The UK Alternative Finance Benchmarking Report, recently released by Liam Collins of Nesta, Richard Swart of the University of California, Berkeley and Bryan Zhang of the University of Cambridge provides invaluable insights into emerging alternative financing markets.

The survey** of UK based alternative finance intermediaries shows:

• The UK alternative finance market provided £463m worth of early-stage, growth and working capital to over 5,000 start-ups and SMEs in the UK between 2011-2013.

• Equity-based crowdfunding grew by 618% from 2012-2013.

• Peer-to-business lending grew by 211% from 2012-2013.

Download Research PDF (14pgs) Now

EXECUTIVE SUMMARY

Alternative finance activities such as crowdfunding, peer–to–peer lending and invoice trading have emerged as a significant funding mechanism and source of capital in the UK in recent years. Meeting the capital needs of both individuals and businesses, facilitating fundraising activities for civic projects and social causes, alternative finance intermediaries have become online marketplaces where individuals, rather than institutions, work collaboratively to form capital. As the alternative finance market continues to grow in the UK and the government looks to regulate the area, this benchmarking report offers a timely snapshot of this fledgling and dynamic sector in order to understand its  size, growth and the fluid  development of respective segments. In turn, this report aims to inform regulators, brief policymakers, update industrial leaders and educate the wider public about this growing and important industry.

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This  benchmarking research is a joint project between Nesta, the University of Cambridge and the University of California, Berkeley. It represents the first intensive, comprehensive and empirical country–level study of an alternative finance market anywhere in the world. Primary data gathering was facilitated by a questionnaire–based survey, which was able to capture more than 95 per cent of all UK–based alternative finance activities such as crowdfunding, peer–to– peer lending and invoice trading. Data on more than 50 alternative finance intermediaries was obtained, including from almost all members of the United Kingdom Crowdfunding Association (UKCFA) and the Peer–to–Peer Finance Association (P2PFA).

Market size

This  benchmarking survey reveals that the UK alternative finance market grew by 91 per cent from £492 million in 2012 to £939 million in 2013. Accumulatively, the overall market had an average growth rate of 75.1 per cent over the last three years and contributed £1.74 billion of personal, business and charitable financing to the UK economy. While the peer–to–peer charitable fundraising and donation–based crowdfunding still represents the largest segment with £310 million in 2013, the vitality and diversity of the alternative market is on full display.

This  includes peer–to–peer lending, which takes in nearly £287 million in 2013, peer–to–business lending achieving a notable £193  million, invoice trading platforms funding £97 million, equity crowdfunding registering £28 million, and reward–based crowdfunding recording a further £20.5 million.

The top 7 UK alternative finance market sectors are identified by their alternative finance models, which are summarised and contrasted in the table below. The figures in the right–hand column provide a useful snapshot of the latest market data for these sectors in 2013.  Note:  download the report to see the full table (see pg 7).

Market growth

Perhaps even more impressive than their already considerable transaction volumes, their accumulative and year–on–year growth rates are high. Equity–based crowdfunding grew 618 per cent  from 2012 to 2013, peer–to–business lending grew 211 per cent in the same period, while peer–to–peer grew 126 per cent, reward–based crowdfunding grew 387 per cent, invoice trading grew 167 per cent and debt–based securities grew 170 per cent.

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SME finance and future projection

Collectively, the UK alternative finance market provided £463 million worth of early–stage, growth and working capital to over 5,000 start–ups and SMEs  in the UK during the period 2011–13, of which £332 million was accumulated in 2013 alone. Based on the average growth rates of between 2011 and 2013, we can cautiously predict that the UK alternative finance market will grow to £1.6  billion in 2014 and provide £840 million worth of business finance for start–ups and SMEs.

Source:  Nesta Blog

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