We're well into the era of a more mature crowdfunding world. In internet jargon, that would be known as Crowdfunding 2.0. Luke Davis, co-founder of Money&Co., offers his view in CityA.M. of how what the 2.0 stage should look like for UK P2P platforms.
"In the five years since its inception, debt crowdfunding has supported thousands of young businesses in their evolution, from start-ups into established small to medium sized enterprises, with the sector facilitating £881m worth of debt-based transactions in 2015 alone.
"While this is a remarkable achievement, the sector is no longer fledgling – its maturation coupled with the unprecedented rate of growth of the overall alternative finance market means that peer-to-peer lending platforms must likewise evolve.
Recent figures released by Nesta predict that debt crowdfunding could be worth more than £12bn a year within a decade; this is over 12 times the current size of Britain's debt crowdfunding market. To achieve this level of growth, peer-to-peer platforms need to scale-up and upgrade their existing infrastructure so they are in a position to meet future business demands for capital and, equally, the crowd's appetite for SME investment...
"For peer-to-peer platforms to be in a position to assist businesses as they scale, debt crowdfunding platforms have to increase the amount of capital they can handle by recalibrating their infrastructure to reflect the changing demands of businesses and the ever-evolving profile of the crowd.
"Now, the crowd is less dynamic and much more reticent, with the majority of investors sitting on their hands and awaiting returns from a portfolio they assembled during preliminary stages of the crowdfunding era – typically amounting to between eight and ten companies.
"As such, platforms must increase their capacity to manage an injection of "leader funds", the majority of which can only be sourced from deep-pocket investors or institutional backers such as hedge funds and family offices. It is these investors and institutions that have the confidence, financial capacity and speed to catalyse movement in the debt-space.
"Crowd-backed finance remains of paramount importance; however, without refreshed movement, we run the risk of market stagnation from an exhausted model. Peer-to-peer platforms should not over-emphasise the role of institutional funding but see it, rather, as a peripheral force that can provide much needed assistance to rejuvenate the crowd and open up new debt crowdfunding opportunities."