CREATIVE METROPOLES MEETINGWarsaw, 21 October 2009Thomas Hüttich

Financing Instruments for the Creative Industries

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Investitionsbank Berlin

• IBB is the regional development bank of the Land Berlin

• Balance-sheet sum: 20,5 bn EUR• Equity 584 Mio. EUR• 671 employees• IBB offers financial instruments

for economic growth, job creation, R&D and housing

• IBB focuses on the support of SMEs in general and specifically enterprises in the so called Berlin fields of competency, which include the CIs

• IBB is guaranteed by the Land and thus profits from preferential refinancing terms on the capital market

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Policies and instruments in support for CI

City Councils

Business support

FinanceTechnology Infrastructur

e

Incubation

Creative Districts Policies

Creative Industries

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Financing instruments

Grants Revolving instruments

Risk capital

Venture capital

Equity / mezzanine

capital

Guarantees

Debt capital

Micro-credits

SME-loans

Non-monetary accompanying measures

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The creative industries in Berlin

• In 2007, around 24.000 mostly small enterprises incl. the self-employed with around 165.000 employees constitute the CI in Berlin

• Combined turnover of 18,1 bn EUR• Many respondents in diverse surveys say, that they don't have the funding

or finance they need to make and develop their practice • Ojective of IBB engagement: developing the economic potential of the CI by

improving access to finance and business skills• In 2008, 15 % of IBB finance went to the CI

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Funding and finance needs of the CI

Subsidy funding

• Start-up / development support measures, business training / coaching

• Affordable business premises, incubation centres

• Cluster policies: support to break into new markets, common marketing, location marketing and international networks

• Project funding (grants, art funds)

Repayable finance

• Rather small amounts of debt capital (e.g. micro-credits) for:

• Pre-financing of projects, purchase orders or product developments

• Working capital for provision of services (cash-flow)

• Investment capital for intangible non-monetary assets (rights, collaborations, etc.)

• Investment in fixed assets / equipment

• Venture capital / equity if high growth potential

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Barriers to access to finance

• Lack of equity and bankable collateral

• Small size of loans

• Risk aversion of banks

• Difficulties for banks to assess / rate business concepts in this young sector (project finance / ”financing of ideas“ instead of tangible / fixed assets)

• Underdeveloped business, financial planning and management skills (e.g. managing cash flow) that limit understanding of the potential to use finance and the ability to apply for and pay back loans

• Lack of awareness and information about full range of finance options

• Negative attitudes towards risk and finance

In 2007 / 2008 the Land of Berlin and IBB launched several tailor-made instruments to better meet the needs of creative entrepreneurs

Focus on revolving instruments, use of ERDF-co-financing and openness for all creative branches

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Structure of the risk capital fund for the CIs

15 Mio. EUR 15 Mio. EUR

IBB-Funds EU-Structural Funds (ERDF)

30 Mio. EUR fund volume Investment period: 2008-2013

VC-Fund

Up to 1,5 Mio. EUR per round of financing Minority stake: usually 15-20% (max. 49%) of

nominal capital Duration of investment: usually 5-7 years Accompanying consultancy support on operational

and strategic matters

Creative enterprisesMatching co-financing: Pari passu Pro rata at least 50%

Private Investors

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Kreativ Coaching Center (KCC)

• Subsidised personal consultancy service and coaching for start-ups and companies from the CI in commercial and organisational matters

• Funded by IBB, ERDF and co-contribution of entrepreneurs

• Pool of 20 highly qualified coaches with expert and CI-knowledge

• Seminar and workshop programms

• Focus: enhancing the commercial and entrepreneurial competency; completion or optimisation of a business plan; support with regard to financing, marketing, sales and controlling

• Access to potential business partners, new markets and investors trough extensive network

• 2009 so far coaching of 64 entrepreneurs (with 365 employees and sales volume of ca. 30 Mio. EUR)

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SME loan fund and micro-credits

• 50 Mio. EUR revolving loan fund (50 % IBB, 50 % ERDF)• Loans up to 250 TEUR directly from IBB:

Investments and related working capital Pre-financing of firm or expectable purchase orders Financing of product development and new projects Pure working capital for business start-ups and young enterprises up to 3

years• Simplified and quick access to micro-credits up to 10 TEUR

Lean, un-bureaucratic application process (no business plan or liquidity planning necessary)

Fast financing decisions based on quick-check-tool, focus: personal interview, entrepreneurship

No collateral needed (up to 25 TEUR) CI’s share of micro-credits around18 %

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Further financing instruments for the CI

Film production: intermediate financing• Project related loans and guarantees for intermediate financing of film

productions• Make-to-order productions from other media areas (such as games)

Opening up new markets• Subsidies for consultancy and training services to specialists and

executives promoting entry into new markets • Subsidies for planning and implementation of joint and information booths at

trade fairs• General company presentations, delegation trips, cooperation exchanges

Berlin-Brandenburg Business Plan Competition• Yearly event to boost the quality and quantity of business proposals seeking

external financing through access to professional advice / coaching• Opportunities to make contact with potential investors• Creative industries cluster since 2008

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Remaining challenges

• Share of CI in overall financing of IBB 15 % but underdeveloped in classic loan products

• Direct grants for product and content development popular but not sustainable and selective, causes subsidy mentality, market distortion and state aid issues

• Risk capital only for companies with potential for high growth and increase in value (“cream of the crop”, dotcom, web-based)

• Different attitudes towards risk and finance (rejection of external influence and exist strategies among entrepreneurs in music, fashion, design)

• Risk-assessment of pre-financing projects and product development without binding purchase order and investments without fixed assets

• Low degree of creditworthiness (perceived and real) remains main challenge, worsened by more conservative rating approach and increasing interest due to the financial crisis

• Lack of collateral leads to personal liability and indebtedness in case of project failure

• Working capital not compatible with ERDF and state aid rules (new approach at EU-level necessary)

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Outlook and ideas

• Diverse sector with divers needs requires diverse instruments• Financial sector (including IBB) needs to improve its understanding of the

nature and commercial potential of creative businesses (e.g. recruiting experts with excellent industry knowledge for realistic risk assessment)

• Access to formal and informal networks to reach people with information about tried and tested finance options by people they know

• Alternatives for grants to avoid distortion effects, e.g. project competitions and prices, focus on the combination with other finance

• Conditionally repayable loans to avoid putting risk on the person• Introducing mezzanine instruments• New imaginative concepts such as “knowledge funding” for higher risk

propositions to be financed with higher reward

• … (to be continued)

Bundesallee 21010719 Berlin

Telefon 030 / 21 25-0www.ibb.de

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