Don’t believe the hype: From idea to funding for creative startups
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This document discusses financing options for creative startups and companies. It notes that while success is not guaranteed, most creative companies are financially stable. It also notes that most startups fail within 4 years. The document then outlines different stages in the process from developing an idea to obtaining funding. These include assembling a strong team, defining the business model, and determining financial needs. It cautions against an over reliance on equity funding and notes that different types of creative enterprises require different financing strategies. The conclusion emphasizes testing ideas and failing fast in order to improve.
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Don’t believe the hype: From idea to funding for creative startups
- 1. Don’t believe the hype Joost Heinsius
- 2. Guiding to Funding I. Gambling? II. From idea to funding III. The Support Ecology Values of Culture&Creativity
- 3. I. Gambling? ▪ Companies in CCS are usually healthy financially (Survey Acces to finance, oct 2013) ▪ Success is never certain (never know how market will react) • The missing middle, not many growing companies (93% work in companies less than 10 people, 6% between 10 and 50, 1% more than 50 people) ▪ Winner takes all (big earnings/large market share) ▪ Most start-ups fail after 4 years (50-90%) Values of Culture&Creativity
- 4. Example: We Want Cinema NL ▪ People powered cinema, new business model for cinema’s ▪ Winner first Creative Business Cup ▪ Stopped mid 2015: no more money, subsidies finished, no investors ▪ Not disruptive enough? Target group too small? Not growing fast enough? ▪ Now similar start-ups in UK (Our Screen) and USA (Tugg) Values of Culture&Creativity
- 5. II. From idea to funding 1. Idea and team ▪ “A good team can turn a mediocre idea into good business” ▪ “A great idea can be fucked up by a mediocre team” ▪ Team: co-founders, idea/vision, technical, marketing, operational, financial Values of Culture&Creativity
- 6. II. From idea to funding 2. What are you? ▪ Project (festival, performance, exhibition) ▪ Portfolio of projects-company (design firm, consultancy, media production company) ▪ Product/service company (Facebook, Peerby, crowdfunding platform) Values of Culture&Creativity
- 7. II. From idea to funding 3. Financing needs: ▪ Project: short term finance, small (<25.000), equipment, pre- financing/working capital: subsidy, development grant, loans (potentially with guarantee) ▪ Portfolio organisation: bridge finance, working capital, equipment investment, mortgage: subsidy, (over)drawing from account, loans (potentially with guarantee) ▪ Product/service company: prototype, product development, growth (depends on scalability): loans (guarantee), equity (business angel, development fund, vc) Values of Culture&Creativity
- 8. II. From idea to funding 4. Business model ▪ Play with the business model: Osterwalder Business Model Canvas or Board of Innovation (Belgium) ▪ Or start without business model, but grow so fast that you dominate market (first mover advantage) (Facebook, Twitter) and then experiment with business models (Peerby: lending stuff from community members, NL, Germany, UK, Belgium, US) Values of Culture&Creativity
- 9. II. From idea to funding 5. Develop the right financing mix Hype of equity funds among governments and start-ups ▪ First: FFF (Friends, Family, Founders) ▪ Second: Loans, Crowdfunding, maybe Business Angel Equity ▪ Third: Equity (VC), but only if you are scalable fast and exit is possible Values of Culture&Creativity
- 10. Valley of death Values of Culture&Creativity
- 11. The Hype of Equity Only when: ▪ Scalable fast and big (usually only web-based companies) ▪ Exit possible within 4-6 years ▪ When they know the industry and the market well ▪ Risks are high: only 1 in 4/5 will make a lot of money for investor ▪ So you pay the price Values of Culture&Creativity
- 12. III. The Support Ecology Values of Culture&Creativity
- 13. III. The Support Ecology Different financial needs: 1. Small enterprises need microcredit and loans. But also a guarantee system: usually small companies do not have enough securities for loans over 10.000 € (SME loan guarantee). For creative industries use upcoming EU Guaranteefund for CCS 2. Availability of loans (and guarantees) for CCS for portfolio companies not aiming at fast growth 3. Government backed but independent operating investment fund for loans and equity, usually ± 70% loans and 30% equity aiming at growth companies Values of Culture&Creativity
- 14. Conclusion: ▪ Don’t believe the hype: governments tend to think that equity fund is thé answer to all start-up financing needs, but it is not ▪ You need different financing strategies and thus financing facilities for a healthy and growing creative industries sector ▪ Combinations of financial facilities, capacity building, networks and places ▪ Think of your idea as a starting point, the team is just as important or more ▪ Go out and test and fail and go on Values of Culture&Creativity
- 15. Joost Heinsius Values of Culture & Creativity Thank you…! joostheinsius@gmail.com +31623926441 Values of Culture&Creativity
Editor's Notes
- From survey on 1000’s of CCS companies: looking back companies and organisations look healthy The gamble is that you can not pedict the future, how will the market react to your next product/service, such as a performance, image, design etc? If you only work on commission (B2B), that might not be a problem. But if you work directly for consumers (B2C). It is different. Winner takes all: what you see in the art market, as well as in the creative industries market is that there are a few winners who seem to take all the turnover and thus the profits. Do you know the book on the Blockbuster strategy? By Anita Elberse, a dutch name, but a professor at Harvard Business School, content producer invest big time in a few potential blockbusters, because there is the biggest chance of big returns. Few start-ups really make it to the top.
