Subject Module - Elective CIAKL II - Class 11

EUROPEAN COURSE IN ENTREPRENEURSHIP FOR THE CREATIVE INDUSTRIES
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Start UP
Funding

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Financial tendencies
in Creative Industries
Sources:
 KEA European Affairs, “Promoting Investment in the Cultural and Creative Sector:
Financing Needs, Trends and Opportunities”, Report prepared for ECCE Innovation
– Nantes Métropole, June 2010
 Bob Zider, “How Venture Capital Works”, Harvard Business Review, November‐
December 1998
 Charan, Ram; Tichy, Noel M, “Every Business is a Growth Business”, Executive
Excellence, Jan 1999.
 K. Mitusch, A. Schimke (University of Karlsruhe), “Gazelles ‐High‐Growth
Companies ‐ Final report”, Europe Innova, 31 January 2011
 Jenny Tooth, Angel Capital Group in conjunction with Greater London Enterprise,
“Mini‐Study on the Access to Finance activities of the European Creative Industry
Alliance”, Report to the European Commission, DG Enterprise and Industry, January
2010

Creative industries

The sector Creative Industries (or “creative businesses” or “culture‐based creativity”) can be
divided in the following main sub‐sectors:

 Visual and digital arts; Performing arts
 Film & video, TV & radio, music, books & press, video games
 Fashion, design, advertising
 Heritage, architecture

Micro, small, medium sized The cultural and creative sector in Europe is largely made up of
micro, small and medium sized enterprises Very few economic sectors have revealed as
much potential for the economy and society as the culture and creative industries (CCIs)
have over the last few years. Their positive impact on the economy in terms of growth,
employment and innovation is being increasingly recognized and measured at local, national
and international level. “Culture‐based creativity” is a key driver of this process, stemming
from art and cultural productions to nurture innovation in the economy. It clearly
contributes to stimulating our knowledge‐based societies.

Evolving in a number of different markets and subject to different levels of demand and
competition, these companies account for the bulk of employment in the sector and are the
main developers of creative talent. The common features of cultural and creative businesses
are:

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 An organic approach to business growth ‐ creative entrepreneurs manage passion‐
driven activities which are often project‐led
 Often a lack of business training and financial support
 Problems in valuing intangible assets
 A dependence on public investment schemes
 A lack of organisation at trade association levels
 They evolve in culturally and linguistically fragmented markets
 Business models challenged by the digital shift

Specific Financing Needs, Trends and Opportunities

The financial needs of the creative industries are different from those of businesses (or
SMEs) in other sectors due to their particular characteristics and the challenges they face.
This argues for the development of sector specific tailor‐made solutions for access to finance
for the creative industries. However, financing needs of creative industries usually vary
according to a number of factors, ranging from the company’s stage of development, the
particular sector and its value chain as well as the nature of the activity that needs finance.

Focus on projects, not on companies One of the main reasons given to explain the limited
commercial success of creative industries is the trend to focus on financing projects rather
than the company itself. Only 37.2% of cultural and creative companies try to raise finance
for the business itself rather than for an individual project. Greater attention needs to be
paid to corporate finance if creative businesses are to succeed in attracting a wider range of
investment (e.g. equity finance).

Main obstacles to raising finance Such a difficulty to attract investment is often due to
investors’ problems in assessing risks and valuing intangible property. Public policy has a
great role to play in encouraging investors. Improving the relationship between creative
industries and investors by enabling creative businesses to become investment ready is
therefore a key challenge. The main obstacles for creative businesses to raise finance can be
explained from two perspectives, the one related to the investor and the one related to the
creative businesses:

Obstacles from the investor’s point of view:
 Insufficient business skills of creative businesses in analysing risks and opportunities.
 Difficulty in assessing the value of intellectual property assets
 Insufficient tangible assets within businesses to offer as guarantee
 Insufficient information on the growth potential of the companies of the cultural and
 creative sector and of the economic importance of the sector
 Dependency on public support which makes recourse to private resources less
important (so encouraging a passive approach of cultural and creative businesses)

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While the core arts (and also cinema) have traditionally been funded with public money to
pursue socio‐cultural purposes, policy makers are increasingly advocating for a greater and
better use of private money to match public resources with a view to further stimulating the
sector’s innovation and economic dimensions. The financing of culture and creativity seems
to be moving towards public‐private partnerships models where venture capital, tax
deductions, direct public subsidies or bank guarantees can support creative activity to
generate wealth, economic activity and create employment.

