Capital Matters Consultation Briefing

8/9/2019 Capital Matters Consultation Briefing

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Briefing for the Capital Matters Consultation

Introduction

Mission Models Moneys (MMM) vision is to transform the way the arts use their resourcesto support the creation and experience of great art.

Core to this vision of transformation is building financial resilience1.

Since 2007 MMMs research has established that thousands of arts and culturalorganisations in the UK, critical to both the historical and contemporary cultural canon, areover-extended and under-capitalised. Typified by high fixed costs, inflexible businessmodels and weak balance sheets, many are overly dependent on annual public sector grantsin order to survive.

MMMs current fourth phase of work, which has been running since 2008, comprises a number of strands Each of these strands has sought to make a contribution towards helpingcreative practitioners and organisations become more resilient in response to the primaryresearch findings which emerged in 2007.

For example, through one work stream called expanding the financial toolbox MMM hassought to help creative practitioners and organisations become more financially resilient byencouraging:

recognition of the concept of undercapitalisation and the importance of addressingit;

recognition of the range of financial mechanisms other than grants that can achievecapitalisation e.g. provision of/use of loans and revenue (and risk) sharingarrangements but additional to and not as a replacement for appropriate grantfunding;

investment in building organisational capacity to support delivery of programmes

and associated services; encouraging new forms of revenue generation specifically through activities that

contribute directly to mission (rather than subsidiary trading); seeking recognition among funders of the importance of providing grant funding to

support research and development activity and assist the transition to new ways ofworking aimed at achieving greater resilience.

While we are interested primarily in revenue generation through activities that contributedirectly to mission we are aware of the value of new revenue streams which constitutesubsidiary trading. For example Shetland Arts has purchased a trout fishery with hydro-potential and Impact Arts runs a Christmas tree franchise.

1 MMM is using Mark Robinsons definition of resilience resilience is the capacity to remain productive andtrue to core purpose and identity whilst absorbing disturbance and adapting with integrity in response tochanging circumstances


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You can read about the MMM work streams in more detail on our website atwww.missionmodelsmoney.org.uk, including in the resources section of the website and inthe provocations section of the website where you will find The Art of Living.

The Capital Matters project what is it about?

The Capital Matters project is not simply about financing. However, our hypothesis is thatthe arts and cultural sector could become stronger and more resilient in the future if

creative practitioners and organisations had access to appropriate financial capital andsupport in building organisational capacity. This would underpin:

- development of broader and deeper public engagement;- development of creative content;- progress in the articulation of value;- Developments in management and governance (including new approaches to income

generation like selling existing services online or expanding contract income)2.

We therefore consider that positively influencing the policy and practice of both public andprivate funders and financing organisations and encouraging them to adopt an appropriate

financing and investment approach is a key building block which needs to be in place iforganisations are to achieve greater resilience.

The fallout from the global financial collapse particularly confirmed reductions in theavailability of public sector grant income only increases the need to get to grips with theseissues as a matter of urgency. MMM believes that within this turbulence there is anunprecedented opportunity to build the sectors resilience by creating a forward looking,national policy and infrastructure framework for the longer term. This will help accelerateevolution of working practices and behaviours by both creative practitioners andorganisations and public and private funders and investors. The Capital Matters project has

been designed by MMM to respond to this opportunity.

Capital Matters is a programme with three main elements:

- Research to examine the approaches that creative practitioners and organisations arealready deploying to evolve current business models and/or develop new businessmodels which assist them to build financial and organisational resilience.

- Consultation with frontline creative practitioners and organisations to investigatewhat changes to existing infrastructure support and/or what new kinds of supportincluding changes to public and private funding policy and practice would help to

build resilience.

2Innovation in Arts and Cultural Organisations, Bakhshi and Throsby, Nesta Interim Research Report,(December 2009).

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http://www.missionmodelsmoney.org.uk/http://www.missionmodelsmoney.org.uk/


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- Discussions with public and private funding and financing organisations about howtheir practice supports or inhibits the building of resilience in the arts and culturalsector and to encourage good practice.

Our overall goal is to encourage a funding/financing environment that invests in thesectors long-term health and vitality.

In MMMs view this means providing access to an appropriate range of financial capitalincluding grants, loans, quasi equity, endowments, exchange and barter arrangements,

bond financing and contract income

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It also includes understanding non-financial support needs better. This is necessary toenable creative practitioners and organisations to deploy their existing assets better and todevelop new assets whether tangible or intangible in order to generate more of their ownincome into the future4.The project is being overseen by a task force chaired by Fiona Ellis (previously Director ofthe Northern Rock Foundation and Chair of the NCVO Funding Commission). It is also

benefiting from the input of a specialist committee.

