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It seems hard to recall a world in which crowdfunding was not part of the financial lexicon, but in fact the industry’s mesmerising growth is a recent phenomenon. Funding Circle dates from August 2010; Crowdcube got its FSA authorisation in the UK in February 2013. Even on the more traditionally institutional side, the straight-to-borrower private debt strategy of pioneering alternative asset manager BlueBay was only launched in 2011.
Yet it has transformed long-established models of financing, becoming part of the everday furniture of capital raising with remarkable haste. According to a survey by Allen & Overy, the average composition of funding at medium to large non-financial corporates in Western Europe is 48% bank lending, 22% capital markets – and 30% alternative finance. Almost half of the corporates (48%) expect their use of alternative finance to increase over the next five years, more than any other market segment, while 57% of investors polled in the report say they expect to increase their provision of alternative finance. And that’s without looking at the small end of SMEs, who have benefited more than anyone from the arrival of these models.
Some natural questions arise, among them: how much share can these groups take? Is growth like this sustainable? What do the default rates look like? How much have they harmed the banks?
But perhaps the most striking question is: how on earth did a banking sector, starved of opportunities for growth in the post-financial crisis environment, allow a gap this big for a whole new industry to flourish within?
