The seminar, chaired by Andy Davis, programme director of the Informed Funding and Alternative Funding Network, centred around the future of the Alternative Funding landscape.
Andy’s panel consisted of Frank Webster, campaigns director at Seedrs, John Battersby, commercial director at RateSetter and Daniel Kiernan, associate director at Intelligent Partnership. The trio discussed the path alternative funding platforms will go down in the coming years and the challenges this will bring.
If you’re a New and Growing Company that’s thinking of using an alternative finance lender or you’ve thought about becoming a lender yourself, make sure you digest the following key takeaways from last week’s fascinating discussion:
It’s business as usual despite recent industry negativity
Attention turned quickly to recent negative press within the industry regarding major alternative lender, LendingClub, amid stories of rising default rates, fund underperformance and the recent departure of former CEO, Renaud Laplanche leading to governance issues. However, the panel stressed that despite the negative coverage, it does not and should not reflect on the wider industry and insisted it was business as usual here in the UK.
The balance between institutional and retail money
The demographic of lenders within alternative funding platforms was also up for discussion, with the balance between institutional and retail money in question. It was said that while institutional backers were important to give confidence to retail lenders, it was important that they didn’t have too much influence and begin to dictate their terms too heavily. It was agreed that retail money offered longevity to a lending platform and shouldn’t be disregarded by any means.
Lenders and ‘skinning the game’
Traditionally, alternative funding platforms have not involved investing their own money in businesses. A reliance on outside investment begs the question how much incentive do the platforms themselves have to ensure each investment is low-risk? The panel discussed the danger of platforms simply creating pure volume, resulting in bad deals and the potential for negative press.
Some platforms are beginning to lend themselves, giving the executives a long-term vested interest in the success of each investment. Additionally, some platforms are now opting to take their cut in stages throughout the lifespan of the loan, demonstrating a commitment to the growth of the businesses they invest in.
The industry landscape – what does success look like?
With more than 200 players within the UK’s alternative funding market, it was interesting to hear the panel discuss how the industry was shaping up having sourced over £1bn of debt and £250m of equity for SMEs across the country. It was said that the industry features a small number of large platforms which cater to the needs of a broad spectrum of business types. However, there has also been a genesis of small, specialist platforms serving everything from export finance to asset finance.
In terms of the winners and losers within the UK Alternative Funding industry, it was agreed by the panel that the larger alternative lending platforms view success in terms of their ability to rival banks in the provision of business finance. Meanwhile the smaller niche lenders are simply happy to be profitable, working ethically to supply finance to those that fit their respective lending profiles.
The overriding tone from the discussion was that, despite recent negativity and uncertainty within the industry, Alternative Funding in 2016 is very much here to stay. However, platforms must do everything they can to mitigate investment risk and achieve long-term sustainability.