Edge Investments is a specialist investor in the UK creative industries and so we know better than most that there are great companies, great management teams and great opportunities in the sector. A surprising number of investors seem to steer clear of the sector but we feel that this is often due to a lack of understanding of the business models in the creative industries.
With decades of experience in IP, technology, music, TV and live events, it is natural that the Edge team feels more comfortable with this vibrant part of the UK economy, but that’s not to say there aren’t problems.
A good example from an investor’s perspective is the UK creative industry’s culture of projects.
So much of the UK creative industries is project-based – with teams of talented individuals coming together to make great films, games and live events – but these are almost all for institutional investors like us to invest in. Typically we take a shareholding in a business and then work with management to grow the company with a view to eventually getting an exit. This usually means selling the company. As one-off projects and even start-up companies do not meet these criteria it is very had to ever back such an opportunity. The risk inherent in a one-off project is such that should this project fail then the investor would be left with nothing.
This means that more often than not, we seek out established companies, with existing products or services, clients and revenues. Ideally a company has a portfolio of products which means – while hits are of course welcome – we are not relying on any one product being a hit.
The shorthand guide to our selection criteria is we want to put our money behind a company that has already created a product and sold it to somebody (who they are not related to!)for some money. That may sound overly crude or obvious, but a lot of people who approach Edge simply want us to just invest in an idea and that isn’t really how we work. What we’re looking for are companies with a considered product, audience and route to market.
When I first started investing in the creative industries, I was surprised by the relaxed attitude that some creatives adopt towards accessing finance – casual emails, requests for “cups of coffee”, meetings with no clear agenda and often no sign of a structured business plan. I understand that for a lot of creatives the focus is on the product rather than the business, but that can be a problem.
But it’s not all doom and gloom. Creative sector companies are ripe for investment – they account for 10% of our nation’s GDP after all – and getting yourself investment-ready needn’t be a huge ordeal. If you have a product with market demand, a backable team and a route to customers, then doors will be open to you. The current SEIS and EIS funds are giving angel investors a huge incentive to back smaller creative companies, and so this is a pretty good time to be seeking investment.
So banks might not ‘get’ your company but there are plenty of people who will. We certainly don’t see the creative industries as high risk; they have been growing faster than the wider economy for years now and generating IP that is selling all over the world.
Writing off 10% of the UK’s GDP as ‘too risky’ just because you don’t understand it is plain foolish, but ultimately it’s up to creative companies to prove the point.