a shared agenda...

[George Falconer]

hi - attended the very informative and engaging channel 4 digital commissioners "gig" at the corinthian today. one of the audience asked how - in relation to 4ip - the three main scottish investment partners of this project can work together, as they appear to work towards widely differing artistic / commercial / innovation objectives. i didn't get (take!) the chance to say - its pretty simple!

scottish enterprise, scottish screen and channel 4 certainly share a common goal - to create, grow and sustain innovative, exciting, global companies.


George Falconer
Scottish Enterprise

[Scottish Enterprise]

After taking some advice, not all of Scottish Enterprise - or other public sector funding - need be matched. Scottish Enterprise has three funds (Scottish Seed Fund, Scottish Coinvestment Fund and Scottish Venture Fund) which do require matched funding but they are only a small part of SE's product suite, accounting for c10-15% of SE's annual budget. These three funds were created for a very specific reason, namely to increase the amount of risk capital (both public and private) available to high-growth companies, but most importantly to this discussion they were deliberately designed to be used to leverage an increase in private sector investment in Scottish businesses.

George Falconer
Digital Media

[Stuart Cosgrove]

My thoughts with less typos:

Richard raises a really 'distinctive' point and not a general one - its a point he's made consistently on 38mins over a year now - why are public funds defined in a 'match funding' way? Why does a great idea that delivers public value have to have another commercial investor?

I think its a really legitimate question and I really don't know the complete answer. I know that the SE 'Co-investment fund' and the 4ip-related Digital Media Fund it was for issues such as European state-aid which prevent large scale public investment in a private company that could technically constitute unfairness in the market. That is not true in say arts funding where Arts Councils have had historic 'exemption' from those requirements and can invest in a project in the form of grant-aid. The other key exception European law the de-minimis criteria which means that an amount can be invested below a level which can 'skew' the market. This small scale investment does not require the private sector to 'match'

I think Richard raises an important theoretical question - why is match funding deemed to be so essential?

What if every poetry fan in the world were to gift their time to create the greatest online repository for poetry in the world, a creative wikipedia, all time was donated free, but the system had core-costs and after a period of a few years grew to such an extent that its was 'monetisable.' The 'free' market may consider this too long term and an unfamiliar business model. Tom Loosemore of 4iP said he regretted how few ideas based on this unique 'volunteerism' and 'purposeful crowd sourcing' we have received so far.

[Scottish Enterprise]

Thanks for your challenging and forthright views on this matter Richard and Stuart. I'll look into this and get back with a more definitive answer to "the match".

[Richard Saville-Smith]

Thanks George. Do you really mean "always require a match". We kicked around this whole issue in http://www.38minutes.co.uk/profiles/blogs/startups-dont-be-funny-its and that still seems to be a decent debate. Matching is not a fundamental concept, it is a approximate device to ensure state aid does not distort markets. In particular, amounts under 200,000 euros in any three year period are exempt from matching. And, of course, the rules on the Seed Fund were changed a couple of years ago so that the matched funding could come from any source and not necessarily bona fide commercial investors.

And this is the nub. Currently matching remains in place for deminimis investments. Why? Because it is just too difficult for anyone to address? Financial regulations, governments, Europe can be changed if they need to be. The impossibility of funding start up creative enterprises (particularly at the arts end of the spectrum) is common to France, Germany, all of the other European countries. I don't believe the rules need to be changed, but if they did, should we not at least try?
If the existing system prevents start-ups getting the cash they need to gain traction, in preparation for second round commercial funding, then we (as a nation) are all the losers. The fact that matching is not actually necessary in, say, the context of the Seed Fund just makes adherence to this concept a bit strange.

[George Falconer]

Hi Richard - with the Digital Media IP Fund (a partnership between Scottish Enterprise and Scottish Screen) our main ambition is to attract new investors who will come in, share the risk, and exploit the project to the max. That's why we are very pleased Channel 4 are our first co-investor so far - an organisation that is commited to working with people, will shape the idea and bring it to us with a much higher degree of success. We've worked with Channel 4 many times over the years, and our collaborations have always pushed the envelope. Now - in terms of a proposal that doesn't have the Channel 4 "feel" - this can still approach any of our investment funds, (subject to the t's and c's detailed on the relevant web pages) These investments will always require a match. I'm afraid these are the rules we must adhere to from european, government and financial regulators in terms of investment.

[Richard Saville-Smith]

Not for a minute was I suggesting that 4iP was the only funding option in town. I was simply responding to George's take on my question - honestly and fairly. As you (Ewan) suggest, if an idea hits the 4 button it will almost be guaranteed to fulfil the investment criteria for SE or Scottish Screen. The inverse does not apply. Which leaves all these other funding guns, who exactly are we talking about in the context of the creative industries? There are start up funds which won’t pay salaries, there a schemes where people throw together code over a weekend, but this all seems a bit unsubstantial. The people with the real cash are the angels and VCs, but they just want a 1,000% return over three years with a decent exit strategy. This is what made 4iP such an exciting opportunity for the creative sector - because it had a bigger vision (on almost every level). I entirely respect what 4iP are doing, my complaint is against the government investment options for the creative sector which still require matched funding – even when there is no fundamental reason why this should be the case. Until the system is changed, 4iP effectively have a veto on pretty much anything in the artistic field.

[Ewan McIntosh]

Channel 4 and 4iP are not the only funding guns in town - good ideas that are not for 4 will find their private finance elsewhere, for sure. Indeed, the Channel's team in Glasgow has often brokered the links for products that are clearly interesting, but not of interest to Channel 4 (as they don't share our values or operate in an area in which the Channel has a previous track record).

Where you bring an idea to 4 that we truly believe in and want to support, you will in fact almost be guaranteed to fulfill the investment criteria for SE or Scottish Screen.

[Richard Saville-Smith]

Hi George, I'm the person who asked the question and whilst the various agencies may share a common goal they do not necessarily agree on how to get there. For instance to be funded by 4iP you have to have "a channel 4 feel" quote, unquote. Is that "feel" the same as the Scottish Enterprise "feel" - I don't know, but I doubt it. So you might be funded by Scottish Enterprise as I was and then still fail the channel 4 feely test - the result? One less global company!