Exploring finance in Europe’s design sector

29 March 2017
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EU support for designAfter examining EU support for design, we look at the overall financial ecosystem to learn more about traditional and innovative tools to access finance

BEDA understands design as a creative approach to problem-solving, which can be applied across the private and public sectors to drive innovation in products, services, society and even policy-making.

Lesser definitions of design, however, also position it as a discipline within the Creative and Cultural Sectors (CCS). Although its goes beyond a simple aesthetic purpose by integrating functional, emotional and social aspects in response to user needs, design does share some of the challenges affecting CCS, such as access to funding.

The Creative and Cultural Sectors are providing a growing evidence base in Europe of their economic importance as they are estimated to generate about 4.2 % of the total EU GDP. If we talk about employment, a study carried out by the European Patent Office (EPO) and the European Intellectual Property Office (EUIPO) states that Intellectual Property Rights (IPR)-intensive industries generate more than a quarter of employment and more than a third of economic activity in the EU. CCS are also highly attractive for young people and absorb them easily (the CCS employ more 15-29-year-olds than any other economy sector on average).

However, creative and cultural actors struggle to access funding, as identified by the European Commission’s communication on promoting CCS for growth and jobs in the EU back in 2012. Several experts consulted by the EU institutions pointed at a number of factors including specific characteristics of CCS, dependence on intangible assets or perceived lack of business skills; as well as specific challenges experienced by SMEs, like the lack of market data on business models and issues around valuing IP.

To make things worse, at the time no EU-level listings or overall assessments of the financing instruments were available at any level so possible gaps or failures in financing remained unidentified. The EU Council drove the analysis on the CCS in a “context of current economic and social crisis on the one hand, and the political reflection on the sectors’ potential for growth, job creation and social welfare as well as its contribution to cross sectorial innovation on the other.”

An overview of funding models.

The Open Method Coordination (OMC) working group appointed by the Council analysed various funding instruments, ranging from self-finance and public support measures to private financing, and developed a Good Practice Report. The intention of this article is to provide an overview of those instruments in relation to to design.

The public support measures feature grants, direct financial contributions to increase the competitiveness of certain sectors, and vouchers, documents that entitle the holder to a payment or a free product or service. A number of EU Member States have put in place creative or innovation voucher schemes (i.e. aws Creative Industries Voucher in Austria). Traditional support measures like tax incentives (deduction, exclusion or exemption from a tax liability) coexist with other innovative forms of public funding such as repayable contributions, successfully implemented by GRUP FOCUS in Spain. Finally, a number of public organisations across Europe offer a diversified portfolio of funding instruments; they are ‘one stop shops’ like Creative England (UK), Cultuur & Ondernemen (NL) and Hamburg Kreativ Gesellschaft (DE).

Once the public support is explored, commercial funding options are also available for CCS, the debt finance in which a company receives a loan which will be repaid. Loans are indeed the first option within this chapter and some examples are Arts Impact Fund and Creative England Business Loans in UK or Cultuurinvest in Belgium. A subtype are the micro-loans tailored to micro-enterprises, which are particularly relevant if we remember that 99 % of all start-ups across the EU are micro- or small enterprises. Less common debt finance instruments in these sectors include overdraft or credit line, invoice factoring, leasing or hire-purchase.

More prevalent in the Creative and Cultural Sectors than one might think, equity finance methods allow a company to issue shares of its stock and receive money in return. Vækstfonden – Venture Capital and Equity Fund (Denmark), VC Fonds Kreativwirtschaft Berlin II (Germany) and the Creative Industries Fund (Portugal) are examples of venture capital, one of the more popular forms. Business Angels also provide funding and business management experience to creative and cultural start-ups, like the Spanish Business Angels Scheme for Culture (ACCME’14). When an initial concept needs to be studied, assessed and developed, seed capital funding can provide the funding.

Crowdfunding, an increasingly popular instrument consisting of attracting small amounts of funding or donations from multiple ‘backers’, allows innovators and entrepreneurs to use social networks to realise their projects. A specific project on crowdfunding for the CCS has been developed by the EU and will be the topic of a future article. The main types include: peer-to-peer lending, equity, rewards, donation, profit sharing/revenue sharing, debt-securities and hybrid models.

Guarantee schemes form the risk mitigation schemes, an agreement under which a third party agrees to be directly or collaterally responsible for the obligation of a first party. The aim of guarantee schemes is to stimulate investment in CCS by sharing the risks of investors. Both public guarantee schemes and public-private guarantee instruments can be found in these sectors, like the CREA SGR in Spain or the IFCIC in France, as well as the Creative Europe Loan Guarantee Facility created by the EU.

Finally, the creative and cultural sectors also use other alternative forms of funding which are direct investments, sponsorship or patronage/donation. While the sponsors receive something in return for their support (directly or indirectly), the donors expect no direct benefit from their donations. Sponsors might also determine the form and the content of the production while donors usually receive indirect benefits from the promotion. Finally, public-private initiatives direct private support towards specific objectives through the introduction of fiscal incentives, matching grants and the involvement of private companies.

Conclusions and opportunities for BEDA members

The conclusions presented by the OMC working group point out that despite the important differences between sub-sectors, funding across sectors and interconnecting the mentioned schemes are increasingly popular among the cultural and creative sectors. On the other hand, CCS must face challenges when trying to access finance such as fragmentation of financial instruments, informational asymmetry, financiers’ concerns and various unresolved issues regarding IP.

BEDA is using its position at the European level to reflect on the challenges encountered by designers while looking for funding. Our clusters on Membership Benefits and Design&IPR are working on these challenges, examining design remuneration methods and IPR collection instruments in Europe. A new cluster on Business Models is being prepared by Ornamo to specifically tackle the finance access challenge. The purpose is always to collect valuable data for our members and the design sector. If your organisation is interested in these topics or has knowledge or expertise to share, do not hesitate to contact us to join one of these clusters.

NB: The information used in this article is obtained from “Good practice report – Towards more efficient financial ecosystems: Innovative Instruments to facilitate access to finance for the cultural and creative sectors (CCS)”, presented by the Open Method Coordination (OMC) working group in November 2015 within the Work Plan for Culture 2015-2018.

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