General trends

1. Financing trends
 Personal resources remain a basic source of finance for creative industries to launch
a project or a business
 Retained profits
 Public grants (especially for the audiovisual sector, performing arts and music)
 Debt‐based finance
 Creative businesses still under use equity finance; a growing number of examples of
mechanisms can however be identified in this last area
 No “one size fits all” financing model for creative industries exists

2. Available support schemes
 Many multi‐sectoral support schemes (for innovation or SMEs) exist but cultural
industries rarely access them; the specific features of these businesses are not
sufficiently taken into account
 A number of support instruments specifically for the creative sector have been
established recently; their number remains limited despite the opportunities they
offer
 Many multi‐sectoral and creative specific support schemes and services existing at
regional level are publicly driven and focus on micro and small and medium size
businesses; several private initiatives exist
 Banks or other private companies/individuals rarely invest in cultural industries
 New alternative finance tools such as “Innovation Vouchers” or “P2P finance” are
being launched

3. Support from the EU
 The EU will make funding available to regions to support creative industries (e.g.
through Regional and innovation funds).
 The European Investment Bank and the European Investment Fund can provide
more support to the creative industries
o Audiovisual, cinema and media sectors (more capital intensive) are the main
beneficiaries of support measures.

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Eleven ways to finance a project

Considering the importance of a growth strategy, and depending on which phase the
business is ‐‐ whether it is starting up, growing or scaling up to international markets ‐‐ and
also that the cost of money is always very expensive, entrepreneurs should consider eleven
ways to finance a project:

1. Bootstrapping
2. Family, Friends and Fools (FFF)
3. Private Investors
4. Equity finance
5. Business Angels
6. Tax incentives and public subsidies
7. Financial Institutions – bank, credit, loan schemes
8. Guarantees
9. P2P finance to attract investments from the general public (Crowdfunding)
10. EU opportunities
11. Internationalisation of the creative business

An overview of the eleven ways:

1. Bootstrapping
Bootstrapping means starting a business using one’s own available resources in a
right moment, without external help or capital.

Mindset structure for bootstrapping

 Do not buy new what you can buy used
 Do not buy used what you can lease
 Do not lease what you can borrow
 Do not borrow when you can barter
 Do not barter what you can beg (moral obligation is incurred)
 Do not beg what you can scavenge
 Do not scavenge what you can get for free
 Do not take for free what someone will pay you for
 Do not take payment for something that people will bid for (create an auction)

2. Family, Friends and Fools (FFF)
When the projects are really good, there won’t be problem to find investors.
Entrepreneurs may find in the family and friends the possibility to attract support and
investment. Even if the project is to ambitious, but with forecast in good revenues, it
will may attract “fool” people, this means, lovers and enthusiastic people who want

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to be involved in some way with the project, and just because they love the subject,
or just for fun.

3. Private Investors
This kind of investor are people who don’t belong to any kind of formal structure or
institution, but they have money and want to invest in projects, considering the
revenue of the investment. They are difficult to contact, and usually they invest in
specific areas, which means that they are specific investors in specific areas of
business.

4. Equity finance
Venture capital and mezzanine capital These are the two main forms of equity
finance. Venture capitalists (VCs) take equity in the company by investing third party
money (from insurance companies, the state, etc.) and look for a high rate of annual
return (30% and above). Investments usually range from €250,000 up to €5 million.
The investor will have a right to a share in the profits of the business. In contrast,
mezzanine capital is provided through hybrid instruments combining elements of risk
and debt‐based finance. For example, a preferred equity gives no voting rights (as in
the case of loans) but gives priority in the payment of dividends (one of the possible
benefits of investment capital).

