The Daring Dozen - FINAL-1 · present’ The Daring Dozen dar·ing(adjective!!...
Transcript of The Daring Dozen - FINAL-1 · present’ The Daring Dozen dar·ing(adjective!!...
present
The Daring Dozen
dar · ing adjective
1. (of a person or action) adventurous or audaciously bold.
synonyms: bold, audacious, adventurous, intrepid, venturesome, fearless, brave, unafraid, unshrinking, undaunted, dauntless, valiant, valorous, heroic, dashing.
2. Stands a good chance of changing the financial world!
Forewords I first started writing about the Alternative Finance space over five years ago for the Financial Times, observing the emergence of pioneers such as Zopa here in the UK. At the time I thought there was a huge opportunity here for investors and borrowers to work out a way of sidestepping the big banks, called disintermediation in the technical jargon. What I didn't realise was just how audacious this disruptive technology would prove to be, i.e how literally every bit of the financial spectrum could, arguably, be disintermediated using new technologies and clever marketing. In my naive way I thought we'd probably stop at fund raising for consumer loans and perhaps SME loans/equity. Little did I realise that once the fuse was lit, virtually every financial product was suddenly up for grabs. This special report highlights the sheer scale of disruptive innovation sweeping through the UK and Europe with a whole legion of platforms now attacking every niche imaginable. My sense is that we're at the tipping point of something really quite big. These new products and platforms are numerous and growing in number by the week BUT to date the amount of money that's been invested is still (in the great schema of things) quite small at just over £1 billion according to our internal data. So we have a situation where there are lots of great, disruptive brands but no killer products that have harvested billions of pounds. Our hunch at www.altfinancenews.com is that this will change in the next two years. Our own internal estimates suggest that the entire sector will probably have transacted over £3 billion (at least) by the end of 2015 and we should have at least one (if not two) billion pound platforms in the market. More importantly though we think at least one of the Daring Dozen identified in this report could surprise us all and smash every forecast. Each and every proposition here is revolutionary and daring. We'd like to think that each could dominate its space within a year or so, although inevitably more than a few will crash and burn. But they're absolutely worth watching. Killer propositions eventually turn into killer platforms which in turn kill 'old world' businesses stone cold dead! David Stevenson Editor-‐in-‐chief AltFinanceNews
Innovation is often an overused word (and I say that as Director of Innovation at PwC). A quick glance at Amazon.com shows 64,000+ books on the subject. Yet truly innovative business models are not hard to spot. Technology, and the internet in particular have enabled platform-‐led business models to spring up in multiple sectors. From Amazon revolutionizing book selling, to EBay shaking up retailing, what these platforms have in common, aside from technology, is a two-‐sided business model. Not only can you buy a sofa via EBay, you can set up a sofa shop should you so wish. In the UK we have seen similar moves in online gambling: when Betfair started it allowed punters, for the first time to lay a bet (i.e. bet something wouldn’t happen) as well as the more normal practice of placing one. And this is what we believe is innovative about the rapidly growing P2P sector. These platforms bring lenders and borrowers together – at pace – in a matching exercise that bears a close resemblance to some of the other companies mentioned above. You can choose to be a lender, or choose to be a borrower, depending on your means, costs of capital and risk appetite. No wonder, then, that Betfair founders and backers sit on the boards of some of the UK’s P2P companies. All growth sectors experience growing pains and we shouldn’t expect this one to be any different. Regulation is imminent (and welcomed by the companies themselves) and new business models emerge on a regular basis, as demonstrated by some of the divergent companies mentioned in this note. In due course, as the sector matures, we should expect consolidation, capital raising and yes, company failure. The latter is, after all, just part of the innovation cycle. What seems certain, however, is that the growth experienced to date will continue to attract capital (perhaps aided by regulation) as alternative finance business models develop. We’re excited about the future. Mark James Director, Innovation PwC
