24 MusicWeek 20.04.12 VIEWPOINTDAVID GLICK
ON THE EDGE OF REASON J
Founder of venture capital group discusses UK creative sector’s need for access to finance
FINANCE BY DAVID GLICK
ust as every artist’s success this year is dwarfed when compared with the Adele phenomenon, just about everything in the investment world
pales into insignificance compared with Facebook’s $100bn IPO due to take place this year. And yet: 2012 is shaping up to mark a turning
point in the music industry’s attempts to improve access to finance for start-up and growing businesses. For those of us who operate at the cusp where
the creative industries and the investment community meet, this is a breakthrough moment. Six years ago I launched Edge Performance
VCT, a vehicle for raising investment into the entertainment and media sector whilst allowing our shareholders to utilise the tax breaks afforded to venture capital trusts. I did so for two reasons. First, I’d been an
investor in (non-entertainment and media) VCTs and had been disappointed by their returns. Second, as an entertainment industry lawyer and corporate finance specialist used to trading in intellectual property, I knew there were major opportunities which were being missed for lack of finance. It was interesting to see the scepticism with
which our launch was greeted by both sides. In the investment community there was the
usual raised eyebrow at anything which didn’t focus on “real” investments like manufacturing or property; on the music side there was an air of bemusement with a general suspicion that this must be just another way for rich people to avoid tax – as unfortunately some of the Government’s well- intentioned attempts to support the UK film industry ultimately turned out to be. Since then we have worked hard to win the trust
of both sides and Edge Performance VCT is now the biggest VCT in the UK having raised over £114m. We have invested in hundreds of concerts and live events, as well as intellectual property, mobile apps and digital marketing technologies. Thanks in part to Edge there is now a much
greater understanding among investors of the benefits of investing in intellectual property.
RIGHT “More to be done”: Glick (right) says Ed Vaizey MP (left) is “pushing the view that the creative industries need greater access to finance”
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“For those of us who operate at the cusp where the creative industries and the investment community meet, this is a breakthrough moment” DAVID GLICK, EDGE GROUP
Yet there is still so much more to be done. One
significant development was the arrival of Ed Vaizey as Culture Minister. He clearly recognises the importance of the creative industries not just as a cultural force, but also as a driver of economic growth. He recently gave the opening address at an Edge event for investors and many there were impressed by his understanding of the importance of our sector, his pragmatic and focused approach. Vaizey has been one of those voices in
Government pushing the view that the creative industries need greater access to finance. I've personally joined the Creative Industries Access to Finance Committee to help with policy for our sector. There are now at least three tax breaks for investors in growing companies which music companies can access (see below). None of these vehicles are specific to music, but
they are there to be used and music certainly needs them. The video games business has persuaded the Treasury that it should introduce a specific tax break
for that sector and no doubt some in music are considering lobbying for the same. I believe such specific measures are inherently
problematic. Certainly the lesson of the film industry is that such specific tax breaks can be abused. Far better to introduce a general dispensation for investments in intellectual property regardless of the sector, and to make sure in doing so that our creative talent remains based in Britain, generating jobs, income and tax for the UK. For the moment with a variety of Government-
supported investment opportunities open to growing companies, I believe a priority is education within the music industry to help businesses access the funds which are available. The challenge for all of us is to make the most of the opportunities we now have.
David Glick is the entertainment industry lawyer turned investment fund manager who founded Edge Group, the specialist entertainment and media investment and corporate finance house
THE PROBLEM For years major record companies were the main source of growth capital in the music business. The huge strength of the CD business enabled the majors to effectively bankroll much of the music industry. They supported new artists (even on the basis that just one in 10 would succeed), they supported indie labels, they helped support a whole infrastructure of service companies. And then the music business hit the
buffers of rampant digital piracy, the cherrypicking of album tracks enabled by iTunes and collapsing retail prices.
MUSIC’S CREDIT CRUNCH CLOSING THE FUNDING GAP IN CREATIVE BUSINESS Over the past three years this music
industry “credit crunch” has coincided with the wider malaise in the UK economy which has made banks more reluctant to lend to smaller businesses. For creative businesses which have never been regarded as a particularly good risk by a conservatively- minded finance sector, the effect of this triple whammy has been devastating.
THE SOLUTION? There are now at least three tax breaks which may help close the funding gap faced
by music companies. The Venture Capital Trust structure is
used by funds – such as the Edge Performance VCT – and offers investors a 30% income tax break on investments, ie a tax payer puts in 70p and the Government effectively makes it up to £1, and tax-free dividends and tax-free gains, as long as shares are held for five years. Typically VCTs make investments in a range of £250,000 to £2m (soon to be increased). The Enterprise Investment Scheme is
mostly (but not only) used by groups of individuals investing in a single company
rather than through a fund structure. This offers the same 30% income tax break and tax-free gains as a VCT, plus inheritance tax benefits. EIS schemes typically run in a range from around £150,000 to £2m. Finally, and the newest addition to the
slate is the Seed Enterprise Investment Scheme (SEIS) aimed at much smaller companies which offers a 50% income tax break but is restricted to total investments of £150,000 or less. This limit is far lower than other schemes, but could be very useful for companies set up to exploit individual tours or releases.
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