simply couldn’t have been executed by the major record, video games and movie companies.
We look to invest in early stage and growth capital opportunities. We focus on sectors where relatively small investments can create highly scalable intellectual property owning and exploiting businesses.
To do this we think you need to be a specialist in the sector. And in fact you need to be both specialists in the creative industries and in digital technologies. To really navigate the landscape in the creative industries you really need to understand the road maps in digital technology.
That’s why we are calling our SEIS fund ASCEND – Ascension Seedcapital for Creative Enterprise and Digital.
At Ascension we combine expertise in working with businesses in the creation, production and exploitation of intellectual property rights and in realising value from intellectual property rights and rights-owning businesses with research and analysis of digital technologies, services, hardware and software products, and in particular their impact on media production, distribution and consumption, e-commerce, and the marketing and communications industries.
We’re supported by a world-class Ascension Media Advisory Board consisting of individuals who really get the way the landscape has changed and is changing. Our Advisory Board members include several experienced entrepreneurs and professionals who have a track record of success in the creative industries and digital media, e-commerce and technology in the last decade.
That was important to me when I brought them together – my view is that the landscape in our sectors has changed so dramatically in the last decade or so and continues to so rapidly, that if all your experience was gained from running a theatre company or radio company in the 1980s/1990s, no matter how successful they may have been, that’s of little value in understanding today’s creative industries.
We have really strong deal flow – a pipeline of deals we have been developing since we started business in 2010.
Our Advisory Board help deal flow and refer opportunities to us as well as assisting us on giving the businesses we work with the benefit of their experience and networks. Naturally we have relationships with corporate financiers, accountants, lawyers and other advisers to entrepreneurs. Our network in the industry of media executives brings us referrals and insight on where and who the talent is.
But we also conceive of new opportunities ourselves and find the right people from our network to back to execute them.
Being a specialist and what we offer in addition to investments makes for strong deal flow and a more attractive partner so we normally have access to opportunities before they come to the wider market.
Where are the opportunities?
Here are some themes:
- Disruptive media companies The media landscape is shifting at an unparalleled pace, as the fixed-line and mobile internet have re-defined the ways consumers consume and engage with content. New and innovative products and services continue to emerge; opportunities in our pipeline centre around social media and gaming on fixed-line and mobile platforms
- New models for old businesses The shifting media and technology landscape is presenting opportunities for traditional media businesses to reinvent themselves: management companies are able to transform into become rights-owning companies; and entertainment talent and brands can be exploited to create new branded events, products and services
- Mobile media and marketing businesses High speed mobile broadband technologies combined with innovative new multimedia devices are fuelling a new growth phase for mobile content and also mobile marketing services and technologies
- Digital technology companies Cutting edge digital technology impacts the entire media value chain, enabling and transforming the creation, production, exploitation, distribution, publishing, broadcasting, consumption and storage of media content
- Content and design rights creation, production and rights-owning companies The proliferation of content delivery platforms has resulted in a surging demand for content, and in fashion, demand from the Far East for British designs is booming. Britain has a great track record of success in creating and exporting content, formats and fashion
The Seed Enterprise Investment Scheme
The Seed EIS is almost perfectly designed for new ventures in the creative industries where it is possible to get a lot of growth bang for the investment buck.
Investing in the creation of intellectual property rights in the creative industries doesn’t require much in the way of investment in tangible fixed assets, plant and machinery, real estate etc. and anything in fact that results in large fixed overheads or capital expenditures .
Digital technologies are dramatically reducing the cost of creation and production of IPR – whereas musicians once needed access to expensive studios or film makers needed expensive camera equipment today a laptop or an HD Digital SLR will get professional results – and digital distribution and marketing means the cost of reaching your audience or consumers has come down.
Building a website costs a fraction of what it did only a few years ago – there are numerous tools, plugins and open source softwares available for online businesses which can be customised at very little cost to get up and running.
And marketing a product can cost next to nothing now through use of online media and increasingly importantly social media.
That’s not to say there aren’t barriers to entry or competition – there are, but the barriers are less about huge amounts of capital and more about the quality of the intellectual property, and that is not just the creative input but the intellectual capital that goes into developing the right strategy to commercialises it, whether we are talking about content or ultimately brands.
Capital is just one of the ingredients that new ventures require and often it’s not even the most important of the ingredients but the Seed EIS as you have seen will now provide a great incentive for investors to provide that capital.
If the Seed EIS were to operate as the Government envisaged then we’d see a lot of new ventures being funded in friends and family rounds which would end up with lots of people getting tax reliefs but still losing money and businesses failing.
Conventional fund structures wouldn’t fare much better because small investments per company means small funds and the conventional fund management model means fund managers can’t spend much time on making the investment decision and even less on supporting the companies invested in.
That’s why we’re excited about the SEIS – it fits with a model we’ve already developed since we started in 2010 – we partner with entrepreneurs where we bring as much of the “business” end to the partnership with the “creative” end to make a good viable “creative business”.
We have a team of excellent professionals experienced in strategy, marketing, finance, management and operations all of which are the essential inputs for new ventures but which they can little afford to pay for full time so we provide it to them for a lot less than paying consultants or hiring full time staff of the equivalent experience.
For the investor in the fund they are getting an investment in a diversified portfolio where each company is getting a team experienced in all aspects of business, deployed to devote as much input as the venture needs to get through to achievement of critical milestones before raising further rounds of finance from the world of funds and institutional investors in our network.
And we focus only on the creative industries and related digital technologies – because it is such a fast moving and dynamic sector I believe you can only safely navigate your way around it if you are a 100% committed to it and specialise in it – I think you absolutely have to.