As a modest early supporter of disruptive businesses such as Betfair, I hope I've developed a sense of when something very big is about to happen. When Betfair was still a small business there were many who thought that disruptive change just wasn't possible in the gambling space. They were wrong and they'll be wrong again within financial services. The big banks probably don't feel that threatened at the moment by the new Alternative Finance platforms but that'll change as platforms that operate in P2P lending and crowdfunding gain real scale. The new breed of p2p platforms have such a massive cost advantage over the traditional banks that it is hard to envisage this story staying hidden for long. Regulation will be a key stimulus to the rate of acceptance and growth. More institutional money will then begin to flow into the space, as wealth managers and asset managers look for opportunities to generate a sustainable income from lending to people and businesses. Information flows will improve, confidence in the platforms will rise, benchmarks and ratings will start to emerge. Platforms will become better understood, will offer more products and become deeper and more liquid – ushering in more capital. And then before any of us have quite twigged, this sector will have emerged as a big new investment class, with countless billions of pounds invested in the space and dozens of institutions providing capital for everything from consumer loans and SME growth capital through to funding for bands and artists. And then -‐ with the benefit of hindsight -‐ we will all say that disruptive change was inevitable and that of course the high street banks had their vulnerabilities! The big task now though is to fine tune the propositions, see who has the most robust products and propositions and work out how to get institutional scale money into the sector so that AltFinance businesses can thrive and grow. I'm hugely excited about the opportunity to help investment institutions tap this diverse and growing market and genuinely believe that, with the help of our super bright team at P2PCS, we can transform the UK funding scene, providing billions of pounds of new financing opportunities for businesses small and large and fundamentally transform the relationship between providers of capital and borrowers. So, lots of work needs to be done (standardizing information and opening access to platforms are just two rudimentary tasks) but I suspect we've got to go back to basics first … what's the proposition and is the platform different enough to make a difference and disrupt UK finance? A few of these disruptors might even be amongst this daring dozen! Simon Champ CEO P2PCS
What drove the selection process for The Daring Dozen? It centered upon the word innovation. The alternative finance sector – within which these dozen platforms operate – is marked by invention. It is youthful, vibrant, and disruptive. You may think that the very prefix “alternative” says it all about where the sector stands, but peripheral it is not. Standards and regulations are helping to mold the sector into an extremely viable, increasingly mainstream option for fund seeking. The sector’s recent passing of the £1 billion milestone is emblematic of that. “Modern finance” is beginning to creep in as the preferred term of reference. We are at the point now where we can reasonably talk of the “typical” crowdfunding model, or the “standard” peer-‐to-‐peer lending platform. These twelve trailblazers are different. Each has a twist or a turn that in some way represents a departure from what has now become normality in the sector. In choosing The Daring Dozen, I actively sought out that differentiating streak. That was criterion one. But as anyone who follows the alternative finance space with even the mildest curiosity will know, seemingly unique platforms spring up on a weekly basis. In selecting these twelve, I also stressed the need for feasibility. The members of this list will continue the flow of diversity and flexibility into the alternative finance space. Their structural quirks are welcome, and those quirks will or have already set each of these platforms in good stead. Among these dozen may be found a few platforms that will one day set off ripples of emulation themselves. Ryan Weeks Chief news writer AltFinanceNews
Wellesley & Co. www.wellesley.co.uk Every loan made via this platform is financed in full by Wellesley & Co., and then partially refinanced by their customers. Every lending decision is made with the platform’s own money at risk of not being repaid.
Searching for a platform to quiet the naysayers of peer-‐to-‐peer lending? Wellesley & Co. could be the answer. It is the first platform to have some skin in the game for every loan facilitated – a purpose for which £5 million was initially set aside. Investors are sure to feel more confident when their risk is shared by the platform itself. Wellesley’s professional lending and credit team assess the credit risk of all loans. Each loan is secured upon an appropriate asset. The platform also boasts a provision fund. This fund is topped up with a percentage of every loan made via the platform.
“We are very excited to be launching our platform at a time when the sector is growing exponentially. We spotted a gap within the market which to date has not been addressed. We are bringing to the market for the first time an asset backed model where the operator is taking a stake in every loan.” – CEO Graham Wellesley
Bottom line: A clear attempt to minimize risk sets Wellesley & Co. apart. Wellesley has subordinated their interests to those of their independent lenders – who will always be the first to be repaid from the contingency fund in the event of a default.
CrowdRacing www.crowdracing.co.uk Investing in racehorses – typically the preserve of the über rich – will now be made available to the masses through the CrowdRacing platform. The site allows trainers and syndicates to pitch for investment online.
CrowdRacing will operate as an equity crowdfunding platform. Trainers will advertise ownership of a set percentage of a thoroughbred in exchange for cash. Horses First Racing and Biddestone Stud listed the site’s first campaign – a two-‐year-‐old colt that will begin racing in 2014. Crowdcube – one of the largest equity crowdfunding platforms in the UK – have provided the platform technology.
