VCs weigh £20m fund for smaller indies

Venture capitalists are talking to the vice-chairman of UK indie producers body PACT about a £20 million fund for small and medium sized producers reports Tim Adler.

Venture capitalists are in talks with PACT television vice-chairman Nick Rosen about launching a £10-20 million ($13.3-26.6 million) fund to back smaller producers. Three or four as-yet-undisclosed venture capitalists are looking at the idea, which could launch as soon as the autumn.

The fund would provide development cash and production finance for small producers who, Rosen says, have so far have been unable to take advantage of the new television landscape, which allows UK programme makers to hang on to secondary rights even if broadcasters such as the BBC or Channel 4 have funded most of the production.

The change has triggered a feeding frenzy by venture capitalists, which have been buying and selling television producers, but there are signs that the merger and acquisition activity may be slowing down, leaving the big players to stalk each other and become even bigger through acquisition.

"Where is the next wave of consolidation going to come from? From the City’s point of view, where is the deal flow?" Rosen asks, who also runs factual indie Vivum. He says that small TV producers are increasingly being asked to fund more of their own development and cash-flow production. "Development is becoming a larger proportion of risk capital. Broadcasters, who are becoming increasingly risk averse, openly say they don’t want to deal with small producers. This means the larger percentage of development cash offered by broadcasters is going to the super-indies."

The proposed fund would take a minority stake in each production company and a representative would sit on the board of each production company. Rosen want to talk to between 30 and 50 TV producers about his idea. He expects one profitable investment in four to make good on the losses of the other three and says fund investors can expect to triple their money. The plan is to talk to between 30 and 50 indies.

Rosen was author of an influential report, published by stockbroker Durlacher in 1996, which provided the basis for a wave of flotations of internet service providers such as Easynet, Demon and Pipex in the last 90s. He sees parallels between the internet boom of that period and the implications of the UK Communications Act for TV producers.

In particular, there are opportunities between producers and the next iteration of the internet, which will enable producers to become their own broadcasters.

The fund could help producers that don’t have access to cash to fund broadcaster commissions or are short of staff despite an increased workload. Another advantage for small television producers accessing the fund is that it will offer shared backroom expertise including specialist accounting and line production managers. It could also help find international coproductions.

VCs such as Bridgepoint moved to capitalise on the Communications Act the same month it passed into law, supporting a management buy-in team to acquire Chrysalis for £45 million and rebrand it All3Media. That same month Kleinwort Capital acquired a 45% stake in Hat Trick Productions for £23 million.

Bridgepoint then sold its interest in All3Media, which had acquired smaller television companies including Company Television, Lion Television and Mersey television, to US private equity investor Permira for £320 million.

Meanwhile, Rosen has been suspended from PACT, he says because of a comment piece he had published that questioned the trade association’s commitment to small producers. But PACT chairman Alex Graham says that the issues at stake are not policy issues but are instead related to responsibilities of council members under company law.