Creative Sector Investment: What You Need To Know This November

News of looming recession is hard to avoid this quarter, but what does this mean for the Creative Industries? In this article I’ll share how turbulence in the UK markets is affecting creative companies and the investment industry. I’ll also give some suggestions as to ways that businesses can position and strengthen themselves in order to weather the storm. Read on to discover:

• The latest report on immersive tech in the UK and what this could mean for the Creative Industries 
• How the metaverse is starting to play a larger role in investment and the Creative Sector 
• The biggest challenge facing creative companies seeking investment and how they can face them head on 
• The latest deals that tell us something bigger about the sector 
• Key events and programmes that could benefit your business

Matt Browning, Creative UK Investment Manager

What are three things happening in the investment space that are relevant to creative businesses? 

1/3 Investment in immersive technology 

The latest report released by Immerse UK showing the amount of private investment going into immersive technologies is really encouraging. Considering there has been less appetite in general for investors in the creative space, the positive movement in this subsector is really bucking a trend. Technologies such as AR and VR are attracting some good investments from both the UK and abroad and displaying brilliant growth potential. 

2/3 The metaverse attracting new investors 

The metaverse provides a good new platform and has been attracting new investors in general. So, we’re seeing new investor emerging to fit the Metaverse part of their generic investment mandate. That feels like an encouraging step towards how it could be applied to the Creative Sector because obviously the metaverse relies on content and who better to make that content than the creatives in the Creative Sector?  

3/3 Applying creative solutions to industrial problems 

Lastly, a question I think is key for creative businesses: how can we apply creative solutions to wider industrial problems? Innovate UK has recently launched a strategic delivery plan and it addresses three domains that they plan to tackle between 2022 and 2025. These domains are: Net Zero, Healthy Living and Agriculture and Digital and Technologies. Some investors in the space, like Edge are working with companies who apply creative solutions to technologies, especially focussing on digital health and wellbeing. Creativity could play a really big part here in terms of digital health and in applying creative solutions to wellbeing in general, such as with the gamification of taking medicine. 

We are also seeing a really exciting project going underway with one of our portfolio companies, FuturLab, who’ve been doing a lot of work at the University of Oxford and applying gamification and simulator strategies to wellbeing considerations. So, there’s certainly some really good collaboration to be had between the Creative Sector and wider industry. 

What’s the biggest challenge for creative companies seeking investment right now?  

The biggest challenge remains getting that investment in the first place and this has been tough for some time. But I think it’s going to be even more challenging with the reduced appetite from VCs across the board. Towards the end of 2021 we started seeing some crazy valuations on businesses, not just from UK investors, but in European markets as well. 

That increase of available capital meant that the valuations of businesses were getting quite dramatically inflated, especially in tech companies and SaaS companies. And the challenge of an over-inflated valuation is that down rounds might occur and I think that’s a bit of a trend we’re going to see in some of our more technology-based businesses in the Creative Sector.  

Another challenge is proving a scalable business model when you’re project-driven, and a lot of creative businesses still have that project narrative to their business model. Businesses must always be able to show how they will grow and current macroeconomic factors are not particularly conducive to this. 

 A good approach to tackling both of these challenges is to look at different forms of capital. So, instead of taking equity when you are faced with a down round challenge, you could look for loan options and that can work as a bridging technique.  

There are mechanisms that you can use to help make the case for your business to investors, but really you’ve got to have proven capital efficiency. That looks like reducing your overhead expenses and being able to show positive trends in your income that will tell investors your business has the resilience to get over a challenging period of time.  

Who are the big movers and shakers we should know about? 

The game space has been crazy over the last two years and as of this year we’ve seen a huge consolidation of the indie games market. So that includes Sony acquiring Firesprite over in Liverpool and in other parts of the country such as Sumo Group acquiring Auroch Digital from Bristol.  

We’ve also seen quite a bit of consolidation more widely in the games market; some really big plays include Tencent taking over Sumo Games Group, which is a Yorkshire-based business.  

 It is always worth considering the events outside of the sector as well, with the most obvious example being Elon Musk taking over Twitter. This will have effects in general in terms of access to these kinds of open-based platforms as big trends do filter down into smaller companies as well across multiple sectors.   

What are the new programmes, products and events that businesses need to know about?  

The Business Show, London 16-17 Nov https://www.greatbritishbusinessshow.co.uk/ 

EdTech Summit, Birmingham 17 Nov https://edtechsummit.co.uk/ 

West of England Creative Sector Growth Programme https://www.westofengland-ca.gov.uk/growth-hub/financial-business-support/creative-sector-growth-programme/ 

UK’s top accelerator programmes https://www.beauhurst.com/blog/top-accelerator-programmes-uk/ 

If you’d like to learn more about the investment offerings available through Creative UK, visit our Investment web pages here.