NowStreetWire | Dara Albright | Jan 6, 2014

Tis the season when I sit beside the festivus pole, reflect upon another year passed, dust off my crystal ball and prognosticate the future of crowdfinance.

2013 will be remembered as a pivotal year for the crowdfinance industry. Significant achievements helped lay the necessary foundation for crowdfinance to receive wide mainstream recognition and expand dramatically in 2014.

Google led a $125 million deal to buy a stake in Lending Club from existing shareholders. The Google/Lending Club transaction valued the world’s largest p2p lending platform at $1.55 billion, nearly tripling its valuation from its last fund-raising round less than a year ago. Prosper, the nation’s second largest p2p portal, added financial behemoth, Blackrock, as a strategic investor.

View:  10 Bold Crowdfunding Predictions for 2014

Venture capital investment entered the equity side of the industry with CircleUp raising funds from Union Square Ventures and Google Ventures. The SEC officially removed the 80 year ban on general solicitation for private companies and finally proposed its rules for Title III crowdfunding. The nation’s inaugural unaccredited equities crowdfund raise was completed via the intrastate exemption. And for the first time in history, a quotation system for private offerings has been developed and made publicly available on major financial media channels to investors across the globe.

While 2013 went out with a bang, below are four predictions that will make 2014 even more remarkable than the last.

1.       CAPITAL WILL BE REALLOCATED FROM TRADITIONAL FIXED INCOME PRODUCTS INTO PEER-TO-PEER (P2P)  LOANS

2013 was an extraordinary year for p2p lending. The domestic market grew 177%, the global market exceeded $8B, and the industry began winning over an initially skeptical media. As the financial press increasingly draws attention to p2p’s greater and more stable returns, we should experience an exodus from bond funds into p2p. This past year, many active bond managers underperformed their benchmarks, and investors began withdrawing money from bond funds at record paces. According to Lipper US Fund Flows data, over $60B has been pulled from municipal bond funds alone in 2013 – the most since 1992. With p2p garnering mainstream attention, conventional fixed income asset classes languishing, and wealth managers becoming more knowledgeable about p2p investing, more capital is likely to find its way into a diversified portfolio of p2p loans.

View:  Ontario Securities Commission to Publicize its Proposed Crowdfunding Exemption in First Quarter 2014

2.       EQUITIES CROWDFINANCE WILL GERMINATE THROUGH SELL-SIDE CHANNELS

Whereas p2p lending sprouted from the yield-hungry investing public before being chased by the institutional buy-side, the equity side of crowdfinance is more likely to germinate through sell-side channels such as boutique investment banks and small cap underwriters who possess decades of experience selling “story stocks”.  In 2014 brokerage firms will quickly discover additional revenue streams emanating from corporate crowdfinance products such as PIPRs (“Private Issuers Publicly Raising) and crowdfinanced IPOs. Instead of leaving money on the table, BD’s will embrace these new products that not only contain more attractive commission structures, but mitigated compliance risk.

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