OFF3R Index

OFF3R Index for Q4 reveals a record breaking 2016 for alternative finance

Equity Crowdfunding defies Brexit
Written by James Mackonochie

A strong Q4 for both equity crowdfunding and P2P lending kept both sectors growing in 2016 according to the latest data from the OFF3R Index. Equity crowdfunding grew by a steady 9% whilst the total amount via P2P lending grew by 38%[1]. This created a record breaking 2016 for alternative finance.

P2P Lending grows by 38%

P2P Index 16

Figure 1 – Total amount lent in 2016 by the 9 P2P lending platforms from the OFF3R Index (Source: OFF3R Index Data 2016)

P2P Lending in 2016 in 150 words

A strong final four months helped the P2P lending sector grow by 38%. The industry was able to shrug off the uncertainties caused by economic and industry turmoil. Thus, continuing to prove industry sceptics wrong. The total lent by the 9 platforms that form the OFF3R Index was £2.6bn, up by approximately £700m from 2015.

The drop in interest rates in August 2016 seems to have acted to spur the P2P lending sector on. Due to investors looking for alternatives to traditional savings accounts. Furthermore, the gradual rollout of the Innovative Finance ISA (IFISA) since its introduction in April has also contributed. There are now 10 platforms cleared to issue the product. Offering investors the ability to wrap P2P lending investments in a tax free ISA.

The Year Ahead for P2P Lending

It is hard to predict what 2017 may bring for the P2P lending industry. Mainly due to the large number of macro-economic uncertainties on the horizon. However, at OFF3R we expect to see that the IFISA will begin to become more widely available for investors. This could help to drive P2P lending even further mainstream. OFF3R intends to launch an IFISA investment channel that will aim to give our users the chance to compare products across providers.

The industry does have some clear risks to watch for in 2017:

  • Arguably the most pressing of these is the potential impact of any interest rate increases that may be imposed by the Bank of England. The effect of an interest rate increase could act to deter investors from the industry as savings and cash ISAs may begin to look more attractive.
  • A series of regulatory changes are also expected in 2017 following the FCA’s consultation. It is expected that these changes will better protect investors by making it easier to compare P2P lending opportunities. The full impact of these changes will not be known until the full consultation paper is issued but it will be a factor to monitor over the next 12 months.

Please see the P2P Lending channel on OFF3R for the latest investment opportunities in this sector.

Equity Crowdfunding Fights Back with over £66million Raised in Q4

OFF3R Index 17:01 2

Figure 2 – Total amount raised in 2016 by the 7 Equity Crowdfunding platforms in the OFF3R Index. (Source: OFF3R Index Data 2016)

Equity Crowdfunding in 2016 in 150 Words

Equity Crowdfunding in 2016 was shaped by a series of record breaking raises. These helped to drag the industry through an otherwise difficult year. Large rounds from the likes of goHenry, Perkbox, Crowdcube’s own round and the BrewDog bond in December has buoyed the 2016 figures. The sector grew by approximately 9% or £18million on a year on year basis from 2015. This growth was particularly impressive in light of the state of the industry following the Brexit referendum result.

A number of commentators predicted that 2016 would see an increase in larger rounds as bigger businesses turned to the crowd. These predictions have now materialized and equity crowdfunding does appear to be maturing away from its smaller startup roots. Smaller startups have still been raising finance via equity crowdfunding but the engine room of the sector does appear to be now the bigger businesses turning to the crowd.

The Year Ahead for Equity Crowdfunding

The key question for equity crowdfunding in 2017 is whether the industry can maintain the momentum shown at the end of 2016. At the start of 2016 we witnessed a drop off in investment after a very strong Q4 2015. 2017 could become another record breaking year for equity crowdfunding if the industry can avoid a repeat of this trend.

2017 will bring plenty of change to the broader macro-economic environment, including the start of the Brexit process and the Trump effect on global markets. These events will certainly play a role in shaping the future of equity crowdfunding. However,  we believe there are two industry specific factors to watch for in 2017:

  • The European Parliament announced towards the end of 2016 that the Equity Crowdfunding limit for raises on platforms without an investment prospectus would increase from €5million to €8million. This may encourage more growth stage businesses to turn to equity crowdfunding to raise capital and better connect with their customers.
  • The result of the FCA’s consultation on crowdfunding regulations may also impact the industry and how investors are engaged. Greater consistency of financial performance data and clearer vetting of investors may impact the industry.

Please see the Equity Crowdfunding channel on OFF3R for the latest investment opportunities in this sector.

[1] Based on the difference between total lent in 2015: £1,920,561,070 vs 2016: £2,653,304,609. Difference = £732,743,539, results in Growth Rate = 38%

About the author

James Mackonochie

James is the co-founder and COO at OFF3R. He has over 10 years of experience working in the City with a leading Management Consultancy. James holds a BSc degree in Business and Management and a number of professional qualifications.