• ArchOver
  • Finpoint
  • Seedrs
  • Thistle
Angus Dent, CEO, CITY AM - Alternative Finance Expert Panel Questions

ArchOver

  1. What would be the first advice you would offer to individuals looking to become alternative finance investors?

    Consider the security provided. Alternative finance covers a wide range of investment opportunities and, as with any investment, balancing the security and the reward to suit your portfolio is essential. Equity crowdfunding provides the least security and the highest potential returns, though arguably some losses are inevitable with funding focused on start-ups and early stage businesses. Conversely marketplace lending has low default rates but returns start from a more modest 4%.

  2. How do you see alternative finance changing the funding landscape for new businesses?

    The big change has already taken place with disintermediation having opened up multiple sources of funding. As the sector grows it will be interesting to see if the ‘hidden experts’ within the crowd are motivated to support young business in other ways; perhaps providing sector expertise, business acumen or even introducing business opportunities. Platforms will need to encourage and foster communication.

  3. What has been the biggest development in the alternative finance space in the last year?

    Growth and diversification; the phenomenal growth of the sector and the increase in institutional investment has led to alternative finance lending appearing in the UK Government quarterly figures for the first time. What really excites us is the diversification of offerings from innovative platforms challenging pre-existing finance models.

  4. Is alternative finance a truly global phenomenon and to what degree are alternative finance providers bound to their national/ local areas?

    From Moscow to Brazil and a thousand platforms in-between crowdfunding is already truly global. However, it is not yet globalized, as legislation is still playing catch-up in many markets which means that platforms are often contained within their jurisdiction. As legislation develops it is inevitable that platforms will expand their operations and become more multinational.

  5. In the coming years, do you see forms of alternative finance and investment becoming more diverse?

    Yes. Both investor demand and the desire to be noticed by fundraisers will see many new ‘splinter’ platforms developing away from behemoth catch all crowd sites that were first to market. Already specialist investment sites in technology, pharma and education appealing to specialist crowds are upon us and new lending models suited to specific businesses are cropping up constantly.

Finpoint

  1. What would be the first advice you would offer to individuals looking to become alternative finance investors?

    Investing as an individual in alternative finance (P2P) is a bit like ISA investments in shares. Firstly, you need a provider that gives you access to the stock market. Secondly, you need to decide on the companies you wish to invest in. The UK has now circa 50 alternative finance providers, mostly platforms, that are very transparent about the way they operate and how they help you manage the risk of investing in loans directly. So, there is no shortage of options, but I’d recommend to diversify your investments across P2P, cash and shares.

  2. How do you see alternative finance changing the funding landscape for new businesses?

    Alternative finance providers are filling a gap created by traditional banks who (had to) reduced lending to “high risk businesses”. They address an underserved market, and at the same time utilise better technology to assess credit risk based on the often minimal track record and security on offer from SMEs (such as buildings, machinery or equipment). With approx. £2bn lend last year, alternative finance will continue to improve the UK funding landscape so businesses have a more healthy range of funding choices, as is the case in the US for example.

  3. What has been the biggest development in the alternative finance space in the last year?

    For me the single biggest difference is the fact that the UK Government is proactive about bringing alternative finance (P2P) into the ISA fold. Research by RateSetter found nearly a third of people (31%) would put their own savings into a P2P platform, if they could do so through a new ISA. The outcome of the ISA consultation may translate into making P2P investments ISA-eligible as early as April. Irrespectively, this will be beneficial for the sector and for investors, providing lower associated risk than stocks but higher returns than cash.

  4. Is alternative finance a truly global phenomenon and to what degree are alternative finance providers bound to their national/ local areas?

    Absolutely! Alternative finance (or “FinTech”) is a truly global phenomenon that has caught the attention of many stakeholders: business borrowers who were let down by traditional banks, individual investors wanting a better return for their cash, venture capital firms, financial services regulators, etc.

    The UK is probably the best place right now to be running a FinTech business, thanks to the tremendous support from organisations such as Innovate Finance and the attention we have from UK authorities, wishing to support this thriving sector internationally.

  5. In the coming years, do you see forms of alternative finance and investment becoming more diverse?

    I’d say that the UK already has a very diverse alternative finance sector, which enables P2P-lending to individuals as well as to businesses. From working with the alternative lenders on the Finpoint-panel, we can see some are thinking of adding new, complementary finance options to their existing product range. On the other hand, we have traditional banks on our panel, interested to wanting to get involved with alternative finance, either by investing in a business, by co-lending or through referral partnerships. So, watch this space!

Jeff Lynn, CEO and co-founder Seedrs

Seedrs

  1. What would be the first advice you would offer to individuals looking to become alternative finance investors?

    Investing in businesses can be enjoyable, and backing “the next big thing” has the potential to produce life-changing returns.

    However, it’s important to create a diverse portfolio when looking at equity crowdfunding. Investing in small and early-stage businesses is high risk, and the majority will likely fail. Those that do succeed will potentially deliver spectacular returns—which can far more than make up for the losses—but that only helps if you’ve invested in the winners. This is why diversification is crucial. Invest across a large number of businesses to ensure that your portfolio as a whole has the best prospects for producing market-beating returns.