“Owning racehorses will no longer be reserved for the rich and famous—now anyone can genuinely own a share of a thoroughbred for as little as a £75 one-‐off payment. It's an affordable way to get involved, and of course if you have more to invest, the range of owner benefits goes up, but all owners get their share of any prize money, or the proceeds of any sale of their horse." – founder Craig Mckenna
Bottom line: Is this not crowdfunding at its finest? Allowing ordinary people access to an asset class that has previously been barred shut to them? With investments starting at as little as £75, Crowd Racing will truly open up racehorse ownership to a new bastion of financial support.
QuidCycle www.quidcycle.com QuidCycle is a peer-‐to-‐peer lending platform which liberates responsible borrowers from cyclical debt through a combination of consolidation, incentives for keeping on track with payments, and mentoring.
QuidCycle’s ethical proposition is refreshingly genuine. They aim to ease responsible borrowers out of debt by refinancing that debt at a lower interest rate. The platform will give borrowers access to online financial training, as well as annual access to a financial adviser. QuidCycle offer financial incentives to borrowers who stay on track with their repayments, and who take advantage of the educational facilities at their disposal. If these criteria are met, borrowers’ interest rates will steadily fall. The platform hopes that, with time and education, their borrowers can become lenders and start to accumulate savings of their own. QuidCycle extract their origination fee throughout the lifetime of a loan, not as a lump sum at the beginning.
“It should not, and cannot be acceptable in any society that financial institutions, of which there are many old and new, continue to offer people more ways to get into even more debt, but don’t offer them a credible solution for getting out of debt.” – founder and CEO Frank Mukahanana
Bottom line: QuidCycle clearly prioritzes debt alleviation over turning a profit. Their customer-‐focused model has the potential to challenge payday loans companies in the UK.
Lendico www.lendico.de The product of the Berlin-‐based Rocket Internet – the word’s largest internet incubator – Lendico is a peer-‐to-‐peer lending platform offering loans of €1,000 to €25,000.
The copycat factory strikes again! Rocket Internet specializes in replicating successful business ideas in order to build new online companies and launch them in different markets. They have launched over 100 market-‐leading companies since their creation in 1999. In breeding Lendico the company have borrowed from the business models of LendingClub and Zopa. Lendico already has offshoots in Austria, Denmark, France, Italy, the Netherlands, Norway, Poland, Russia, Spain, Sweden and Turkey. Rocket Internet will give Lendico access to huge amounts of capital. In July of this year the internet incubator was reported to have secured $500 million in funding.
“From the start, Lendico was developed as the digital alternative to banks. We challenge the monopolistic situation in the loans business. Lendico is a new way of financing personal loans and a new asset class.” – co-‐founder Dr. Dominik Steinkühler
Bottom line: “Daring”? Not so much. Effective? Unquestionably. Auxmoney and Smava, Germany’s existing lending platforms, may struggle to compete with this new entrant.
NexTrend https://nextrend.com NexTrend can provide financial support throughout the lifecycle of a growing business. Boasting a reward/donation-‐based platform, an equity crowdfunding platform, and an investment-‐banking site – the Dallas-‐based NexTrend describe themselves as “the total solution for entrepreneurs, contributors and investors”.
Yet another tweaking of the typical crowdfunding platform, NexTrend offers a truly unique service. The crowdfunding platform will provide startups with an initial cash injection as well as critical benefits like proof of concept, consumer awareness and market validation. The equity crowdfunding site will provide access to increased levels of capital for borrowers and lenders, alongside further market validation for the entrepreneur. NexTrend Securities will come into its own as business structures and growth strategies begin to require more sophisticated and sustainable financial options. It is entirely feasible that a start-‐up project may use all three platforms – building a lasting relationship with the platform.
“Due to NexTrend's broad range of services and business lines NexTrend is in the position to offer the NexTrend crowdfunding owned services for free, saving project owners thousands if not tens of thousands of dollars over other crowdfunding websites." – CEO Mark Cherlin Bottom line: NexTrend will not charge projects success fees, likely because successful projects may well find their way back to another NexTrend platform before long. The site will will be in a strong position if it can retain users throughout the business lifecycle of their start-‐up projects.
hubbub https://hubbub.net Hubbub creates white-‐label, institution-‐branded crowdfunding platforms for universities. The individual student and university projects it supports are tied to a particular community, and can very effectively engage the support of alumni.
The key word here is flexibility. Hubbub can be used as a fundraising tool for students, societies and institutions. The promotional value of being connected to an institution should not be underestimated. The site also offers promotional advice, and valuable tips and feedback for all projects throughout the course of a campaign in order to maximize success rates.
