What is Ideas London?
An innovation space funded by Cisco and University College London for early stage tech start-ups.
What are the differences between creative tech and other creative industries?
I feel that the creative business model and the business model for tech are actually very different – the people look like each other and are educated to a similar stage but have different focuses and priorities.
Most creatives are there to produce a piece of work that demonstrates their creative talent.
Tech is about finding what customers want, and finding a product thatsolvesaparticularproblemforthatclient.Soit’saniterative,
ongoing process where the creativity is in the problem solving and notnecessarilyintheendproduct.Soit’sbeeninterestingtosee
howinLondonthedominantaccesstothefinanceindustryenjoyed
by the creative sector is now being superseded by the tech sector, with the creative sector being squeezed out.
In most creative businesses, the number-one guiding principle is to create something that will get critical acclaim, that will get recognition – and in marketing terms, to create a brand which will allow them to get more work. Only once they get established at that, which for most creatives is mid-career, five to ten years in, do they start to look at it from the perspective of a business, i.e. have I got anything here that can live outside my personality and creative talent and is repeatable, replicable and scaleable.
The big difference with tech came in the mid-noughties and in London in 2010/11, when companies decided not to be focused on justsellinglabouronaprojectforathirdparty,buttodeveloptheir
own products and then sell those products until the company has an independent life from the owner and the product is scaleable. To make money you need to sell it to millions.
What’s happened in tech is that they’ve taken some of the best
creativetalentsandputthemintotechbusinesses.Withmyinvestor
hat on for people who want to get to incubators and accelerators, we haveaphrasewhichis‘techenabledbusinessmodel’.Thepurposeis
things that change the nature of how you deliver value to your customers.
Weareinterestedinpeoplewho,viadoingaYouTubechannel,change
the very nature of the thing they are producing and selling.
Which creative tech platforms are you working with now?
Several, including We Are Colony and Filmdoo, which are all
around the on-demand distribution and creation model in content.
Weprobablyhaven’trealisedyetjusthowrevolutionaryNetflixisand
how it has changed the nature of how people consume and interact with content.
What is happening in the creative tech arena right now?
The FANGS – Facebook, Amazon, Netflix, Google –are still acting
like start-ups, investing in moonshot innovation, telling all their staff to keep thinking about the innovative. They manage to keep entrepreneur capitalism as their model, rather than making money off existing assets, which is called rentier capitalism. Most creative ventures are still using the rentier capitalism model, i.e. I produce a product, I protect it and then I rent it out – in an age where entrepreneur capitalism means getting an ongoing relationship with the buyer and the client. Innovative businesses today are asking how they can use the premium model of hooking the client, establishing a long-term relationship and then having a walled-garden approach where they can extract value from them over a long period of time.
Also we are moving to subscription models. The Guardian group havegotcashflowforanother18months–theywillsurelyhaveto
introduce a subscription fee.
WewereaheadofthegameintheUKwiththeBBCiPlayer,but
that is an example of how difficult it is when you are trying to do innovation but also preserve an existing business model, which was free broadcast over the air. The BBC should have opened iPlayer up toeveryone,includingindependents.Theyshouldn’tevenbethinking
about commissioning content. Netflix uses an algorithm to gauge
what the customer wants, and buys that. The biggest problem facing the creative sector at the moment is the impending death of the advertising model, which will affect how things are consumed that are currently free. This is due to ad blocking, the spread of content, the inability to corner an audience, the plethora of distribution channels, andpartlyalsoourresistancetoadvertising.It’sinterestingthatTV
has come back because the big brands can cut through there.
Wehavelotsofstart-upscometousandsaytheyneedtogetearly
traction and at some stage they need to work out what paid acquisition routes work, and most of them come back and say the best is still Facebook. Facebook is very cost effective above any other platform.
Thedifficultyyou’vegottryingtocomeupwithnewplatformstryingto
findanaudiencetotrackandsellthingstoisthatyou’renotfighting
oldmedianow,you’refightingthegiants’newmedia.
If you look at apps, it is a designer medium. The most expensive person to employ now is the head of product, i.e. the kind of person that can design quickly and creatively in response to data.
