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From Impossible, to Improbable, to Inevitable in less than 10 years - crowdfunding

31 July 2015  |  2546 views  |  0

When new industries are born they either die quickly, snuffled out by growing pains, or they burst into the scene with furious pace. The more innovative an idea, the harder it can be to find real adoption. First you need to educate, build within rules, which were often not designed for you and lastly wait for punters to catch on/up and adopt. Crowdfunding is in the middle of this exact process, transitioning from being a clever idea, into a real mechanism for individuals and businesses to raise money. So here are the top 3 reasons why 2015 is proving crowdfunding’s watershed point:

1. UK government support is awesome

 Political support for the alternative finance sector has been enduring and constant. The Chancellor George Osborne seems super-keen to bring alternative finance into the mainstream. With his post-election Budget, the announcement of the Innovative Finance ISA demonstrates this desire admirably. In fact, with the UK discovering a world-leading niche with the FinTech sector, support for new-fangled tech and finance sectors is likely to continue to grow, even potentially through direct government investment. Further tax incentives, changes in the way banks treat failed loan application and greater awareness at the very top, will ensure continued strength in the already rapidly growing industry.

2. The Innovative Finance ISA is a BIG deal

 The UK Government recently announced the launch of the Innovative Finance ISA, called by the industry the IFISA, or the far more colloquial crowdISA. This will be based on all investment types of crowdfunding (so lending to people, businesses and buying shares). The new ISA will not sit under the Financial Services Compensation Scheme (FSCS).It also recognises that crowdfunding is a set of distinct asset classes, with a unique risk profile. The massiveness of this one really must not be understated. The crowdISA will allow consumers to lend or invest up to £15,240 a year tax free, via either individual crowdfunding sites, or across lots of them, to individuals and businesses. Crowdfunding will suddenly have access to a slice of the £50bn a year of retail money, which goes into the ISA pot. By all accounts this will be a huge transformation within the crowdfunding world, as well as signalling that crowdfunding is going mainstream. Public awareness of crowdfunding will be transformed due to this change.

3. Global crowdfunding is continuing to grow massively

Whilst the UK is the most advanced western crowdfunding marketplace, worldwide crowdfunding is catching up. Relatively the US is starting to really pick up the pace. With Nesta.org in November 2014 suggested that the 2015 alternative finance market in the UK alone would reach £4.4bn, the global figures are predicted by Massolution to double to $34.4bn. The EU is also pushing new boundaries, with crowdfunding developing, although this is still in its infancy.

What does the future hold for crowdfunding?

Crowdfunding is undergoing huge growth. This is expected to start levelling off by 2020. By this point crowdfunding will be mainstream, with alternative finance really being anything but alternative. As investors better understand the risk profile of the industry, so to will the FCA. Having both parties better understand the losses as well as potential gains one can make will only strengthen the sector. Sites which offer greater portfolio diversification with tools to support this will win. Millennial adoption of the alternative finance mechanisms will ensure that they become the majority retail user.

 

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