Venture capital fills a void Venture capital’s niche exists because of the structure and
rules of capital markets. Someone with an idea or new technology often has no other
institution to turn to. Usury laws limit the interest banks can charge on loans – and
the risks inherent in start‐ups usually justify higher rates. Thus bankers will only
finance a new business to the extent that there are hard assets against which to
secure the debt.

Investing in good industries Venture is not long term money. One myth is that
venture capitalists invest in good people and good ideas. The reality is that they
invest in good industries – that is, industries that are more competitive forgiving that
the market as whole. By investing in high growth areas VCs primarily consign their
risks to the ability of the company’s management to execute. They avoid early stages,
when technologies are uncertain and market needs are unknown, and in the later
stages when growth rates slow dramatically as a result of competitive shake outs or
consolidation.

Entrance and exit The idea is to invest in a company’s balance sheet and
infrastructure until it reaches a sufficient size and credibility and can be sold to a
corporation. In short, the venture capitalist buys a stake in an entrepreneur’s idea,
nurtures it for a short period of time, and then exit with the help on an investment
banker. It is recommended to pre‐define an exit strategy, with a clear definition of
the minimum and maximum amount they can earn to avoid a huge capital
withdrawal at the moment they leave the project, which is usually in five years’ time,
but this is negotiable and not mandatory in any case.

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Creative businesses still make very limited use of equity finance This varies greatly
according to the sub‐sector and the size of the business. Large businesses are likely to
call on private investors more than the average of smaller businesses although equity
finance is also often used for start‐ups with high growth potential. The content
sector, including ICT‐oriented creative businesses (video games, animation, web
designers, broadcasters, etc.), seems to be the sector that benefits most consistently
from equity finance.

Mistrust and lack of understanding On the one hand, equity has traditionally
generated mistrust and lack of understanding on the part of creative entrepreneurs.
On the other hand, investors remain in general skeptical about the sector. This
skepticism is triggered by an image problem (is this a serious sector to invest in?), by
the fact that the sector is plagued by piracy and technology developments which
make investment more insecure and by a poor knowledge of the sector. This leads to
many misunderstandings and prejudices.

“Distractive” accountability Equity finance involves external investors taking an
equity stake in the investee company so as to share in the profits. This requires the
company to keep investors constantly updated on the progress and financial results
achieved. This accountability imposes financial obligations which distract creative
companies from their creative ambitions. Furthermore, many creative entrepreneurs
do not want to give away control of their business to external investors or give
investors the chance to interfere in creative projects. However, equity finance also
has a considerable advantage over other sources of finance as investors are likely to
provide both financial and business support.

Equity finance in Europe for creative industries There are around 62 specific equity
finance schemes across Europe that are partly dedicated to the creative industries.
Most of them have been established only very recently with 32 out of 62 funds being
for audiovisual businesses linked to the ICT sector. Many are regionally based and
publicly funded.

Profile of the ideal entrepreneur for the venture capitalist From the venture
capitalist’s perspective, the ideal entrepreneur according is profiled like this:

 The entrepreneur is qualified in a “hot” area of interest,
 Delivers sales or technical advances such as FDA (Functional Data Analysis)
approval with reasonable probability,
 Tells a compelling story and is presentable to outside investors,
 Recognizes the need for speed to an IPO (Investing Pay Off) for liquidity,
 Has a good reputation and can provide references that show competence
and skill,
 Understands the need for a team with a variety of skills and therefore
sees why equity has to be allocated to other people,
 Works diligently toward a goal but maintains flexibility,

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 Gets along with the investor group,
 Understands the cost of capital and typical deal structures and is not
offended by them,
 Is sought after by many VCs,
 Has realistic expectations about process and outcome.

