1. Finance is changing – Welcome to the Crowd!
Banking, investing and giving are being revolutionised by technologies and businesses which are simplifying
the links between those who want to use their money and those who need it whether they are businesses,
charities or social enterprises. A welcome side effect is the increasing relegation to the sidelines of the
banks and other intermediaries who have become increasingly unpopular in recent years.
Crowdfunding and peer-to-peer funding are at the vanguard of the growth of the alternative finance
markets which are expanding rapidly around the world as crowdfunding platforms proliferate. Fintech is
now impacting on financial services as dramatically as mobile has on retail and the ways we communicate.
What are the Alternative Finance Markets?
A recent study Nesta ( Nesta 2014) has shown the sector more than doubling annually from £267Mn in
2012 through £666Mn in 2013 to an expected £1.74Bn in 2014. This is giving individuals greater control of
and new avenues for investment whilst allowing entrepreneurs, SMEs , charities and community groups
access to new sources of much needed finance.
The Alternative Finance Markets (AFM) are evolving rapidly and cover a range of instruments from people
lending or investing money in each other or businesses, to people donating to community or arts projects
or businesses trading their invoices.
martin.manning@theswotteam.co.uk

2. The graphic shows rapid growth in all of the markets which are currently dominated by the lending sectors
:
Putting these figures into context in 2014 it is expected that P2P consumer lending will have provided
finance to over 80,000 individuals and its business equivalent loans of over £1Bn to 7000 SMEs equivalent
to approx. 2.4% of 2013 UK bank lending.
martin.manning@theswotteam.co.uk

3. The Future?
If these growth figures are maintained the AFM could reach £4.4Bn in 2015 due to these factors:
 >50% of P2P business lenders intend to increase their lending
 86% of existing borrowers are likely or very likely to approach alternative lending providers prior to
a bank
 Awareness of alternative funding options is still low (44% of SMEs) and only around 10% have
actually approached a provider
However there are still significant challenges for the industry in terms of persuading the majority of
consumers that the sector provides sufficient safeguards and risk mitigation.
Scale and use of Alternative Finance Models
There are considerable variations between the types of projects and businesses which use the different
forms of alternative finance.
So in rewards based crowdfunding which tends to be used most for creative and social projects the
average raise is £3,766 from 77 funders (c.£50 average) whereas in equity based fundraising often used by
tech or medical businesses the raise is nearly £200,000 from 125 investors (c. £1,600 average). Invoice
trading appears to be funded by institutional investors and High Net Worth Individuals (£56K average raise
from 7 investors £8k average).
Motivation for AFM usage
The motives behind usage if alternative funding vary depending on the model:
 Fundraisers using rewards based and donation based funding prefer keeping control over their
projects
 P2P borrowers and equity based fundraisers prefer speed of raise and ease of use of crowdfunding
platforms
 P2P consumers borrowers are motivated by lower interest rates and enhanced customer service
 Invoice traders are seeking additional working capital
 Pension led fundraisers value being able to invest their pension pots in their own businesses
There are similar variations for funders between the various funding types:
martin.manning@theswotteam.co.uk

4.  P2P and equity based funders are primarily driven by financial return rather than local investment
or social causes
 Reward and donation based funders appear driven by the fundraisers’ ideas nad gaining a social
return
The socio-economic impact of Alternative Funding
Impact on Business Growth
Positive impacts have been seen by entrepreneurs and businesses after a successful raise:
 75% of those raising through reward or equity based crowdfunding launched a new product or
service
 70% of P2P borrowers have seen a growth in turnover with 63% increasing profits
 33% of those who raised funding through P2P or invoice lending stated that they would have been
“unlikely” or “very unlikely” to have raised finance elsewhere
 79% who used P2P borrowing had attempted to raise bank funding with only 22% being offered
finance
Increased philanthropic giving and volunteering
Alternative finance models are increasing the amounts available to good causes through rewards,
community shares and donation-based models as well as energy ventures through debt-based securities.
 23% of donation and 21% of rewards based funders would not have used their finance for
charitable giving
 29% of backers on donation-based crowdfunding platforms had provided advice and feedback on
campaigns and 27% had offered help or volunteered on projects
 34% of donation-based fundraisers have seen an increase in volunteering
Conclusions
There is no doubt that the Alternative Finance Markets are a valuable and growing source of valuable
funding to entrepreneurs, businesses, social businesses and the charity sector as traditional funding
sources become harder to access. If current growth rates are maintained as funding providers become
more aware of the options and potential returns the sector could be providing more than 10% of funding
availability within 5 years.
For further information on potential funding for your organisation contact
martin.manning@theswotteam.co.uk
Useful sources of options include:
The Crowdfunding Centre www.thecrowdfundingcentre.com
martin.manning@theswotteam.co.uk

5. The UK Crowdfunding Association www.ukcfa.org.uk
The Peer2 Peer Finance Association www.p2pfa.info
martin.manning@theswotteam.co.uk