FAQ
- What can Design & Creative Industries Fund investment be used for?
- Who can apply?
- What are the geographic limits?
- Is the Fund a grant scheme?
- What types of projects will the Fund address? Are there limits?
- How much can be invested?
- What form does the investment take?
- What are the advantages of the equity route?
- What happens if the project succeeds in generating a new business?
- What happens if the project does not succeed?
- Will I retain ownership of my Intellectual Property?
- Is my IP disclosed during the application process?
- What rate of interest applies to the convertible loans made?
What can Design & Creative Industries Fund investment be used for?
The fund is open to applications from any of the creative industries or SME’s in the North East of England. All investment decisions are taken on a commercial basis. A key criterion for any successful applicant will be a commercial understanding of where the business is heading, and for the Fund a view of where a return can be made on the investment. Whilst the investments are made at an early stage we will be looking for a good track record for commercialisation of ideas, rapid prototyping and market testing.
A Fund investment can be used to address any proposal that moves an idea for a design and creative industries business towards commercialisation. Proposal development in terms of feasibility studies, prototyping and patent exemplification can be supported. The Fund can also address market questions - does the project address real, perceived, future of developing market needs? Funding can be used for product and service development, financing time limited specific projects, or the purchase of fixed assets or working capital
The Fund aims to progress early stage ideas into attractive business prospects capable of securing further investment.
In an existing trading business, an application must be based around a major product diversification or market development with the potential for a step change in the business.
Who can apply?
Applicants must either be an SME or a business intending to form an incorporated SME business, and must be based in the North East of England.
What are the geographic limits?
The Fund is limited to applicants from ERDF Objective 2 areas in the North East of England. Check your postcode at:
http://www.europeanfundingne.co.uk/postcodes/index.cfm
Is the Fund a grant scheme?
The Fund takes the form of a convertible loan and is not a grant. Please refer to Terms and Conditions.
What types of projects will the Fund address? Are there limits?
Any design and creative industries proposition with strong commercial potential is of interest to the Fund. There are some restricted sectors that the Fund cannot support. Most of these are not in the design and creative industries sectors, but some are. Please refer to Excluded Sectors.
How much can be invested?
Investments are permitted up to 200,000 Euro, which is around £135,000. Although the maximum single investment is 200,000 Euro, each application will be considered on its own merits, and it is anticipated that the maximum first stage investments awarded will be up to £60,000. However, the Fund is able to make follow-on investments, subject to the maximum limit.
What form does the investment take?
The investment is able to take the form of a convertible loan or equity stake, and NStar will judge the most appropriate form of investment.
What are the advantages of the equity route?
For a small business without strong cash flow, or with long product development timescales before generating sales, equity finance has the big advantage over debt finance that it doesn’t take any cash out of the business to service the debt. It can strengthen the company balance sheet and add credibility when seeking further investment. The stake taken by the Fund will not affect the control or direction of the business.
For further guidance on the relative merits of debt and equity there are useful downloadable guides available at:
http://www.nstarfinanceandbusiness.com/finance-guides.php.
What happens when the business is trading and successful?
If an investment proceeds to either a cash generating business or secures further venture investment. The Fund may choose to convert the loan to an equity holding. The stake taken by the Fund will not affect the control or direction of the business. Alternatively, the Fund will agree a repayment schedule with the investee. Flexibility is offered as to the period and size of repayments.
What happens if the project does not succeed?
Investments in projects that do not proceed to either cash generating businesses or move on for further venture investment will be written-off to avoid unserviceable debt. Investments that do not proceed to either cash generating businesses or move on for further venture funding will be written-off to avoid unserviceable debt on applying SMEs or entrepreneur/academic institutions.
Will I retain ownership of my Intellectual Property?
Yes, the Fund makes no claims to Intellectual Property ownership, either of existing or any IP generated by the Fund investment. The Fund will, in line with normal equity investing, expect IP rights or ownership to be available or be made over to any potential business in which the Fund may invest.
Is my IP disclosed during the application process?
No, all applications are treated as fully confidential, and we have blanket CDA’s in place with the Sponsors to protect the process.
What rate of interest applies to the convertible loans made?
Investments will be made in the form of a convertible loan at an interest rate of the EC UK Reference rate + 400 basis points (4%). Currently this equates to an interest rate of 9.9%. If there were assets against which we can secure the loan this rate would be liable to a discount. There will be no need to pay interest for the first eighteen months of the loan, however interest will be charged and compounded annually from the start of the investment. In the case of project investment, the terms of agreement will typically include a profit share arrangement. The interest rate will be re-collaborated on an annual basis when the UK reference rate is applied. To illustrate this point the interest accruing in years 1 and 2 of a £10,000 loan at a rate of 9.9% would be:
Year 1 £990
Year 2 £1,088
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