Alternative Finance Finds a Home in the United States
Alternative financing really took off in the US as a result of the 2008-2009 global financial crisis. This is commonly attributed to poor access to credit although a distrust of banks has probably had some additional effect. In the UK the banks noticeably reduced SME lending even though the government was trying to encourage it to stimulate growth. The story is similar in the US.
In 2003 ArtistShare launched in the US in order to help musicians fund recording through their fans; this is one of the earliest examples known of crowdfunding. It was successful and more crowdfunding platforms were launched with a wide variety of aims through subsequent years. Peer to peer lending, the debt-based version of crowdfunding, appeared in 2006 and LendingClub, the largest P2P platform in the world, launched in 2007 having been preceded by Prosper, the second largest.
Today alternative finance markets are dominated by the USA, followed by the UK and China. The crowdfunding sector had the following market shares by country in 20131:
Home to the World’s Most Recognized Alternative Finance Firms
Some of the biggest worldwide players are based in the US and include:
|Peer to peer lending||LendingClub, Prosper|
|Product based crowdfunding||Indiegogo, Kickstarter|
|Merchant cash advance||Kabbage, OnDeck|
|Equity based crowdfunding||EquityNet, WeFunder|
|Invoice advance||Rosenthal & Rosenthal, Milberg Factors Inc|
Alternative Finance Hits the Big Time
In December 2014 OnDeck and LendingClub put alternative finance straight into the public eye when they IPOed. LendingClub raised approximately $870m and OnDeck $200m. 2014 was the biggest online lending year so far for the US with more than $8.6bn funded through these types of platforms2.
Now There Are Some Huge Alternative Finance Deals
In March 2015 a crowdfunding project for Star Citizen, a sci-fi trading and combat simulator, has raised a total of over $73m3. This is through a combination of sources: its own website and Kickstarter ($2.1m) and is thought to be the highest value crowdfunding project ever.
Other high ranking projects on Kickstarter and Indiegogo in March 2015 have collected over $10m. Kickstarter’s largest individual project is Pebble, a smartwatch, and is actually in its second round of crowdfunding. Over $10m was raised through the first in 2012 and number 2 has now passed $17m with some days to go until the close.
In October 2013 Eaglewood Capital, a New York based hedge fund, put together the first securitization of P2P loans, from LendingClub, in a $53m transaction. After subsequent tranches its investment is now up to $175m4.
The Sophistication of the US Market Attracts Global Interest
The scope of the US market attracts global business. In 2012 the US private placement market accounted for about 90% ($50bn) of the global market and in that year approximately 20% of this came from UK companies5.
What really sets the US apart and attracts global interest is how sophisticated the investors have become. When alternative finance first began lenders were individuals, friends and family. Today, the US private placement market contains institutional investors such as insurance companies, pension funds and asset providers and it shows how the market place is adapting itself to the new era of alternative financing.
1. Grant Thornton, 2014. Alternative Lending: a regulatory approach to peer to peer lending http://www.grant-thornton.co.uk/Documents/financial-services/Alternative-Lending-regulatory-approach-to-Peer-to-Peer-lending.pdf
2. Forbes, December 2014: Lending Club and Billion dollar valuations are just the beginning for online lending http://www.forbes.com/sites/navathwal/2014/12/18/lendingclub-ondeck-ipos-billion-dollar-valuations-are-just-the-beginning-for-the-online-lending-market/
4. Crowdfunder Insider, October 2014: Eaglewood Completes $75 million Securitisation of P2P Loans Originated Via Lending Club http://www.crowdfundinsider.com/2014/10/53349-eaglewood-completes-75-million-securitization-p2p-loans-via-lending-club/
5. Slaughter & May April 2013: US Private Placements for European Issuers http://www.slaughterandmay.com/media/1821426/financing-briefing-us-private-placements-for-european-issuers.pdf
ApexPeak improves the cash flow for companies, both large and small, by providing alternative finance. Working capital is provided via a suite of digital platforms, making cash advances fast and easy. ApexPeak was founded in 2012. Its headquarters are in Singapore and it has offices in Dubai and Africa. It is majority locally owned. Visit www.apexpeak.com to find out more about invoice discounting (commonly called factoring) and supply-chain finance.
Anthony Coundouris, Marketing, ApexPeak
t. +65 6808 7867