The Overlap Between Traditional Investment and Alternative Finance

Earlier this month, investment management firm Downing launched a debt crowdfunding platform. Debt crowdfunding and P2P lending are increasingly attracting interest from institutionalised investors. Could the same start happening to equity crowdfunding, and alternative finance as a whole?

‘A feature of the UK market’

As Nesta has correctly identified, institutional investors embracing alternative finance is becoming a ‘feature of the UK market’.

Examples of established players buddying-up with debt finance include New York-based KLS Diversified Asset Management working together with P2P lending platform Funding Circle, and Metro Bank teaming up with P2P lender Zopa. KLS has agreed to invest £132m into UK SMEs via Funding Circle, while Metro Bank will lend through Zopa – a platform which typically offers loans sized between £1k to £25k.

Equity crowdfunding getting in on the act

Strathay Ventures, investment management subsidiary of Braveheart Investment Group, has partnered with Seedrs (and previously Crowdcube). But that’s not all. Established investors have put their money where their mouths are, and are starting to back equity crowdfunding. In the summer, Crowdcube secured £6m in a round led by City of London stockbroker Numis. Crowdcube is currently working with Numis to develop the world’s first crowdfunded IPO. This could also provide Numis with the opportunity to trade shares bought through the crowdfunding platform.

We’ve seen a number of instances of the crowd investing alongside established investors too. This is often referred to as ‘passive crowdfunding’, indeed this is the foundation of how equity crowdfunding platform Syndicate Room operates. Through Syndicate Room, the crowd invests alongside an active angel investor who stumps up at least 25% of the total fundraising.

Equity crowdfunding is no stranger to the public sector either. As long ago as September 2014, Winemaker and craft beer brewer Chapel Down became the first publicly-listed company to raise money through equity crowdfunding, when it raised over £3.95m through Seedrs. And earlier this month, SyndicateRoom gained intermediary status with the London Stock Exchange.

What does the future hold for equity crowdfunding?

What we’re seeing is increasing overlap and interaction between different funder types, as they all try to muscle in on each other’s space.

Equity crowdfunding has gone from strength to strength, and now demands the attention of traditional investment vehicles. Time will tell, however, whether alternative finance will co-exist with established players, swallow them up, or be swallowed by them.