Online capital-raising, which includes equity and real estate crowdfunding, P2P lending, and balance sheet lending , grew by 22% in the United States in 2016, to a total of $34.5 billion. This increase was revealed in “Hitting Stride: The 2017 Americas Alternative Finance Industry Report” from The Polsky Center for Entrepreneurship and Innovation and the Cambridge Center for Alternative Finance.
My company, American Homeowner Preservation, was one of “over 273 country-specific online platforms in the Americas” which participated in the study. The geographic spread included the United States, by far the largest market for alternative finance, as well as Canada and Latin America and the Caribbean (LAC). The United States market comprised 98% of all capital raised online. However, on the other side of the hemisphere, the LAC market experienced growth of 209% in one year.
The report identified the changing makeup of investors in alternative financing. There was a significant increase in participation by institutional investors in real estate crowdfunding, from only 7% in 2015 all the way to 44% last year. This likely signals increasing confidence in the crowdfunding model, a potential harbinger of more growth.
Conversely, institutional investment in P2P and Balance Sheet lending decreased in most cases. The fall was steepest in Balance Sheet Business Lending, where the percentage of capital raised through institutional investors fell from 94% all the way down to 39%. The only sector with an increase was P2P Consumer Lending, which saw a healthy jump from 53% to 70%.
At the other end of the wealth spectrum, the report states that “In the US, results suggest greater participation of non-accredited investors in the alternative finance market in 2016.”
“Of the crowdfunding models, 58% of the Real Estate Crowdfunding volume and 71% of the Equity-based Crowdfunding model come from accredited individuals, with only 15% of the Equity-based Crowdfunding model derived from non-accredited individuals,” the report said. “Though 15% might seem unremarkable, this figure will likely increase in the coming year due largely to the ability for platforms to utilize RegCF or Title III of the JOBS Act.” The ability to utilize the JOBS Act to raise funds from non-accredited investors only came into effect in June 2016.
The report found that Marketplace/P2P lending is dominated by non-accredited investors, who make up 75% of the volume raised for P2P Consumer Lending. In addition, non-accredited individuals also provided more than half of the capital raised for P2P Property and Business Lending.
Although the alternative finance world, like its mainstream counterpart, is still dominated by men, the report found that women do play a significant role. This participation is most prominent in non-investment-based models, where, “women make up the majority of fundraisers (71%) in Donation-based Crowdfunding, and account for 50% of Reward-based Crowdfunding.”
But women are not just raising money through these channels; they are also providing the funding. The report found that 32% of funders in Reward-based Crowdfunding are female, and 65% for Donation-based. Women also make up significant numbers of investors for Real Estate Crowdfunding and Marketplace/P2P Property lending - comprising 35% of investors in both.
What this adds up to is a market that has grown in the past year by 23% (and by 22% in the United States alone). While this is slower growth than what was achieved the previous year, the study interprets this fact positively, concluding that this slowdown “may signal steadier acceleration, with incumbent AltFin platforms achieving higher levels of competence whilst continuing to refine their model.”
True to the report’s moniker, alternative finance appears to be hitting stride.