Spotlight on Mike Mawbey, Portfolio Risk Manager
// investment
As the effects of last month’s Budget announcements begin to take hold, what are the key changes and events that creative companies need to know about? Read on to get the take from Matt Browning, Head of Investment here at Creative UK. This month, Matt delves into:
- Positive changes for start-ups seeking investment
- The swings and roundabouts in the VC space
- How to navigate difficulties in fundraising
- Podcasts: winding down or hitting a new phase?
Matt Browning, Creative UK Head of Investment
What are three things happening in the investment space that are relevant to creative businesses?
1. Improved incentives for startup investors
We’ve just come into a new tax year and the announcements from the budget will be starting to impact on businesses. One of the outcomes we’re seeing is that startups are able to attract angel investors with SEIS (Seed Enterprise Investment Scheme) assurances of up to £250,000, instead of the previous £150,000. What this means is that startups looking to raise funding can do so with the knowledge that prospective investors are looking at attractive tax reliefs to incentivise them. This should help the seed stage for those who are in their first two years of trading.
2. UK VCT market closes year at £1 billion
It’s recently been announced that VCTs (Venture Capital Trusts) were able to close around a billion GBP of fundraising for the year end of 2022. That’s a big amount of capital in the UK VCT market and shows that there are still a lot of high net worth individuals with faith in the startup ecosystem. Given the amount of turbulence in VC markets right now, it’s great to see a sign of more positive movements.
3. Dry powder and bad press in the VC space
My third point is not quite so positive in regards to the VC space. While there is certainly plenty of money floating around in VCTs, we are still seeing quite a lot of dry powder, meaning cash that is yet to be invested. The result of this is that a lot of companies looking to attract new investors are still struggling. The first calendar quarter has been one of the lowest in the last several years and if we’re following the trend set by the US, we can expect there to be some more challenges in the coming months. The US had one of the worst first quarters in tech for a long time and with the collapse of SVB (Silicon Valley Bank) hitting headlines, it’s no surprise that there is currently a lot of negative press for the wider startup ecosystem.
What is the biggest challenge for creative companies seeking investment?
It should come as no surprise given my answer to the last question, that fundraising is a major challenge for creative companies right now. On the boards that I observe and participate in, the larger challenge is coming from those companies raising in the series A, B and beyond. It’s difficult if you have to prove the valuation you previously raised on, and therefore there’s a lot more down rounds and equal rounds happening.
The best strategy for companies looking to counter this is to fully understand their own capital requirements. This understanding should in turn should inform their choice of capital and ensure that they start off on the right foot when seeking finance. Is it necessarily equity or are there other lines of credit that they can seek to expand their opportunities? More than ever, businesses need to understand where investment is going to lever some gearing in their business plans and actually start demonstrating some good growth to attract investors. It’s no longer enough to attract investment on the basis of a business model – investors want to know exactly what growth their money will generate.
What are the big movers and shakers we need to know about?
There’s been an interesting move in fashion, with Next acquiring Cath Kidston for £8.5 million. That’s part of a bigger story that started with Cath Kidston going out of business back in 2020. One that’s flying a bit lower under the radar is a pretty major buyout that was one of the largest games acquisitions of all time. Savvy Games Group – a company wholly owned by Saudi Arabia’s public investment fund – has acquired Californian mobile games company, Scopely for $4.9 billion. Despite this deal being in the billions I haven’t heard a huge amount beyond the fact of the deal itself. Given the size of the figures being discussed, I expect there to be some kind of political posturing around it, but so far it’s all feeling quite stealth. This will be an interesting one to watch.
This month’s sector focus: podcasting
I’ve recently seen quite a lot of business plans coming through that have included new media verticals in their production services through podcasting. Though we’re hearing that podcast launches are significantly down post-pandemic (the number of podcasts launched in the last year fell by 80%), the industry remains valuable. In the UK alone, ad revenue from forecasts was measured at around £40 million in late 2022.
It’s not surprising that fewer podcasts are being launched now, compared to mid-pandemic, but it should also be noted that the current number is lower than it was in 2019. Having said that, we could simply be in an era of separating the wheat from the chaff. I’m interested to continue exploring business plans and to understand how content creators are going to keep their business models engaging and relevant to new consumer habits.
What are the new programmes and events that businesses need to know about?
- Creative UK North East Social: Discussing the Regional Investment Landscape for Creatives, Newcastle, 24 April
- SME Expo, London, 25 April
- FounderFest, London, 20 May
- Updates to SEIS investment for start-ups
- Report: The Networked Shift: A Creative Industries Foresight Study, Creative Industries Policy and Evidence Centre
If you’d like to learn more about the investment offerings available through Creative UK, visit our Investment web pages here.
