After alternative finance pulled a record breaking year out of the bag in 2016, it was hard to tell if 2017 would follow suit. A new year brought new uncertainty, with Donald Trump’s inauguration, and an imminent and probable ‘hard’ Brexit on the way, people were unaware of how these macro-economic changes would impact investments.
Equity Crowdfunding Continues to be Unpredictable
Figure 1 – Total amount invested from September 2016 to January 2017, in 6 Equity Crowdfunding platforms that form the OFF3R Index (Source: OFF3R Index Data 2017)
January is typically a quiet month for Equity Crowdfunding but a sharp 65% drop off since December 2016 is more significant than expected. A total of £8.95m was invested via the 6 companies that form the Equity Crowdfunding element of the OFF3R Index. January’s downturn could be the product of aforementioned political and economic uncertainty, but it also followed a December which produced some of the most impressive data we have seen to date, so it would have always been a struggle to match the same levels of investment.
Will Equity Crowdfunding Change Focus?
The data between September 2016 and January 2017, highlights just how volatile Equity Crowdfunding currently is. It will be interesting to see whether platforms continue to feel the effects throughout 2017. With spending power down as inflation increases, currently at 1.6% in January 2017, we could possibly see equity firms moving away from their traditional audience, and towards a more sophisticated investor group. A recent Beahurst report announced that equity crowdfunding outperformed private equity by investing in non-listed high growth companies in the UK. Is this the first sign of a more marked shift in focus? Only time will tell.
P2P Lending Growth continues its upward trend
Despite previous concerns around the future of peer-to-peer (P2P) lending, platforms hit the ground running into 2017. The 9 platforms, that make up the OFF3R Index, lent a total of over £305 Million (note: this is slightly revised figure from first release due to updated data from platforms) in January 2017, a 10% growth on December 2016. With interest rates at an all-time low, and many traditionally safe investments carrying low yields, investing in peer-to-peer products continues to be very attractive. These continued low rates are believed to have driven disparaged lenders away from traditional institutions and towards P2P platforms. This is highlighted by the fact that the Index platforms lent over 50% more money in January 2017 compared to the same month in 2016 (Source: OFF3R Index Data 2017).
Growth Fuelled by the Innovative Finance ISA
It is anticipated that this P2P lending growth will be further fuelled by the major platforms beginning to offer their Innovative Finance ISA products as we head towards the end of the tax year. OFF3R have recently launched their Innovative Finance ISA comparison site, allowing investors to assess providers, that have been granted full permissions to offer the product.
After seeing this level of growth, it’s no surprise that Zopa was announced as the first UK peer-to-peer lending platform to lend £2 billion. Zopa CEO Jaidev Janardana told Business Insider UK, “Over the last 12 years, we’re proud to say we’ve helped over a third of a million people get better interest rates for both borrowing and lending”. This increased exposure builds creditability for the industry, allowing platforms to tap into new investor bases and maintain steady growth.
James Mackonochie, OFF3R’s co-founder, commented that “the increase in the number of providers being able to offer their Innovative Finance ISA products comes just in time for the end of the tax year.” He went on to say that “we anticipate that this will help to drive P2P lending growth and crowd bond industry and take the asset class more mainstream.”