The methodology for the research includes collection of data and narrative informationfrom detailed financial surveys and in-depth face to face interviews with leaders from 3oarts and cultural organisations operating across England, Wales and Scotland. Thismaterial is also being contextualized through a survey of recent funding and finance trendsdrawing on a wide range of data sources.

The result of the primary research will be a set of detailed insights into how arts andcultural organisations are adapting or changing the way they operate and innovating inorder to make themselves more resilient in the future.

These insights have informed the questions we would like to share with you at the end of

this consultation paper.

The project is being financed and supported by The Gulbenkian Foundations InnovationFund, The Northern Rock Foundation, The Scottish Arts Council and Arts Council England.

3 Seehttp://bit.ly/aADLnIfor a longer introduction to this subject4 Tangible assets include buildings, equipment, dance floors etc; intangible assets might include intellectualproperty, brand strength or social capital generated by communities of interest including users, audiences,donors, funders and partners.

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http://bit.ly/aADLnIhttp://bit.ly/aADLnIhttp://bit.ly/aADLnIhttp://bit.ly/aADLnI


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Why is there a need for Capital Matters? Our analysis to date.

Consultations with arts and cultural organisations carried out by MMM in 2007 stronglysuggested that creative practitioners and organisations are both under-capitalised and over-extended.

People working across the arts sector reported to us that:

- Public sector and foundation grants were spread ever more thinly.-

There was pressure to do more with declining revenue funding.- Funding was tied to artistic product so organisations lack resources to invest in the

development of their business model.

The research confirmed that the nub of the problem was as follows:

Insufficient investment in the core of A&COs (arts and cultural organisations) the leadership, management and systems that help to ensure organisations runefficiently and effectively. This lack of investment creates a vicious circle.Organisations lack resources skills, expertise and money to invest in creativeways of generating resources (for example for investment in research and

development and to exploit the intellectual capital generated).5

Amongst our recommendations, designed to address the problem, was:

The setting up of a new underwriting fund (where a sum of money is reserved andcalled down only if needed) to provide creative practitioners and organisations withthe confidence to take artistic risks, develop new initiatives or simply to enable themto weather cash flow difficulties

The 2007 MMM research also confirmed two other important issues:

The need to provide advice and expertise to help creative practitioners andorganisations better understand their finances,

The need to clarify and match the correct funding/financing options with the rightsorts of projects or activities in order to enable organisations to flourish.

Without such matching, investment may at best be unproductive and at worstcounterproductive. To quote Clara Miller, head of the Non Profit Finance Fund in the US:

Its no good accessing investment to enable you to make more widgets if youre

5New and alternative financial instruments : final report for Mission Models Money, catalysing a moresustainable arts and cultural sector, Margaret Bolton and David Carrington (2007).

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making a loss on each one; it simply makes your situationworse

She argues that there is a fixed relationship between mission (programmes), model(organisational capacity) and money (capital structure) with any change in one inevitablyhaving an impact - planned or unplanned - on the others. Action is therefore needed on allthree fronts at the same time to enable non profit organisations, including those who workin the arts and cultural sector, to flourish.

During 2008 and 2009 we have developed our analysis further concerning the difficulties

reported to us in 2007.

Through a consultancy project in the North East of England we have been able to workclosely with a group of building based arts and cultural organisations and funders todevelop a strategy aimed at achieving greater financial resilience.

The organisations we were working with found it difficult to raise funding for core operatingcosts. As a result they did not have adequate reserves and they lacked resources to invest intheir organisation and their future artistic development. Typically this meant they could notdo one or more of the following:

make provision for future spending needs in relation to building and plant; finance adequate rehearsal time;

commission new work and support emerging talent;

invest in improving existing methods of income generation - for example, employing

an additional fundraiser or events person; develop new income generating ideas;

purchase an appropriate share in the IP produced by the artists they worked with;

invest in their organisational capacity to support their work.

Interviews with the organisations suggested frustration and thwarted ambition:

We do what we do but we arent able to grow content and content is all.

And a drift towards a position where it was becoming more difficult to take artistic risksbecause the imperative to cover significant fixed costs demanded conservatism inprogramming.

Although these organisations were cash poor, they held significant assets in the form ofbuildings or intellectual property they had helped develop and they also had access tosignificant social capital through their pool of supporters and donors.