- Changing the business model for cinema’s: you choose the film, the theatre and the time. Invite your friends and if enough friends by a ticket you have your own private screening Hard to expand into lot of cinema’s, overpassed by Video on Demand and better screens of tv’s? Not enough film lovers? Expanding into Germany but not fast enough, took a lot of time to convince cinema owners
- If investors look at your idea, they wll even look harder at your team. Only a great team will win the competition: because they work harder, they are better at working together, they combine all the skills that are needed and they take failure as a chance to get better
- What kind of business are you in? That also determines what kind of financing is best for you. Because there is so much more than just equity, the hype of these days. Project: independent, small, working with freelancers or just 2-5 people, working from project to project, often teams that fall apart at the end of the project Portfolio of projects means that you always working on more projects at the same time, some in the beginning, some near the end, some acquisition going on. Many design forms work this way, wether webdesign, product design, or working in media production such as films etc Prouct/service company:: continuous selling products or services (B2B, B2C)
- Each type of organisation has a different need for financing Project: fe festival needs money to start working while income from tickets come later Portfolio: also bridge finance, or investment in equipment or a building, often lacking securities, banks do not understand the sector, ask for private securities (like your house and car) Product/service: investments in equipment or service development. Need also depends on scalability. And then: are you a Starbucks or a specialty? Starbucks used to be special, now it stresses uniformity and fast growth, others invest in continous improving quality, want to stay special, so growing slower
- I assume you all know the Business Model Canvas from AlexOsterwalder. It is a very useful tool to think of alle the components of a business model. Another one that you can add is by the Belgian Board of innovation, it is more specific on the direction of money and information flows between company and different kinds of customers Twitter only started making a operational profit in 2014, but has a long way to go to pay back investments, making money out of advertising and selling data
- Too many people think that equity is the answer for start-ups. It is a very American model and way of thinking. But it is not the only way. If you look at the funding of start-ups, there are consecutive 3 sources
- Do you know this picture of the valley of death? A short explanation: There comes a moment you need to grow fast, to get enough market share, or enough traction as they call it: VC’s usually only come in when you not only have a working product, but also enough customers. But to get those customers you need to invest: in equipment, in scaling up, in hiring more people, and especially in marketing. So you are spending a lot of money but you do not have income yet. That is called the Valley of Death, where most start-ups die. Same what happened to WeWantCinema, they were growing, but not fast enough to have enough income, and they were not able to secure another financing round. Then they had to stop, maybe a brilliant idea, but maybe too soon, maybe not the right team, may started at a market not big enough
- With an exit they mean: sell all the shares to new investors One of the difficulties today: there are not many investors that understand the creative industries, that concept is too broad. May some understand media or web based services So the risks are high for investors: they know that only a few of their investments will make real profit: return investment and make up for the losses elsewhere So you pay the price: they want to invest as least as possible for a low price, they want to keep the valuation down. You want the most money for the lowest number of shares.
- you need the networking function, the capacity building function where you learn the necessary skills hands-on, you need a place and you need an investment fund. You have a incubator here, or more than one, an incubator that also comes with some money. What I do not know if you have an creative industries investment fund Part of the ecosystem are connections between science/universities, entrepeneurs, investors The entrepeneurial state: Google, Microsoft, or even computers and internet would never have existed without massive government investments in research and experiments. The state takes the high risks investors do not take. Read it: Mariana Mazzucato.
- Last week In Brussels discussing 2 government funded creative industry investment funds, Flemish and French. Clear that most financing is better done through loans: fixed term, fixed income, less problems with evaluation, possibilities to cover securities with guarantees. While equity is much more prone to big losses, companies in start-up phase are very hard to valuate, (that is a gamble), often hard to see the exit possibility in 4/5 years and there is a conflict of interest between investor and company