Are you in the creative industry? In this blog we look at the challenges for creative businesses when they are looking for funding. But not to worry, we will follow this with the solutions to those challenges and who to talk to get support.

Debt

When looking at funding though debt, one of the main problems is the sheer diversity of the sector. It can be difficult for a company new to seeking finance to navigate the world of debt financing. If we go the next stage, what is the collateral or security for the debt? Within the creative industry, value is often in ‘intangible assets’, meaning it is often not bricks and mortar or a factory with machinery. 

This leads to the risk that is often associated with ‘sub-sectors’. Some investors will look for the main player or main sector when looking at an industry, ignoring the sub-sectors. And then there is the nature of many creative industry’s development or production cycles, which can lead to irregular payment cycles. They may lack a constant revenue stream, something man investor look for. This is often linked to the challenge to understanding the business models of creative businesses, and the challenge for the businesses to effectively explain their business models to investors.

It is an often cited challenge to even enter into a dialogue with, for instance a bank with its internal process involving things like algorithms and credit scoring. This is especially true to those new to the funding world. Then the products offered by bank and others are often inflexible. 

Despite commonly being advised to discuss funding requirements with your bank this can often be problematic as a result of automated systems driven by algorithms and credit scoring systems. This is often compounded by inflexible finance products such as invoice discounting and term loans which are not reflective of operating models.

Equity

Many of the same issues, or challenges, are the same as with debt. The nature of creative businesses can be a challenge for equity investors to understand and conversely the challenge for the industry to effectively explain their business as an investment proposition. This can be due to something that is called ‘founder vision’. This is the unique perspective and goals that the founder brings to the table when conceptualizing and developing a product. This can be for prospective investors to understand. The challenge is to articulate your case and present in a way that makes commercial sense.

One characteristic of creative create sits own challenges, the tension between the creative side and the operational side. This can lead to strategic tensions and so affect the prospects for the business.

Any equity investor will have an exit timescale. That may or may not match up to what the business wants or can sustain. Any business will have to consider the channel that an equity investor may exit. It could be through another investor, but will the business suit the new investor? Or would the business be in a position to buy the equity stake back?

These and other challenges can be addressed with business or professional support. Something that is generally not engaged with in the creative industries.

These challenges are something that all businesses face when looking to raise funding.