Equity-based crowdfunding in the UK grew by almost 300% from 2014 to 2015, according to a new report from the Cambridge Centre for Alternative Finance (CCAF).
The total sum raised in the market last year was £332 million – up 295% on the £84m generated in the previous 12 months. Venture financing accounted for £245m of that amount, which the CCAF estimates is equivalent to 15.6% of all seed and venture-stage equity investment in the UK.
Produced in partnership with innovation advocates Nesta and auditor KPMG, the report – Pushing Boundaries – notes that, in 2015, around 20,000 SMEs raised alternative finance through online channels, receiving a total £2.2bn of business funding.
Total alternative business lending reached £1.82bn: around 3.4% of gross national banks’ lending to SMEs, based on the Bank of England’s 2014 baseline figure of £53bn.
Types of alternative company lending covered in the report include peer-to-peer business finance, invoice trading and debt-based securities. In the specific field of small firms, the report estimates that peer-to-peer (P2P) lending (excluding real-estate loans) provided the equivalent of 13.9% of new bank loans to SMEs last year.
Significantly, 2015 was also notable for an increased involvement in the alternative finance market from traditional institutions, such as pension funds, mutuals and investment banks.
That trend was especially prominent in the P2P arena, where institutions backed an estimated 32% of consumer loans and 26% of business loans.
In terms of potential threats to the fast-rising industry, 57% of UK lending platforms surveyed for the report cited the collapse of one or more well-known outlets because of malpractice as the highest risk to growth – a finding that chimes with concerns across Europe about the recent failure of TrustBuddy.
Nesta executive director of policy and research Stian Westlake hailed the market’s 2015 performance as “remarkable”, adding: “Little more than a collection of plucky startups just six years ago, the sector now does £3.2bn of business a year.
“As the sector grows and matures, it is sure to face challenges: investors will be keen to see returns, and another financial crisis would certainly test the robustness of P2P lending. But, as Nesta’s continuing research into the industry has found, the ability of platforms to harness the power of the crowd to connect savers, borrowers and businesses has been powerful. We look forward to seeing how the sector advances and changes again in the year ahead.”
KPMG global co-lead of fintech Warren Mead said: “After years of pushing boundaries, 2016 will be the year that ‘alternative’ financial options finally join the ranks of the mainstream. From the recognition of regulators, to industry pioneers being bestowed with New Year’s Honours, it’s clear the market has come of age as an integral part of the lending landscape.”
Like Westlake, though, Mead also sees a number of hurdles ahead for the industry. “Being part of the financial establishment doesn’t sit well with its original social purpose,” he added. “Incumbents are also playing catch up with their own digital investment, and are closing in on the disrupters’ lead. Meanwhile, platform failures within these growing networks are inevitable. So the question is: will the hard-won enthusiasm for these platforms start to wane?”
CCAF executive director Robert Wardrop warned: “The growth of the industry to date attests to the trust placed in platforms by many funders, fundraisers, policymakers and the general public. Many tests of this trust are to come, and the outcomes will shape the industry’s growth trajectory and institutional relevance within the financial system.”