“Hubbub’s key benefit is our focus on education. On hubbub, your project is connected to your educational institution, which creates trust and provides the opportunity to promote your project to alumni. We showcase your project to sponsors of connected projects, such as those at your university, college, or school. Furthermore, our promotion advice is specific to students and educators.” – Founder Duncan Knox
Bottom line: As more and more platforms attempt to bring the power of crowdfunding to bear upon education, a select few will inevitably rise above the rest. We like hubbub because they offer a near complete solution for fundraising in education.
LendInvest www.lendinvest.com LendInvest is the first peer-‐to-‐peer lending platform specifically geared towards residential and commercial mortgages. All loans made via the platform are secured by a registered legal charge against property in the UK.
LendInvest was born into an advantageous position. It was incubated by Montello Capital Partners – one of the leading short-‐term real estate lenders in the UK. Through this association, LendInvest has access to a wealth of real world experience, a significant track record, and some of the best loan underwriting and fraud detection systems in the mortgage market.
"Our platform blends cutting edge technology with a human touch -‐ the process is automated as far as possible, but real people with extensive experience in property lending oversee and underwrite every deal. We basically do the same due diligence that a bank would do on a loan, and make these loans available to investors – allowing investors to become the lender." – co-‐founder Christian Faes
Bottom line: As rules pertaining to peer-‐to-‐peer lending continue to tighten, the minds of regulators are sure to be fixed upon risk and security for investors. LendInvest will thrive off the back of its ties to Montello Capital – which give it an immediate advantage over the field.
TrustBuddy trustbuddy.com/en/ This Stockholm-‐based peer-‐to-‐peer lending platform is challenging payday loans companies. Borrowers can receive loans ranging from €100 to €600 which are free of charge if fully repaid within 14 days – in which case neither investors nor TrustBuddy receive any return.
TrustBuddy would be warmly welcomed by UK borrowers. For now, UK residents may only lend through the platform. For TrustBuddy members in other countries (Sweden, Finland, Switzerland, Spain, Poland, Norway, Germany and Serbia) the borrowing process is swift and easy. Borrowers can expect a response to loan applications within 15-‐60 minutes. For lenders, the small minimum investment of £50 and an attractive fixed interest rate of 12% (11.17% after fees) make TrustBuddy an attractive proposition, not to mention the platform’s ethically sound structure.
"We're pleased about being recognized by financial wizards such as Mr. Fredly, and see a steadily increasing flow of interest from investors at this level. We expect this to be a tell-‐tale sign that other high net-‐worth individuals are beginning to move into the great investment alternative P2P Lending markets area.” – founder Jens Glasø (commenting on a significant investment in TrustBuddy from Arne H. Fredly – a prominent Norwegian investor)
Bottom line: We’re starting to see a variety of models surface to challenge payday loans outfits, but TrustBuddy leads the way at present. We’re sure the platform will continue its expansion across Europe.
Crossflow Payments www.crossflowpayments.co.uk Crossflow Payments offer suppliers and buyers alternative sources of supply chain finance. The platform supports the early settlement of invoices from users and provides access finance linked to those invoices.
The peer-‐to-‐peer element may be new, but the business is not. Crossflow Payments was founded in 2010 and had managed the flow of £740 million worth of invoices before launching a peer-‐to-‐peer platform in September. The platform supports businesses by offering “just in time” supply chain finance to its users. The site’s technology automates and streamlines the transaction flow from invoice processing, approval, payment and settlement to the finance provider. Crossflow Payments only provide funding towards approved invoices between a corporate buyer and a supplier. The site can therefore use historical data to produce a calculated risk for finance providers.
“Our unique platform offers P2P lending which combines high gross yield with minimal risk for the finance provider. What we are doing is allying savvy investors with a huge resource of investment opportunities which promise excellent returns while also helping the UK’s SMEs to flourish and boost the British economy.” – CEO Tony Duggan
Bottom line: Crossflow Payments will allow investors and financial institutions to supply immediate funds to the value of an invoice – which they are encouraged to do through a relatively high gross yield. Their support will be especially welcome for UK SMEs, who are so often sunk by cash flow issues.
PledgeMusic www.pledgemusic.com PledgeMusic offers backers an interactive method of supporting the production of music. In exchange for supporting a project, backers can gain access to exclusive content, VIP show tickets, and band meets. They can also follow the creation process via regular behind-‐the-‐scenes updates from their chosen artist.
