Alternative Finance is on the rise, and it is set to conquer a 3.3 trillion market opportunity. It includes crowdfunding, peer to peer lending, equity crowdfunding, financial technologies, or fintech, invoice trading and more.
The rapid evolution of regulations, associated technologies and support structures that were ruled out in the past for alternative finance are now currently possible. Thus, Crowdfunding is increasingly gaining traction in the space.
Key Crowdfunding Trends
The scope for investment and access to private equity is growing by leaps and bounds. The Securities and Exchange Commission (SEC) has undertaken a number of pathfinding regulations in this arena. The new rules for investors in September 2013 under title Title II of the Jumpstart Our Business Startups (JOBS) Act has opened the doors to equity crowdfunding for accredited investors. It also enabled the creation of new financing models for angel investors, early-stage companies as well as smaller businesses local in size and scope.
The sheer variety of available opportunities for investors is expanding rapidly and this can be seen in the growing number of niche online platforms. Accredited investors can now access previously unavailable opportunities in a number of different asset classes and business sectors such as consumer products, healthcare, film, entertainment and real estate. Moreover, the increasing popularity and interest on these sectors are forcing issuers to provide levels of transparency and disclosure to private placement of equity, which was seen only for public companies raising capital from the public. Consider this potential in the space - self directed IRAs currently hold something like $146 billion in assets which can easily be shifted to other avenues of investment.
The explosion in transparency and communication means that small investors using these online platforms are able to gain information and thus, more access to institutional quality deals. They can structure debt and equity deals for their individual portfolios which would have been unthinkable in the past except for large institutional investors.
Changes in regulation and technology should accelerate the shift to alternative finance providers, from traditional sources of finance like banks, especially for personal and small business loans. The two largest peer-to-peer lenders, Lending Club and Prosper, grew by 65 times from $26 million in 2009 to $1.78 billion in 2014. Both investors and borrowers would be particularly interested in tapping the assets in retirement accounts which are estimated at over $7.3 trillion.
A growing Equity crowdfunding space offers investors ownership in business enterprises with the possibility of exits through an IPO or a merger or acquisition. Peer-to-peer lending, as opposed to peer-to-peer investing, puts individual borrowers in touch with investors and is expected to gain in popularity. There is another boom which is quickly gaining traction - real estate crowdfunding. Times Realty News is tracking real estate crowdfunding platforms around the globe. A more detailed information including trends in this sector is discussed in a report released by Times Realty News.
Crowdfunding may have begun as a financial phenomenon, but its impact is now much wider and deeper than its relatively humble beginnings. In my book on Crowdfunding, I discussed how crowdfunding began as a link between two worlds: the crowd and global capital, but now it has grown and now a respected phenomenon that continues to change the playing field every day.
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