5. Business Angels
Risk‐taking individuals Business angels (BA) are rich risk‐taking individuals willing to
invest their money at the early and start‐up phase. They are in general former
experienced entrepreneurs with financial, management and marketing literacy.
Business angels always want to also be partners in the business, which also means
that they are available to share the risk of the business, but also the success and the
revenues.

High growth businesses A business angel provides capital for a business start‐up
usually in exchange for convertible debt or ownership equity. These people can act
individually, in group, or in specific networks that usually have a formal association or
organization, and who also act in specific markets. They may bring these skills to the
business and these may prove to be important or necessary for the success of the
project. Usually they don't make intensive or extensive investments in the projects.
Taking into consideration the uncertainty of the project, they prefer to invest in high
growth business, in order to recover the investment in approximately three years,
with a profit from the interest. They then leave the business to invest in others
projects.

Entrance and exit Considering that these are strategic partners, and in order to avoid
a huge capital withdrawal at the moment when they leave the project, it is highly
recommended to pre‐define an exit strategy, clearly defining the minimum and
maximum amount they can earn, even if the business becomes the business of the
century.

Obstacles and limitations However, creative industries still make very little use of
money coming from business angels. Recent research shows that BAs do not identify
with the terminology “cultural and creative industries”. There are several local
networks of BAs or public initiatives stimulating BAs’ investment in several countries.
However, few of them show an interest in the creative sector. BAs usually invest in
their own industry so BAs who have been active in the creative industries are likely to
have the expertise to identify the best creative plans and provide capital and
personal support for their implementation. Normally, BAs’ investments are too
specific and too small for venture capital funds. They are therefore important for
filling the “financing gap”.

6. Tax incentives, public subsidies and other instruments
Public support is very important for the sustainability of the creative industries in
particular for some sub‐sectors such as heritage, film, television, museums and

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performing arts. The European Cultural Foundation estimates European public
spending (direct funding) on culture at € 55 billion. Public contribution can also come
through:
 Indirect subsidies, such as fiscal rules to attract private funds, donations
and/or sponsorship to the benefit of cultural activities, reduced taxation on
certain categories of creative people, reduced VAT rates on cultural products
and services
 Regulatory support in the form of protection from market forces (investment
quotas to ensure market access)
 Public procurement

Governmental subsidies are incentives of diverse nature and in general tailored to
achieve specific objectives. They may be granted at State, regional or local level, or
by public service corporations, such as a television broadcaster. There is a wide range
of possibilities:

 Refundable or non‐refundable subsidies
 Diverse types of direct funding
 Bank guarantees
 Immediate or postponed tax relief
 Automatic support based on previous performance
 Other benefits to develop projects

Each country has its own public policies, such as to promote the development of
national cultural objectives or to attract foreign investment into the country.

Tax incentives This form of indirect public subsidy is becoming more popular across
the EU. All OECD countries have developed tax credit schemes benefitting at least
the cinema sector. Most of them seem to be successful in attracting investors. Tax
incentives are usually used to stimulate external private investment (whether from a
company or an individual). Alternatively they are used to encourage a creative
business to produce cultural goods and services.

There are two main forms:
 Incentives that encourage the sector to produce cultural goods and services
 Incentives that stimulate private external investment

Most of the specific tax incentives have benefitted the film sector. Several countries
have progressively opened up these schemes to other sectors such as music or video
games. Most incentives target investment in projects rather than companies.

General tax incentives can also benefit creative companies willing to make specific
investments, such as in R&D activities ‐ which usually suffer from lack of resources.
Several countries have also examples of R&D tax credit for research which could

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potentially benefit a sector. Creative businesses have access to multi‐sectoral tax
incentives (e.g. for R&D activities).

