Acquisitions and awards – investment wins from the last 12 months
// creative growth finance // investment
We’re fast approaching silly season, but as they say, money never sleeps. Though overall funding figures are down, generative AI is taking up a lot of the limelight and stealing investors’ attention. So what does that mean for more traditional creative business models? Find out that and more with our latest investment insights from Matt Browning, Head of Investment. Read on for more on:
- Investment being concentrated into AI
- The cost of lending is increasing – what should you do?
- Movements in the metaverse
- New cash for the games industry
Matt Browning, Creative UK Head of Investment
What are three things happening in the investment space that are relevant to creative businesses?
1. Fewer funds available for creative companies
We’ve just exited the first half of the year which means we’ve got some H1 data available and analysis of this suggests that investment in general is significantly down compared to previous years. What this means is that there are fewer funds available for companies to make use of and this affects Creative Industries heavily in the same way that it affects all sectors.
There’s been a lot of investment that’s gone south in the tech sector and wider industry, but what’s also key is where the focus of the investment has shifted to.
2. Investment is increasingly concentrated on generative AI
There’s a big concentration right now of investment going into generative AI, which means a lot of the focus within the tech sector is on companies that have some AI first elements. An unfortunate outcome of this concentration is that traditional creative business models are not getting so much attention from investors because they’re not being seen as scalable.
The adjustment in the marketplace has meant that businesses have been hesitant to raise equity for a while. Now they’re starting to accept that their businesses cannot sufficiently operate without some fresh capital they’re trying to go back after investment at a more considered price but struggling to find the investors. This is putting big pressure on to the Creative Industries and there’s a question as to where the investment is going if it’s not going into supporting high stage early businesses.
3. The effects of rising interest rates
The third point to raise is the effects of rising interest rates. Base rate increases over the past 18 months tell us that the trajectory has yet to slip and with that comes an increased cost of lending. Companies that are finding themselves quite leveraged to debt are struggling to service that debt which is ultimately affecting their net profit position. This particularly affects the Creative Industries because quite a lot of the industry’s costs can be classed as discretional spend and when a company has to focus on its margins to in order to service its debt obligations it often cuts its discretionary operations.
What is the biggest challenge for creative companies seeking investment?
The cost of lending increase is the biggest challenge for creative companies right now, as they are having to move away from investment orders and focus on profitability. With any discretionary spend going down, companies really need to ensure that they have accurately identified their essential non-discretionary items. They will need to reevaluate how they can stay aligned with their customers and not give them reasons to quit.
While I think a lot of companies have considered the next steps to improve their own operations, it might be worth considering if their clients have that serviceability to do so, because unthinkingly passing on increased costs isn’t necessarily a winning strategy for the long term. There’s a tricky line to tread here, with the need to both move towards profitability and evaluate costs; and the requirement to remain palatable and relevant to your customers.
Businesses need to think about their income and do what they can to secure it by proving themselves to be an essential part of their customers’ operations through being sticky and, ideally, indispensable.
Part of this will be looking at your contracts and carefully considering the price that you’ll be putting forward to go into the next year. Because if you don’t have the ability to service increased costs your clients will likely be facing a similar challenge.
What are the big movers and shakers we need to know about?
There’s been a major investment in the agency sector, with London’s Uncommon Creative Agency having just sold a majority stake to Havas for £120m. This is a massive move for the formerly independent agency whose stated aim for the investment is to support expansion into the US.
There’s also been quite a bit of movement in the metaverse with companies starting to be acquired for undisclosed prices. We don’t know if these acquisitions are positive, proactive moves or based on operational necessity because of the hidden sums being exchanged. I think we might see a few more of these coming up where companies can’t raise and are forced into selling for a very discounted price.
One example of an investment that has been publicized is the $1.1m invested into metaverse studio, Karta by a group of figures from across music, gaming and sport sectors. This is a very interesting investment which sees several key creative sectors working collaboratively to boost a studio whose output touches on music, virtual experiences and gaming. Karta’s projects include work for Fortnite and Amazon music as well as a popular fan experience built in partnership with Republic Records.
An investment with stronger links to the gaming world comes with news that UK studio, Lighthouse Games has secured an undisclosed sum from tech giant, Tencent. This investment has been secured in order to support the studio’s ambition to become one of the UK’s biggest AAA studios.
An interesting development from the most talked about industry of recent times is OpenAI’s opening of a London office. The ChatGPT developer has chosen London as the spot for its first international office – an interesting development given that the UK’s Competition and Markets Authority (CMA) blocked Microsoft’s ongoing acquisition of Activision Blizzard due to competition concerns in the cloud gaming market. It is perhaps relevant to know that the CMA is said to be reevaluating its decision having said they are “ready to consider any proposals from Microsoft to restructure the transaction.”
This month’s sector focus: games
Develop, the annual Brighton games conference, has been filling up my newsfeed recently so I’d like to talk about the games industry. I’m a bit disappointed with the lack of announcements at this year’s event, but the big news for the industry is the new injection of cash from the government. The UK Games Fund is set to receive an additional £5m to support games developers as part of the government’s strategy for the Creative Industries. This takes the fund’s total funding up to £13.4m – money that is earmarked to help start-ups grow their businesses and attract further investment over the next two years.
The other thing in games that’s pretty cool is the revival of old IPs. Nostalgia never really leaves the older gamers, but with mainstream culture seeing the likes of the Super Mario Bros film being released this year, there is a spike in interest in these retro games. Antstream Arcade, a retro game streaming service and Creative UK investee, has recently collaborated with Samsung Gaming Hub where users can now find almost 3,000 games available to play. There have also been updates direct from Antstream pre-announcing the release of new games direct onto their platform, as well as new and improved features for subscribers. This will be welcome news at a time when it has been reported that 87% of games released prior to 2010 are no longer commercially available.
It will certainly be interesting to keep watching the game space. Though there are new developments, what usually anchors and catalyses a lot of games news is when the hardware is released. So, while we’re in-between hardware (give or take Apple Vision which has announced a limited set of games), it would be nice to see some new content for gaming applications. Certainly, the virtual reality space is working on it – there will definitely be more coming up in this arena.
What are the new programmes and events that businesses need to know about?
- Pathways Indie Lab accelerator, now accepting applications
- Panel event: how can we innovate startup funding models to advance equitable access? Bristol, 20 July
- Game Republic Investment Lunch, Sheffield, 21 September
- Arts Council scale-up programme, British Library London
If you’d like to learn more about the investment offerings available through Creative UK, visit our Investment web pages here.