Another example is data-driven design. In the commissioning space this is like the Netflix model, i.e. use an algorithm to work
out what the data says then create a product out of that or curate contentinreactiontothat.Butit’safinebalancebecauseyoucan’t
be too reactive; you have to have faith that your design will work
rather than constantly changing it.
In games it has been difficult to cut through the noise – there seemstobelessmid-marketingames.It’stheonepercentthat
become enormous hits and everyone else loses money. The same games stay at the top of the charts. Indie game developers have found it much more difficult to make money than seemed likely a few years back. The attention economy – a few years ago it was thought
there would be 30 to 50 apps you would use every week. As it turns out,there’sabouteightThere’sjusttoomuchnoise;it’stoohardto
make an informed choice.
One of the dominant use cases for mobiles is no longer ads but chat, and there is loads of chat commerce. Chat commerce works in thatyouplugintosocialmediaandyouuseaninfluencermodel.If
you have a big following and you plug a product in your social media stream you will either get a discount for yourself or you can pass the discount on to your friends. This has worked particularly well with wealthy women. A start-up doing this has become big in nine months.It’ssomuchstrongerifafriendsaystoyou,‘I’vegottickets
forxata20percentdiscount,’thanitistouseabannerad.
Then there is Machine Learning AI – for example, Dukedeck.
Dukedeck generated music using AI, which is outside copyright fees. There is another start-up doing the same for visuals, i.e. if you want to produce visuals for a website or poster you can get one designed using publicly available images that can be used outside copyright. Machine Learning AI will target things that are one-off and expensive,andoneofthosethingsisusingcreativetalent(soit’s
designedtoputcreativesoutofajob).In50yearsitwillbeonlythe
premium market that uses humans for these things.
The desire of consumers not to have to pay for content is very strong, and the creative sector is still struggling with this. People willpayforlabourandservicesbuttheywon’tpayforcontent.They
willpaytoseeyouperforminyourband;theyjustwon’tpayforthe
music – or if they do pay they will want to rent it for a low amount.
Can you name a couple of example clients?
Tech Savers and Sound Labs, producing interactive toys. The Eet Group.
We’vealsolookedatacompanywhichwasopeningupthesupply
chain and getting rid of the middle man, to enable designers to do a small production run of clothes at a much cheaper rate. The model used tech to remotely programme the knitting machines that produce the cotton and the patterns, allowing a designer to design a shirt, send it automatically to the knitting machine in Bangladesh,
produce the clothes without hand-programming the machine, and send you back the shirts, reducing the cost of that production by one half or two thirds. This frees up the designer to be more creative and not have to always go with big brands like Topshop. They had lots of investors around them and they tried to go with another consortium of VCs and angels so we lost out. I thought they were classicdisruptivetech,butforsomereasonit’snothappeningyet.
How do you get involved in companies/what are the different stages?
In Capital Enterprise we have 75 members, including spaces for the creative sector and universities including London College of Fashion and Ravensbourne. I support them to create programmes and get funding so they can offer their services to the creative sector, includingprivatesectorandgovernmentfunding.That’sthebulkof
the work I do.
The only category where we do the direct service is around investment, that is the London Co-Investment Fund. We decided
that it would be good if companies had an aggregator to advise them,tidyuptheirproposalsandintroducethemtoinvestors.Wedo
that at all stages. At least 50 per cent of the clients we see would have been referred by one of our members, i.e. LCF or an incubator/
accelerator.
Wearethefirstpeoplethatlookthroughyourbusinessproposal
with the eyes of an investor rather than the eyes of a producer, partner,advisororcustomer.Wethengiveyoufeedbackandsupport
to meet the not necessarily logical criteria of an investor who is putting his/her own money or that of their institution in a business with a view to selling their shares for a profit. Sometimes you can come to us very early and we might say you are six months away, you need to get your team together/do your first product, etc.
To give a bit of context, only one per cent of businesses in the Statesreceiveventurecapital;intheUKitisaround0.4percent.