Tax incentives for sponsorship and donations This is another way of financing
cultural and creative entrepreneurs through external private capital. They can both
be encouraged through attractive tax incentive schemes. However, whereas
sponsorship (or “patronage”) is part of a commercial strategy which includes
quantifiable returns, no financial return is expected when making donations (or
“mécenat”) except in terms of promoting the donor’s corporate image.

Public grants or subsidies, cultural, industrial and innovation policies A very
important source of finance for cultural and arts projects, training activities or
support for the mobility of cultural stakeholders. The audiovisual sector is the main
beneficiary of these subsidies, followed by the core arts fields (visual arts, performing
arts and heritage). Grants are also given to other sectors such as design, fashion,
music production, etc. Traditional forms of grants come from the different
government levels and agencies dealing with cultural affairs. Regional support bodies
and regional funds also contribute increasingly to CCIs. The size of the subsidies
available varies greatly from one type of grant to another.

Critics have pointed out that the costs that creative SMEs have to bear when applying
for grants are often disproportionately high in comparison to the small amounts of
money that they may need (especially in some creative sub‐sectors like design).
Applying for public grants is very time consuming for small companies with few or
even only one employee.

Innovation Vouchers National, regional and local authorities are also experimenting
with new forms of grants, “nudging” innovation into non‐creative businesses so‐
called Innovation Vouchers. These grants may also provide creative companies with
the financial resource they need to cover R&D expenses or to acquire external
expertise from research institutes, universities or other companies. This grant is
particularly innovative in that it does not cover costs for general activities but rather
the costs of specific activities that can improve the company’s professionalization.
This includes securing external expertise for marketing, IPR advices or management.

7. Financial Institutions – bank, credit, loan schemes
Either private banks or public authorities may provide companies with short, medium
and long‐term loans, even of very small amounts (micro‐credits). Numerous SME loan
schemes exist, but they rarely target creative SMEs. However, this is slowly changing.

Many creative businesses (such as in the film or music sectors) need mid or long‐term
bank loans due to the long investment cycle that characterises these companies.
Loans are usually used for financing investments, working capital and stock financing.
They can take the form of discounting receivables, cash‐flowing and loans
guaranteed by a charge on assets.

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Debt‐based finance presents complementary advantages when compared for
instance to risk capital. On the one hand, debt capital is less costly and enables the
owner to retain control of his company (as he will not share ownership with the
investor). On the other hand, in contrast to equity finance, loans do not carry with
them a direct involvement of investors’ expertise, which can turn out to be very
useful for people lacking business skills.

The banks are the most common organizations when people realize that they need
money to do something. However, banks are averse to take risks in start‐ups and do
not accept to lend money where they reckon that they may not recoup it and the
interested. Besides, in today’s information‐based economy many start‐ups have few
hard assets against which to secure debt. When looking for a business partner we
must consider banks as cash providers and never as business partners who share the
risk and the success of the business. Companies need these institutions to trade and
make business currency transactions.

Multi‐sectoral loan schemes are loans provided by regional funds (mainly publicly
funded) to regional SMEs operating in any sector. Another scheme are micro‐credits
like those provided by the Berlin Investment Bank (IBB) has also designed simplified
and quick access for SMEs to micro‐credits up to €10,000. A business plan is not
required and financing decisions are based on personal interviews.

8. Guarantees
Guarantees function as security against the fulfillment of an obligation like the
repayment of a loan. By sharing the risk of supporting a creative project along with
lenders, guarantees play a crucial role in facilitating access to finance for SMEs.
However, for most cultural and creative businesses, access to those guarantees is not
an easy task. They essentially benefit the audiovisual and media sectors.
Furthermore, most traditional guarantee instruments that have been identified do
not draw distinctions between sectors and they focus mainly on SMEs. Moreover,
banks shows that banks are not used to evaluating creative projects.

There are three main categories of guarantee:
 Public guarantee schemes for SMEs for which cultural and creative businesses
have shown little interest so far
 Public or public‐private guarantee instruments intended specifically for the
creative sector
 Private guarantee schemes available for some creative sub‐sectors

At European level, the European Commission is planning to launch a European
MEDIA Production Guarantee Fund that will benefit the audiovisual sector. This pan‐
European guarantee scheme would be a first in Europe.