  2. How do you see alternative finance changing the funding landscape for new businesses?

    Traditionally, banks don’t lend to young businesses with little collateral, venture capital requires traction, and angel investment is scattered and inefficient. Without wealthy friends or family able to invest large amounts of high-risk capital, entrepreneurs have had few options.

    Equity crowdfunding changes that. By making it simple for anyone to invest online, ambitious businesses can access capital from a wider range of investors than ever before. And they can receive more than just investment, like: mentorship and advice from a broad investor base; long-term engagement with existing and potential customers; and international exposure and product validation.

  3. What has been the biggest development in the alternative finance space in the last year?

    As the market matures and investors start to anticipate successful exits, investors are assigning greater importance to investor protection.

    We believe that all investors, however small their investment, should be able to realise maximum returns on their investments. We've always prided ourselves on leading the way on this, which is why we operate a nominee structure for each deal, include professional protections and rights in all investment agreements, and ensure that each investee company keeps their investors up-to-date.

    It’s no longer about making introductions but sharing in success.

    Put simply, investors increasingly want equity crowdfunding done properly.

  4. Is alternative finance a truly global phenomenon and to what degree are alternative finance providers bound to their national/ local areas?

    Our vision is to build a platform that allows businesses with international aspirations to raise capital from investors anywhere; to be a global platform.

    Business finance has been rather slow to adapt to globalisation, and outdated regulations in certain jurisdictions have hampered the rate of globalisation, to an extent. However, we have a bright team, and we have been very successful at developing a model that is increasingly global.

    After launching in the UK in 2012, we opened across Europe in 2013. In 2014 we acquired a US business and will be opening to accredited US investors in 2015. We’re determined to make Seedrs a truly global platform and are well on our way to achieving it.

  5. In the coming years, do you see forms of alternative finance and investment becoming more diverse?

    As the industry has matured, so, too, have product offerings. We believe we’ll see more innovation as the space grows. Some of our recent innovations include:

    • - Funds, which make it possible for investors to spread a single investment across multiple businesses chosen by an accelerator or through a competition.

    • - Convertible equity, which offers a way to raise and invest money now, while deferring the need to place a value on the company until the future.

    • - Funding publicly-traded companies through equity crowdfunding, which we believe will become increasingly popular as later-stage businesses see how efficient, cost-effective and engaging this kind of fundraising can be.

Thistle

  1. What would be the first advice you would offer to investors looking to potential alternative finance investors

    From my experience, both from working in compliance and being an investor in alternatives, I believe there are two rules you should always follow when looking to invest, especially in alternative investments. Number 1, do your due diligence on the firm and on the investment. Never feel unsure about asking questions, it is your money and your risk. Number 2 is don’t invest in what you don’t understand. The people that don’t understand what they are investing in or how it works are the people that run the risk of losing their investment by making the wrong decisions. If you can invest feeling safe in your understanding then go for it, if you can’t then don’t.

  2. What do you see the implications of alternative businesses for new businesses?

    Alternative investments allow companies to raise capital in a climate where banks aren’t lending, meaning businesses with no track record and little funds can get going more easily (just look at crowdfunding). But it should be noted the degree of riskiness these new investments represent compared to other asset classes. Firms that are arranging finance for new businesses in this way should always be open about the inherent risks and only target those investors who have the ability to understand it.

  3. What has been the biggest change in the alternative finance space in the last year?

    The world of alternative investment, a vast market already, has seen great growth in the areas of Crowdfunding and Peer to Peer Lending. Our firm has helped numerous clients in these two spaces and with them being disruptive industries the accompanying regulations are also developing and changing. The past year has seen an explosion within the market, with these two new products leading the way. It has been a very interesting year with ‘older’ regulations being shaken up through the foundation of Crowdfunding. The greatest change is not these two platforms but rather the way we interact with investing, regulation and the implementation of the one into the other.

  4. Is alternative finance truly a global market and to what degree are alternative finance providers bound to their national/ local areas?

    The new question is how we take our investments global. Global access will provide a greater platform of clients and opportunities, but with this has come age old regulatory questions of who is responsible, how to assess the risk and how much influence they can have in the global circuit. We have reviewed the international market place and how we can make offerings to those based overseas, and have found a range of different requirements. Certain countries will allow these providers access to potential investors, with limited requirements and oversight from the home regulatory bodies but certain streams are proving more difficult.

  5. In the coming years, do you see forms of alternative finance and investment becoming more diverse?

    This has already started, with the diversification of what is being offered and the range of platforms that are being built in which we explore these opportunities. The market and its providers is developing every day. In the UK we are seeing the development, with platforms such as Crowdfunding merging with P2P platforms. The diversity is only limited by our ability to implement the changes into the structures and how we implement the required oversight. All new entrants to the financial markets need to prove that they understand the regulations. Although this too can also add to growth as providers and investors look for ways to develop within the rules.