Growth opportunity for creative industries from venture capital, study finds

There are “exciting opportunities” for increased investment in creative sectors through venture capital and other forms of growth finance, a study has concluded.

A new report published by the Creative Industries Policy and Evidence Centre (Creative PEC) says growth finance should be reimagined to boost the creative economy and support the UK government’s growth mission.

The Growth Finance for Creative Industries report, published today, used data platform Dealroom to analyse 4,540 venture capital and angel investor deals in creative businesses.

It found 85% of investments in the creative industries since 2013 were made in IT, software and computer services, compared with 3% of investments each in design, advertising and marketing, and film, TV, video and radio.

The figure for music, performing and visual arts is 2%.

Dealroom data also revealed that the overall share of investment in creative industries firms outside of non-IT, software and computer services, as a share of investments made across all UK sectors, fell from 7% in 2013 to 2.5% in 2023.

The report adds that growth finance in the creative industries is heavily concentrated in London and the South East, with 63% of all investments made in these two regions.

This compares with 11% in the North of England, 5% in the East of England, 6% in the South West, 5% in Scotland and 2% each in Wales and Northern Ireland. 

The research also found investment tends to be directed towards firms within creative clusters, with 92% of all investments made in the 55 clusters identified by DCMS and 57% of all investments going to firms in creative microclusters. Only 5% of investments were made outside of creative clusters and microclusters.

“Where does this leave businesses in areas like film, TV and radio in, say the Midlands or the North of England, which otherwise have a high potential to grow?,” commented Professor Hasan Bakhshi, Creative PEC’s director.

“Policymakers are right to identify access to growth finance as a priority for creative industries policy support, but developing policies is impossible without detailed data on investment trends. There are few other areas where systematic reporting over time is more vital.” 

Finance opportunities

The report says other instruments in debt or equity could be better targeted to meet the specific needs of creative businesses.

It highlights intellectual property-backed forms of finance, impact investing and community forms of finance as other channels that can “address the limitations of venture capital and allow sector and geography specific solutions to help creative businesses grow”.

To harness these opportunities, the report calls for links and understanding between the creative industries and financial services to be strengthened. It says this would also help finance providers understand the nature of creative businesses and have access to data and knowledge they need to make informed decisions.

“Supporting investment readiness in creative businesses can help to build demand for capital, eventually bridging the UK’s regional inequalities,” said Josh Siepel, research lead from the University of Sussex Business School.

“At the same time, the creative industries will benefit from closer linkages with financial services providers, helping to drive innovation and new forms of finance that can unlock growth for creative sectors and businesses.”

‘Growth-driving’ sector

The release of Creative PEC’s latest report coincides with the government identifying the creative industries as one of eight ‘growth-driving sectors’ in a new industrial strategy.

Chancellor Rachel Reeves: “We have some of the brightest minds and greatest businesses in the world, from the creative industries and life sciences to advanced manufacturing and financial services”

The Invest 2035: The UK’s Modern Industrial Strategy will aim to attract international investment into sectors deemed as offering the highest growth opportunities for the economy.

By featuring as one of eight growth areas, the creative industries are expected to form a key part of the government’s economic plans.

The strategy commits the government to leveraging the UK creative industries’ global comparative advantages “by unlocking private investment, boosting exports and developing its highly skilled workforce”. 

The strategy was unveiled at this week’s International Investment Summit.

Speaking at the launch of the strategy, Chancellor Rachel Reeves said: “We have some of the brightest minds and greatest businesses in the world, from the creative industries and life sciences to advanced manufacturing and financial services”.

Caroline Norbury chief executive of Creative UK, said: “Placing the creative industries as a priority sector in the UK Government’s Industrial Strategy is a great opportunity to grow the existing £125bn GVA contribution the creative sector already makes.

“With ambitious approaches to using public investment to further unlock private capital and philanthropic contribution, returns for the UK economy can turbocharge growth and drive innovation.”