What is the best way to fund digital innovation? That is one of the key questions that 4iP needs to test over the next couple of years. We are setting up 4iP with a broad remit: able to fund anything from small development grants through project funding / digital “commissions” and even equity funding in the form of seed capital.
I should declare my background at this point. I work in Channel 4’s Corporate Development group, which focuses primarily on investment and acquisitions. I’ve been working with “new media” businesses for about 15 years as a consultant, entrepreneur, banker and in development roles in media companies (so I’m not sure this stuff is so “new” anymore!). All of this means that I have to admit to a bit of a “commercial” bias.
Back in 2000 the answer to funding was simple – go out, raise some VC funding, and build a business. Of course, not all of us succeeded at that! Even so, the basic concept of taking an idea, creating a management team, developing a business plan and taking in investment for equity is a sound idea: with a company established and a good management team, equity type financing gives the flexibility to change and adapt the business as it develops.
In comparison, a commissioning type structure (as an example “go away and develop/deliver this particular project/piece of content”) does not give that flexibility (unless you have a very understanding project sponsor) but can act as a catalyst for a business: delivering one piece of successful content can lead to further “commissions” – think of the growth of the independent TV production sector.
With 4iP we are going to be able to experiment with many different types of funding – the critical output is that we not only deliver some great digital content and services that inspire change in people’s lives, but also that we create some innovative businesses that will go on to grow, create jobs and sustain the UK’s position in what is an increasingly global digital economy.
Ed Lea on Wed, July 23, 2008 at 3:55 said:
I think the answer depends on the project/business you are trying to help, so I can only really speak from my point of view (as a web based start-up). The chances of making it on your own are slim. This implies that there are skills gaps in every young business, whether that is product development, PR and promotion, legal and accounting issues etc. A fundamental way to help start-ups is to recognise that skills gap and ask whether the “funding” party can effortlessly help in that area. So partnering with a web development agency in return for equity could be just as successful (if not more so) as attracting angel or VC money in order to pay for those same skills.
Having said that, cold, hard cash essentially translates into any skills gap as it enables you to buy in that expertise. If your skills gap was in the marketing area, even if you partnered with a “funding” party from the marketing industry, you would still need cash to buy the advertising inventory (for example).
For me, the perfect combination would be:
1. An organisation that fills certain skills gaps in my business. So marketing and promotion expertise and reaching creative audiences.
2. Has experience with the audience my business is trying to reach.
3. Some cash investment.
A little of each, rather than a lot of any one would be more successful. I’m not sure the old (2000) model of funding works so well any more, that’s why you see VC’s getting creative with programmes like Y Combinator and Seedcamp, and other programmes like Fast Forward by Holtzbrinck and Quick Start by CRV. 4iP also looks like it has the right approach to funding… we’ll see!
Darren Cockburn on Fri, August 01, 2008 at 9:08 said:
Thanks Ed - I agree with what you say - also cold hard cash makes sure you get the services you pay for. There is always a danger that if, for example, you partner with a web development agency, that the work for you is prioritised behind that of “cash customers”. This means you have to make sure both parties are very clear they share the same vision and commitment.
TimHood on Thu, August 14, 2008 at 10:32 said:
Hi Darren
A very encouraging post.
A lot of digital media start ups that are genuinely innovative in the public service realm face two problems, both of which relate to the time it takes to get initial traction (without which no VC these days will touch you).
The first is that it takes a year for public sector clients to understand your new service and pluck up the courage to take the risk of paying for it. During this time the start up entrepreneur needs to live without income. This is obviously a problem in any sector, but it is especially the case with public sector start ups selling into a risk averse market with a ponderous, multiple-stakeholder decision making structure.
The second problem compounds the first and is specific to digital- the pace of innovation and the general lack of defensibility. You can’t just plug away at business development once you have a good prototype or even fully beta-tested product. You need to invest in integrating the latest applications, otherwise you face the real threat of being leap-frogged by a new copycat entrant.
So, an unusually slow purchasing environment combines with an unusually high imperative to constantly re-invest in innovation.
I think this highlights a specific need for participative democracy platforms, local community platforms and other digital products that act as an interface between government and the public. Ideally, there needs to be a fast track fund, with regular awards (even three months can seem like an eternity) that can help promising products keep developing while they are waiting for revenue.Or a way of working with the public sector to speed up decision making- although how you could achieve this, god knows!
Rick Waghorn on Thu, August 21, 2008 at 11:14 said:
What’s the best way to fund digital innovation?
Quickly, IMHO.
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