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9. P2P finance to attract investments from the general public
(Crowd funding)
A number of emerging businesses are using the internet and social networking tools
to offer clients ways to invest in artists and creative projects. Without the traditional
intermediary of a bank, activities can include borrowing, lending and investment. This
is commonly referred to as peer‐to‐peer (P2P) finance. P2P finance seems to offer
major funding opportunities for the creative sector.

Crowd funding is a collective cooperation by people on a network, usually via the
Internet and with small or even micro investments. They pool their resources to
support new ideas and projects, that may be from individual entrepreneurs or
organizations. This kind of support has much to do with the ability of the
entrepreneurs to successfully communicate their idea to the potential backers (the
people who will provide the funds).

This is an emergent trend and it opens one more possibility to the entrepreneurs to
obtain funds for their projects. One of the most popular platforms is kickstarter.com.
Their motto is “if the project is really good, won’t be problem find investors”. For the
creative sector, P2P networks which attract private investors (or BAs) generate
additional funding on the back of people who wish to be associated with the
development of artists in which they believe. It is a simple way to become an
executive producer.

There are successful examples of crowd funding in the music and the film sectors.
This could enable entrepreneurs to raise money directly from fans or consumers
through digital networks in order to finance a film, a book or distribution platforms. It
could also eventually involve fans more fully in the creative process by giving them a
say on projects.

10. EU Opportunities
Policy interest in culture‐based creativity as drivers of innovation means that creative
businesses should have better access to a wider range of EU funded programmes in
the future. The opportunities and trends identified at European level can be
summarized as follows:

 European funds (in particular structural and innovation funds – the
Competitiveness and Innovation Programme, CIP) are putting increased
emphasis on creative businesses
 Specific policies will be developed to address issues that are critical for
European creative businesses such as access to finance, skills and training,
market access, trade and mobility
 The European Investment Bank/European Investment Fund (EIB/EIF) could
mobilize funding for the benefit of creative businesses

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 The support of transnational collaboration projects in the context of the
Lifelong Learning Programme or the research programme FP7 in the area of
education and research
 DG Enterprise, responsible for trade and SME policy is refocusing its
innovation strategy to encompass non‐technological forms of innovation
 EU programmes already support various projects and initiatives launched by
local and regional authorities which are aimed at developing the potential of
creative businesses
o EU Structural Funds: JEREMIE and JASMINE Programmes enable
Member States to use the Structural Funds to create new finance
schemes with EIB/EIF support. The European Social Fund also finances
training projects for cultural and creative entrepreneurs at regional
level.
o Other EU funds have also helped the launch of several pan‐European
collaboration projects such as CReATE (FP7), Europe Innova (CIP), or
ECCEi (Interreg IVB North West).

11. Internationalisation of the creative business
There is a strong link between success growth, successful access to finance and
successful internationalization. Many of the national and regional investment
programmes are working closely with national/regional programmes to support access
to high growth markets. Investment brings both finance and new market access and
investors will want to identify companies that have the capacity to strategically plan for
international market growth and capitalise on the opportunity of international finance
sources: cross‐border sources of investment, access to international investors and to
foreign investment tax‐incentives.

To grow or not to grow?

Every business is a growth business Every entrepreneur or leader, should have a focus on a
growth process, and never define a strategy that aims just to maintain the performance,
because the economic paradigm assumes the need of growth. The decision to take a first
step to implement a new business should take into consideration different aspects.
Sometimes the decision was not really a conscious process, but occurred as an accidental
process. And even when no decision was taken, this is also a decision that will impact the
future and the success of the business.