MMM concluded that they could become more financially resilient by better exploiting theirexisting assets and developing new ones. We proposed a number of measures aimed atassisting them to do so, including

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- Grants to support research and development work on collaborative income generatingventures and

- The establishment of a revenue and risk sharing fund providing support for new incomegenerating projects and providing access to appropriate business support.

You can read more about this project in the Resources section called Money on our website.

During 2009/10 we reviewed a small action research project also in the North East of

England aimed at testing whether an injection of capital (in the form of a grant) coupledwith appropriate business support could help four different arts and cultural organisationsdevelop new projects which would enable them to generate more of their own income overthe medium to longer term.

All four projects are about digitisation. The approach taken is one of asset baseddevelopment. Put simply this means building on existing skills and expertise and betterexploiting products and services that have already been developed. For example, bringingpopular off-line products and services online to reach a wider audience and usingtechniques such as up selling and cross selling.

Although it is very early days and some of the projects are still in development, thisinitiative suggests that relatively small capital investments may generate lasting value in arange of ways including financially.

Benefits to this cohort have been:

Access to effective and appropriate business diagnostic skills to identify and refine

market opportunities and a critical pathway;

Development of new on-line products and services;

Development of audiences through social media.

This piece of work suggests the potential of digitisation for some arts and culturalorganisations; it demonstrates that digital tools can be the corner stone or catalyst for somestrategies designed to support greater resilience.

The results of this review have helped us to understand better the key role that appropriatebusiness support plays in helping arts and cultural organisations develop successful newincome generating ventures and the challenge that organisations face in funding thetransition to more financially sustainable ways of working.

Key findings were:

For the organisations involved the capital provided was contributing towards greater

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public engagement; art form and content development; progress in the articulationof value and development in management and governance.

All the business ventures pursued were core to achieving organisational mission.

All the ventures were helping the organisations involved to build new communities ofinterest, extend reach into new markets, build their reputations and articulate their

value.

In summary the new research commissioned through Capital Matters reflects further onthese findings. In Capital Matters we are looking more deeply at how change is effected infour dimensions:

- public engagement;- art form/content development;- articulation of value;- development of management and governance (including developing newapproaches to income generation)6.

And what organisations identify as

- funding and financing options;- attitudinal barriers they encounter and how they are being overcome;- support needs and how these are currently met.

We will be presenting the emerging findings from this new research, which is still inprogress, at the consultation meeting.

Questions for the consultation

Ques 1: What do you think of our analysis is it sound, does it chime with your

experience?

Do you lack resources to invest in your organisation for example, in training and skillsdevelopment for staff or in systems such as finance systems?

Do you lack resources to invest in research and development for new products and services(that could help you generate more of your own income)?

Does the current policy and practice of funding/financing organisations help or hinder youin developing your business model? If so, how?

Ques 2: How are you responding to this environment?

6Innovation in Arts and Cultural Organisations, Bakhshi and Throsby, Nesta InterimResearch Report, (December 2009).

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What are the biggest drivers of change for your organisation in the external environment?

Are you changing how you operate to cut costs? What effect is this having on theorganisation and your activities?

Are you trying to better articulate and measure what you deliver?

Are you trying to make better use of your existing assets/develop new assets (tangible and

intangible) and if so how?

Are you trying to generate more of your own income and if so how?

Did you need investment to undertake this work? If so where did you get it from - yourreserves, a special grant (if so from where), a loan or revenue sharing arrangement or othersource?

Did you access expert advice and guidance in undertaking this work? If so where did yousource it? How would you rate its quality?

Did you have to overcome attitudinal or cultural barriers? Has the culture of yourorganisation changed as a result of this work?

Ques 3: How would you like to see the environment change?

How would you like to see funding and financing policy change? Are there things you needto invest in which are difficult to fundraise for?

Would you like to have access to different forms of finance to help you become moreresilient for example, grants for research and development activities, underwriting or otherloans or revenue (and risk) sharing arrangements for new ventures?

What non financial support would you need to enable you to become more resilient? Is itcurrently available?

Would you like to see more collaborations for example, fundraising for regional arts funds,more collaborative work on public engagement opportunities?

Are there any other interventions you would like to see to make arts and culturalorganisations stronger and more resilient into the future?

Can you identify any examples of funding or investment mechanisms outside the UK (or

from other sectors) that you think could be introduced for arts and cultural organisationshere?

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Documents

Capital Matters Consultation Briefing