Nesta reveals reluctance to invest in creative trades

Venture capitalists and private sector investors remain unconvinced about the value of investing in creative industries and designers continue to struggle for funding, says a report out this week.

The report, sponsored by the National Endowment for Science, Technology and the Arts, claims investors continue to underestimate the size and contribution of creative businesses and prefer to invest in more traditional industries such as pharmaceuticals.

According to Nesta trustee Janice Kirkpatrick, the problem lies with a lack of objectivity, coupled with a lack of understanding on the part of investors. ‘The evidence is there, creative industries are really giving growth, but [investors] are still reluctant to get a grip on what we do,’ she explains.

Design Council deputy chief executive Harry Rich says this ‘apparent reluctance to invest is perverse’, and accuses investors of ‘outdated prejudice’.

‘Design Council research shows that 74 per cent of the UK’s rapidly growing companies increased their spending on design activity last year. I would have expected investors to take their lead from these successful businesses and base their funding decisions on objective facts rather than outdated prejudice,’ Rich explains.

Bruce Wood, director of Different by Design, an organisation that works with Advantage West Midlands, in funding Staffordshire product designers, agrees that private investors are wary of the creative industries.

He says the problem lies with both parties – investors are reluctant to fund businesses that are perceived as a greater risk than more traditional industries, while creative businesses fail to talk to investors in a ‘business-like’ way.

Wood believes designers are too focused on ‘the passion and the idea’ and need to realise that investors are in the business for ‘hard cash reasons’.

‘[Designers] need to be more business-like and understand what investors are looking for. That involves [developing] serious ideas about how to use the money, clear plans for the future and a willingness to grow in partnership with other people.’

According to the report, which polled 100 key investors, the sector is perceived to sit below pharmaceuticals, insurance and pensions and construction industries in terms of the contribution it makes to the UK economy.

In fact, the reverse is true, with creative industries contributing £11.4bn to the UK’s balance of trade, according to Trade Partners, well ahead of construction and insurance, and twice that of the pharmaceuticals sector.

Yet only 22 per cent of investors said they would be likely to put money into creative businesses, compared with 42 per cent willing to invest in pharmaceuticals.

UK creative industries employ almost two million people and the sector has grown by an average of 8 per cent between 1997 and 2001, compared to an average of 2.6 per cent for the economy as a whole.

Meanwhile, Nesta this week announced the first group of 30 arts and design graduates chosen to join the Graduate Pioneer Programme. Graduates will take part in a three-week course, after which up to 15 of them will be awarded grants of £35 000 to start their own business.

Graduates were asked to submit their business ideas – shortlisted concepts include a memorial service that supplies trees enriched with human DNA and a credit card that allows users to vote on the ethics of the products they purchase.