IfsuccessiseitherfloatingontheStockExchangeorbeingbought
up,75percentofbusinessesthatfloatorgetboughtnevertakeVC
support. So you are much more likely to be a scaleable business
that someone will eventually buy if you do take external support or equity capital. You have to then go for growth.
Last year there were around 1,400 companies in the whole of the UK that received some form of investment from angels and between 300 and 400 that received funding from VCs. The irony is that those kindsofcompaniesgenerate30percentofallthenewjobsinthe
UK.Themajoritywillfail,andfailmorethanonce.Mostofushave
not been brought up to fail fail fail and then succeed. Often the key is not to mitigate your chances of failure but to increase the chance that you could lift off.
Business plans are not as important as you think. I need to know:
will external finance make a difference, and if so, how; will you at
some stage be able to make a return for that investor and if so, how?
So there are different stages and different proof points you need to go through.
Faithpitches:you’vegotanarmyofpeopletogetherwhobelieve
inyou,andIknowthatthereareveryfewfacts.It’saperfectactof
rhetoricwhereyoutrytomakemepartwithmymoney.Wedothis
littletrick;wesaytopitchers:imaginethere’salonglostunclewho
hasleftyou£250,000buttherulesareyoucan’tinvestinyourown
business. You have two choices. You can either invest in one of the otherstart-upsyou’vemethere,orinvestinaone-bedroomflatin
the Haringey ladder that has doubled its value every year for the pastsixyears.Whohereisputtingtheirmoneyintheflat,andwho
will invest in another company here? Sit down if you would invest in property. Most of them sit down.
With a faith pitch it’s the team – what’s your experience and
credibility. If you’re inexperienced then you will have to show me
more. First thing to do is build your team and refine your offer.
Whatisyouropportunityhypothesis,howwelldoyouknowyour
customer, the choices they make every day? How well do you know your competitors? You have to be able to come to me with a simple hypothesis that says we will solve this problem for this client and by doing so we can build a company that is scaleable. Every hypothesis hastohaveatest.ThenIwillask:what’sthetest?Whatdoyou
need my money for, to test the hypothesis? And in doing so, what do I get, what do you get?
Further down the line it’s looking at the product: does it work,
does it deliver value, does it stand out? Your market traction – what evidence do you have that customers love you? And then your business model – how do you make money? Sometimes we draw out little maps of every step before the customer has to pay. Once we had 18 steps in that map – can you see the problem with that? Eighteen thingsthatcouldgowrong.Whatyouwantis:Idothat,theypay.
Then the type of market, so some investors will only go for companiesthatcangoreallybig–there’snopointinatenmillion
exit at best because they wouldn’t make any money for their
infrastructure costs.
Then we look at momentum, which means who else has invested in you? Give me something that gives me confidence that smarter people than me are using you, investing in you.
The later stage it is, the more money you are looking for, the more evidence I need.
Once we get involved we will spend some time doing due diligence on you.
Do you invest yourselves?
Yes, we do.
You give us a pitch deck, info on your team to check out, a demo of the product, and we look at our own data on that space. Then we make a decision based on a traffic light system. Red is either it’stooearlyorit’snotforus–whichisthemajority.Thenwemight
suggest an accelerator. Amber is we like the team and the space is interesting, the product is OK but the pitch deck is awful. This is a problem because the pitch deck gives us clarity and focus, and withoutthosehalfthegameislost.WedidDDon1,086companies
lastyear;weinvestedin27ofthemandwegotanother90investment
from elsewhere. So out of that 1,086 there were about 250 that were greens,another250thatwereambersandtherestreds.There’sa
one in five chance roughly that we can get you to investment.
Peoplethinkit’sallaboutthesizzlebutit’snot;it’saboutthesteak.
What would your advice be to a creative tech start-up or one that’s trying to work with creatives?
Keep on learning, keep your mind open. The skills you have now are probablyinadequateforwhatyouwillneedintenyears’time.Make
yourself the expert in your field. To all creatives: stop falling in love with your own artistic talent, your own creative vision, and try to think more like a tech business.
Don’t fall in love with your own product, fall in love with the
problem.That’saquotefromBradFeld.
An example of a blank Investment Agreement (p.294) can be found in the Appendices at the end of this book