Since before the global financial crisis, a new breed of financial services has been taking hold in markets as far afield as the US and China. Today, the UK itself is a world leader in equity crowdfunding and online lending platforms.
It is estimated that close to half of all investment in UK fintech relates to platform based financial services.
The fastest growing and most visible area of alternative finance is Peer to Peer (P2P) lending. This was born back in 2006 with ZOPA who facilitate loans between investors and members of the public.
ZOPA proved to be very successful and following the banking crisis of 2008 the number and markets P2P lending services has grown quickly. There are now over 100 platforms in the UK offering investment and borrowing opportunities for individuals, businesses, property development and investment and invoice factoring.
Over the past few years the growth of crowdfunding has been remarkable. It started as a reaction to a decline in bank lending and traditional sources of finance following the credit crunch of 2008. Since then, we have seen Crowdcube raise over £46m from 115,000 members for start up businesses and Peer to Peer lending sites like Funding Circle facilitate over £100m of loans for small and medium sized businesses. The sector that has been slower to approach these alternative sources of finance has been real estate.
The ability to source capital for development projects or commercial property investments outside major cities such as central London continues to be very difficult. This is despite the genuine opportunity of excellent financial returns.
Over the past 18 months, crowdfunding has entered the vocabulary of the business community, but it can mean very different things to different people. There are currently circa 87 crowdfunding platforms operating in the UK. They are offering investors the opportunity to lend to business, buy equity in start ups and growing businesses, support projects for rewards or buy a new product which is still in development. This has led to a lot of confusion in the market place as the definition of what exactly crowdfunding is has become very broad.
Usually crowdfunding platforms are classified as being loan-based (P2P lending), investment-based or a rewards based model. These classifications have been adopted by the FCA in their recent policy statement (PS14/4) but what do they mean?
It's you who will deliver on the investment. It can be a world class product or service but if you can't deliver, no one will profit. You therefore have to convince the platform that you have the skills, experience and track record to create a success using the funds invested. You also have to convince the platform that you will be able to engage and connect with potential investors as well as being easy to work with and can be a good leader.
The UK Crowd Funding Association (UKCFA) have launched a PlaceSpeak topic to encourage their members and others with an interest in Crowdfunding to voice their opinions and join the debate on the future of Crowdfunding in the UK.
Crowdfunding is a recent development in the financial services sector. It is the practice of businesses borrowing money or selling equity to a large number of small investors. The two main models are the sale of equity and peer to peer lending. The FCA views the offering of other debt securities such as debentures as an equity investment. This is due to the perceived level of risk despite the fact that it is a form of peer to peer lending. Others in the design, technology, arts and charitable sectors have adopted the sponsorship/donation or reward model.
With the success of Funding Circle, record breaking months of money raising with Crowdcube and Seedrs and new platforms launching every week, a few questions remain unanswered. Why are most Enterprise Investment Schemes ("EIS") still being promoted with a scruffy PDF and a long trudge through IFA firms, hotel lobbys and coffees shops? Why is it that it appears to be only the more risky startups and not the established profitable businesses, that are looking to expand via crowdfunding? And of course, the question that I am constantly thinking about, should the term crowdfunding be permanently dropped from the business community and replaced by the more appropriate description of what really is happening i.e. crowdinvesting?
There are two big fears when it comes to equity crowdfunding. Platforms fear regulation and everyone fears fraud. Both unfortunately are likely, but signs are that these fears will be reduced by a collaborative approach from the FCA and the crowdfunding platforms themselves.
The property professionals journal  Estates Gazette  had one of the most interesting editorial comment pages that Ive seen for a long time on the 8th June.
Daily Telegraph 11th June 2013: Can the UK lead the world in Crowdfunding? Australia might have beaten them too it!
In an interview with the Daily Telegraph last week Jeff Lynn from Seedrs gave an excellent overview of the equity crowd funding landscape and introduced some great success stories. The suggestion that the UK can lead the world in equity crowd funding is based on the premise that the UK have granted regulated approval for Crowd Cube and Seedrs while the US grapple with the Jobs ACT. I would however suggest they all take a look at the Australian Small Scale Offerings Board (ASSOB). They have helped Australian business crowd fund $133,813,078 since 2005.
As the European banking sector continues to focus on rebuilding their balance sheets following the financial crisis, crowdfunding is increasingly being seen as one alternative solution for businesses to get access to funding. The crowdfunding industry is however keen to see a degree of regulation to provide protection and confidence to everyone involved.
The changing landscape of business finance and lending continues with small and medium sized businesses being encouraged to look beyond the main high street banks for lending and sources of funds for growth.
As the main high street banks retreat from lending to small and medium sized businesses the CBI have published a report encouraging a revolution in business finance. Encouraging the growth of the corporate bonds market, invoice or other factoring and crowdfunding.Crowdfunding can take the form of peer to peer lending by firms such as Funding Circle or direct equity investment through websites such as Crowdcube or Seedrs.
Westlake and Lang co-founders of Crowdcube.
If further proof is needed to convince that equity crowd funding is growing in reputation as well investor confidence Crowdcube have delivered it. They used their own platform to raise £1.5 million in just three days from 259 investors. Existing investors met the initial funding target of £250,000 within the first five hours of the pitch going live, making it the fastest equity funding on a crowdfunding website anywhere in the world. The pitch was then opened up for others to invest with one million pounds being invested in the following 24 hours. The investment, which sets a new world record for funds raised via an equity crowdfunding platform, will be used to fuel Crowdcubes next phase of growth.
It was interesting to read in the Guardian yesterday that - last month Reuters reported crowdfunding had helped companies and individuals worldwide raise $2.7bn (£1.7bn) from the public in 2012  an 81% increase on the previous year. This year the total is predicted to hit $5.1bn (£3.3bn).
The article goes on to outline the key players in this sector - kickstarter, crowdcube, seedrs, abundance, peoplefundit. The emphasis is on how these different players help people and businesses raise money - unfortunately it doesn't report in any detail on the returns investors have enjoyed.
The majority of large property deals in the UK are transacted by a handful of institutional investors or very wealthy people. As Thatchers legacy is currently being closely examined, the obvious question is what would Lady Thatcher have thought about this new way to invest in real estate? Surely she would want everyone to have the opportunity to share in this market?
Individuals rarely purchase commercial property, its usually a pension fund, an investment company or an institutional investor. What they have in common is that they put lots of different peoples money into a company structure that then buys the property and shares the proceeds. To put it another way, its Crowdfunding  but  the crowd dont always know what they are investing in and there in lies the problem.
Many would argue that property and the banks crashed because funds had targeted high yielding but extremely risky portfolios to make up short falls in other under performing assets. The problem in my view is that investors didnt always see the whole portfolio, so the crowd was kept in the dark and didnt see the crash coming.