Private investment is moving online

While alternative finance started off as a seed stage endeavour, more recently platforms have begun to emerge at different stages in the funding cycle, disrupting traditional institutions. Drawn by the increased access to investors that operating online affords, platforms now make it possible for companies to raise capital at every stage of the funding cycle online.

Alternative finance is drawing more established issuers

Originally seen as a solution to the long-standing funding gap for early stage companies that appeared in the wake of the 2008 financial crisis, the ability for issuers to raise capital more quickly and at a lower cost than would otherwise be possible at traditional institutions coupled with a host of other benefits such as the increased marketing awareness and customer loyalty has meant that crowdfunding is now seen as an attractive option by many issuers.

Increasing institutional involvement

As the market grows in size, so too are more institutions investing in the sector. As much as 66% of the loans originated at Prosper were snapped up by large institutions in the 3rd quarter last year. Similar figures across other P2P platforms highlight an increasingly institutional marketplace. While equity investment remains someway behind the P2P market in this respect, things are beginning to change with more VC’s participating in crowdfunding campaigns. This is expected to only strengthen as more tools for sophisticated investors emerge.

Availability of data is changing

As the private investment market moves online, the ability to harvest large quantities of data surrounding investment decisions becomes easier. Furthermore, tools that allow investors to then analyse the data, uncovering trends, are enabling more informed decisions. This is a radical change for the private investment market given its historically closed-off nature.

Collaboration rather than disruption

Many have wondered if the alternative finance space is set to upend the traditional early stage investing business model. While this angle is hyped, in reality it is emerging that venture capital and alternative finance will work side by side. Rather than disrupting, alternative finance is developing a collaborative and synergistic model. Evidence of this can be seen in the growth of investor-led platforms, as well as the adoption of digital finance by major businesses like Goldman Sachs and Metro Bank.