Seen until recently as a niche activity, alternative finance, including equity-based crowdfunding and peer-to-peer business lending, has become a vital and increasingly commonplace source of funding for many businesses throughout Europe.
In 2014, €201m of early-stage, growth and working capital funding was provided to European SMEs and startups by alternative finance platforms, with the volume of such online business funding growing at 75 per cent, said the ‘Moving Mainstream: The European Alternative Finance Benchmarking’ report.
Robert Wardrop, executive director of the Centre for Alternative Finance at Cambridge Judge, said: “These new forms of alternative finance are growing quickly, and this growth is beginning to attract institutional investors. Alternative finance, at least in some European countries, is on the cusp of becoming mainstream.”
The estimated number of startups and SMEs funded in this way has been growing at an even faster rate of 133 per cent over the last three years.
Essentially, the European online alternative market grew by 144 per cent last year to nearly €3bn, a figure that could quickly change to €7bn this year.
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“To date there has been little hard data about the extent of the industry across Europe,” explained EY managing partner Andy Baldwin. “And while it is still considerably smaller than the industry in the UK, alternative finance on the continent cannot be ignored.
“The UK market’s success has in part been driven by investors’ search for yield after the Bank of England’s QE program, so it will be interesting to see if the EU’s recent QE program sparks increased activity in Europe.
“For me some of the most interesting metrics are the rate of adoption in certain markets and models. For example peer-to-peer business lending grew at more than 270 per cent in mainland Europe this year, and Estonia and Sweden have some of the highest volumes per capita. The whole financial services industry should be watching this space with growing interest and this study will provide a valuable benchmark against which to measure future developments.”
However, the UK remains by far the largest European country for alternative finance, at €2.34b (£1.78 b) in 2014, followed by France at €154m, Germany at €140m, Sweden at €107m, the Netherlands at € 78m and Spain at €62m.
Alternative finance in Europe excluding the UK grew from €338m in 2013 to €620m in 2014. Peer-to-peer consumer lending is the largest market segment at €275m in 2014, followed by reward-based crowdfunding at €120m, peer-to-peer business lending at €93m and equity-based crowdfunding at €83m.
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