PledgeMusic is streaking away from the competition. The platform offers both an all-‐or-‐nothing and a pre-‐order style of campaign. Funds pledged to a pre-‐order campaign are charged immediately, and the backer will receive the record as soon as it releases to pledgers. The fee for artists using the site is 15%, and is extracted upon a campaign’s completion. Every project submitted to the platform is individually assessed by a member of the PledgeMusic team. The members of that team have written and released 14 albums between them, giving users access to a wealth of experience.
"Crowdfunding is 'please give money, then I will do.' Direct-‐to-‐consumer is 'I've done it, here's five ways to buy it.' We're in the middle with 'be a part of the making of it' – it truly is direct-‐to-‐fan." – CEO Benji Rogers
Bottom line: If you look at, say, crowdfunding options for education-‐based campaigns, there are many platforms, and no clear leader. PledgeMusic is remarkable for seemingly having already nailed down a spot as the premier option for crowdfunding in music.
WeSwap www.weswap.com WeSwap are a peer-‐to-‐peer currency exchange site which will allow people travelling to and from countries to directly swap their money, either via the website or by using the WeSwap app.
Farewell to the middleman. WeSwap matches users with people travelling in the opposite directions to themselves in order to make a cash swap. By circumventing banks and retail outlets, WeSwap can afford to charge travellers a measly 1% to exchange currency. Some currency swap services charge up to 13%. Better still, if a user introduces another person to the service, the two users can swap currency together for free, for life, at the pure mid-‐market, fee-‐free exchange rate! Any exchanged funds can be easily (and freely) accessed abroad using a WeSwap Prepaid Mastercard – which is sent to users after registration.
"WeSwap is unique because it harnesses the power of peer-‐to-‐peer market and brings holidaymakers and travellers a fast, accessible and simple solution to getting best value foreign currency. By matching people who are travelling in opposite directions, it allows people around the world to swap their currencies without using banks or expensive retail outlets. It's cheaper, more personal and we'd like to think it makes people happier too." – co-‐founders Jared Jesner and Simon Sacerdoti
Bottom line: WeSwap have put the peer-‐to-‐peer model to a fresh and astute use. They continue the worldwide trend of cutting out intermediaries in order to provide a cheaper and more personal financial service.
Finmar https://finmar.com Finmar are the first peer-‐to-‐peer lending platform in Germany to focus on peer-‐to-‐company lending. Rather than keep the identity of the borrower private, as is typical of such platforms, Finmar will ask borrowers to reveal the purpose of the loan they are seeking.
So, why the transparency? The logic is that such active and open use of the platform will advance the reputation of the businesses that are borrowing, and convince suppliers, business partners and customers to become loan creditors. Borrowers will be required to post a video illustrating their loan request and to reach out to their community. Finmar see community ties as an important aspect of their model. The platform will arrange loans of €2,500 to €25,000 for terms of 6 to 60 months for business owners. Only residents of Germany can borrow or lend via the platform currently.
“Finmar pursues the principle of transparency, ie. representing the borrowers with their real names. In addition, the project video is mandatory for borrowers. We believe that the decision to provide money as a loan is a question of trust. Namely, whether the borrower seriously intends to repay me the money or not.” – founder Clas Beese (translated from German)
Bottom line: If Finmar can indeed generate regional loans, they would be treading unfamiliar and potentially valuable territory for peer-‐to-‐peer lenders – for whom the location of borrower and lender is usually of little to no relevance.
The Revolution is coming . . . Don’t miss out on the AltFi Summit 2014. The Alternative Finance space is growing at a phenomenal rate with 2014 likely to be the biggest year yet for investors!
Every week seems to bring new opportunities (and talk of tax breaks!) and that means that professional advisers and investment managers need to understand the true scale of opportunity represented by this disruptive sector.
What are the likely returns from lending to businesses and consumers through P2P platforms?
Can investment managers construct short duration diversified portfolios of invoice-‐based investments?
Can crowdfunding opportunities sit alongside EIS structures and venture capital?
Which platforms will be tomorrow's dominant brands and how can I invest in them?
AltFi 2014 on March 11th at Vinopolis aims to answer all of these questions and much more! Our exclusive audience of industry leaders and sector investors includes nearly all the major platforms in Europe, key venture capitalists, private equity firms and leading wealth sector investors looking to put money onto these new platforms.
It's the definitive European event for this fast growing sector, with a focus towards investors, investment opportunities and business development for the sector.
www.altfi.com
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