According to the first comprehensive pan-European benchmarking of online alternative finance – instruments and distribution channels that are emerging outside of the traditional financial system – the European market for ‘alt finance’ grew by 144 percent last year to just under 3 billion euros, and could hit 7 billion euros this year as companies are increasingly looking to tap fresh sources of capital.
The research (PDF) was carried out by the new Centre for Alternative Finance at University of Cambridge Judge Business School and professional services organisation EY together with a number of industry associations such as the European Crowdfunding Network and the CrowdfundingHub, self-reportedly capturing an estimated 85-90 percent of the European online alternative finance market.
Online alternative financing includes financial transaction platforms such as equity-based crowdfunding (Seedrs, FundedByMy, Crowdcube etc.) and peer-to-peer business lending services (Funding Circle, Zopa, Auxmoney etc.), which are quickly becoming a popular way for European SMEs and startups to access capital rather than going to banks for credit, or VC firms for seed funding.
In 2013, the online alternative finance market was worth only an estimated 1.21 billion euros, but according the report has more than doubled in size last year to 2.96 billion euros and is on track to grow beyond 7 billion euros in 2015 – if all goes well. Undoubtedly, the momentum is there.
Collectively, the European alternative finance market, excluding the UK, is estimated to have provided 385 million euros worth of early-stage, growth and working capital financing to nearly 10,000 European startups and SMEs during the last three years, of which 201.5 million euros was funded in 2014 alone.
Among other things, the study found that the top markets in mainland Europe by volume of alternative finance are France, Germany, Sweden, the Netherlands and Spain. But, overall, the UK remains by far the largest European country for alt finance, at 2.34 billion euros in 2014.
For your comparison: the alternative financing market size for number two, France, is only 154 million euros, followed by Germany at 140 million euros. Huge room for growth outside the UK, we daresay.
Also worth noting: if ranked on volume per capita, Estonia actually takes second place in Europe after the UK (36 euros per capita), with 22 million euros in total and 16 euros per capita.
Researcher Robert Wardrop, who co-authored the report and serves as Executive Director of the just-launched Centre for Alternative Finance at Cambridge Judge Business School, reckons that alternative finance is “at least in some European countries, on the cusp of becoming mainstream”.
EY’s Andy Baldwin, meanwhile, correctly notes that alternative finance also comes with an entirely new set of risks, and points out that the regulation of the sector is currently “uneven across Europe”. Indeed, many EU countries lack dedicated regulation for alternative finance providers, or worse, apply existing regulations that were not specifically designed to cover this kind of activity.
Another problem, highlighted in the report by CrowdfundingHub founder Ronald Kleverlaan is that the industry is very fragmented and that a lot of investors and entrepreneurs are unsure of how to start using crowdfunding. Kleverlaan posits that there exists a major need to educate them and other industry stakeholders to speed up the adoption process.
(Featured image credit: docstockmedia / Shutterstock)