It is critical for entrepreneurs to identify in what conditions the decisions are taken,
considering that at the beginning, all the team is motivated and it is easier to face adversity,
even when working in ad‐hoc mode. As the business is growing, paradoxes of uncertainty,
decisions criteria and the unknown are real possibilities. There will be a need to create a
minimal structure with a few rules and it will be imperative to manage the business and the

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people. To define a strategy of decision processes the entrepreneur should use the Decision
Theory.

Considering the growth process, Ram Charan, and Noel M Tichy (1999) defined the “Five
Points in Dealing with the Growth”, five lessons and principles to apply to any kind of
company:

1. There’s no such thing as a mature business Get the ideas about mature business out
of your mind forever. No matter how mature is the company, the business or the
market, it is possible to grow since the leader know how to look beyond the
traditional ways.

2. Not all growth is good Good growth should be done in sustainable and profitable
way, with capital efficiency. Growth at any cost as a strategy could be a disaster.

3. Growth is a mentality created by a company’s leadership It started with the vision of
an entrepreneur and was followed by the motivation of the people involved and
committed with the leader’s project and vision.

4. Balanced growth is the key to prosperity in the 21th century Consider all important
aspects of the business, like – cost structure, quality, product development cycle
time, productivity, asset utilization, investment of capital, supply chain innovation,
customer service satisfaction, and all the other components of operational
excellence, should be used in a sustainable way.

5. Growing is less risky than not growing A sustainable growth strategy, based on
tightly defined customer needs, is far less risky than a decision to not grow up.

High‐growth companies The growth of high‐growth companies, also called gazelles, is
regarded as positive because of their macro‐economic effects. But also micro‐economic
effects might be important, because it might be true that fast‐growing firms are also more
profitable and generate a disproportionate share of all new jobs especially in the first years
of their life. Hence, there is a need for skilled workforce and qualified employees. Human
resources can be obtained from outside the firm as well as through entrepreneurial training.
The availability of human resources, especially skilled workforce and qualified employees, is
often linked to the success of firms.

EU Comission policy measures for high growth SMEs High‐growth companies are important
for economic competitiveness and development, and are increasingly recognised by policy‐
makers. With the increasing recognition of high‐growth companies as drivers of economic
and regional development, the European Commission has launched many policies and
initiatives to support existing high‐growth enterprises as well as to enhance their
emergence. Policies that are designed in a SME‐friendly issue might be especially applied for
gazelles. The European Commission developed and implemented a range of policy measures,
specifically to assist SMEs in Europe. These policies are aimed at creating conditions through
which small firms can be created and thrive. If the EU is to achieve its goals of speeding up

16

economic growth and creating more and better jobs, it will be SMEs which play an important
role.

The European Commission places much emphasis lies on high‐growth companies. This type
of enterprise contributes more than the average to production growth and growth of
employment. They are also relatively more innovative than average enterprises. Growing
companies create additional growth of production in other enterprises, for instance through
subcontracting relations. In any case, they are important tools to reach the goals set in the
frame of the Lisbon agenda.

EU to identify high growth creative businesses There is also evidence that whilst there is
also a need to reach a very wide group of businesses in the creative industries to raise
awareness of the opportunities about accessing finance, many of the Investor Readiness (IR)
programmes have the overall target of supporting selected high growth businesses to attract
investment. This recognizes that only a certain group of creative industries businesses is
likely to be sufficiently growth oriented and have the right business model to attract
investment and achieve high growth. These schemes have developed a funnel approach with
specific approaches to identify and select a smaller number of high growth potential
businesses likely to attract investment and who are likely to receive more intensive support.
This includes such tools as diagnostic and filtering processes, uses of expert panels;
investment attractiveness selection criteria.

Scalability and valuation Many creative businesses fail access industry or market intelligence
both nationally and internationally about other similar businesses or sector trends or to
monitor their competitors as reference points to demonstrate growth potential or to show
how they can differentiate themselves in the market place. All of this is vital to support the
investment proposal and attract investors, especially when seeking external or
international sources.

Subject Module - Elective CIAKL II - Class 11

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