There are “concerning inequalities” in accessing financial capital and investment for female and ethnic minority-led organisations within the creative sector, a new report has found.
Published today (3 February) the study, undertaken in partnership by Creative UK and the Creative Industries Policy & Evidence Centre, examines the barriers to attracting investment in the creative sector.
It highlights the “stark” challenges facing female-led and mixed heritage or ethnic minority-led creative industries organisations.
Based on a survey of 896 UK firms from all creative sub-sectors, the report found that on average female-run organisations used £227,000 of finance, compared with £591,000 for non-female-run organisations.
‘Repeatedly rejected’
Although they are likely to anticipate needing more modest amounts of capital, female CEOs were 23% more likely to feel unlikely to get the finance they need.
One female respondent said that they had been “repeatedly rejected” from funders despite having “extensive experience, clear, ambitious and deliverable plans and match funding from various sources”.
Another said: “We have been stunted in our growth while watching our less experienced male peers launch ahead. With no accountability from funders who we have questioned.”
Meanwhile, creative sector organisations with mixed heritage or ethnic minority CEO were 10% more likely to have been rejected for finance despite being 9% more likely to want to grow their business and 21% more likely to view external finance as essential.
The report suggests that, possibly as a result of struggling to access finance, mixed heritage or ethnic minority-led organisations were 21% more likely to have injected their own funds into their business.
Despite facing more challenges to raising funds, the survey did not suggest that female, mixed heritage or ethnic minority-led organisations were any less likely to be “investment ready”.
To address unequal access to capital, the report calls for “new thinking” from the UK government, including the introduction of dedicated funds using public and private sector resources, tailored “scale-up programmes” and capacity-building initiatives.
Growth
The report warns that, although the UK’s creative industries are growing more than 1.5 times faster than other sectors in real terms, successive UK governments have “not yet addressed what is perhaps the most longstanding complaint from creative businesses over time, namely that they struggle to raise the finance they need to grow”.
The study found that 51% of creative organisations believed funders viewed them as too risky to invest in while 41% felt there were no suitable financial products on the market to meet their needs.
Nearly half (48%) of respondents said that access to finance was a barrier to growth, the third most-frequently cited barrier to growth. The issue is particularly significant for subsectors including film & TV (60%), video games (58%), and fashion design (57%).
Across the board, companies holding intellectual property were 9% more likely to view finance as an obstacle than other firms.
Market failures
Meanwhile, just under a third of those surveyed saying they lack knowledge about finance to make informed decisions for their business and 27% of organisations feel they do not know where to go for information about finance.
However, organisations located in one of the UK’s 55 creative clusters were 14% less likely to report a lack of financial knowledge, and were 15% more likely than the general population of creative industries organisations to apply for finance.
In contrast, organisations in creative micro-clusters outside recognised clusters were nearly twice as likely to identify access to finance as an obstacle to their growth and 25% more likely to rely on injecting personal funds into their operations.
Targeted financial products
Among its recommendations, the report says financial institutions should be encouraged to design and pilot flexible financial products which suit the needs of early-stage creative enterprises, including revenue contingent loans, where repayment is linked to borrower revenue and developing equity hybrid models that provide structured growth support.
It also calls for an increase in public investment in the creative sector to “catalyse private sector investment”.
“A revised investment framework should expand the number and range of finance options, improving coordination and involve collaboration across key UK departments and organisations, including – but not limited to – national arts councils, UK Research & Innovation and the British Business Bank (BBB),” the report states.
“By leveraging ongoing partnerships with sector stakeholders, this approach would enhance public value and support sustainable growth. This includes incentivising new and diverse fund managers and fostering partnerships with those who have sector-specific expertise, with the BBB helping to bridge information gaps into creative enterprises and encourage new specialist fund managers.”
‘System-wide policy changes’
Hasan Bakhshi, director of the Creative Industries PEC said that the data highlights “shortcomings” facing the creative sector.
“Investors and lenders [are] all too often ill-informed on the economics of the sector – and the demand for finance – with too many creative businesses not investment-ready, and even when they are, not being fully aware of their options,” said Bakhshi.
“Addressing these problems therefore needs system-wide policy changes if the government is to follow through on its commitment to harness the creative industries’ growth potential.”
Caroline Norbury OBE, chief Executive of Creative UK, said: “We have seen first-hand how transformative targeted support can be.
“That’s why we’re calling for a new investment framework which empowers more investors to work with our sector.”
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