New Asset Classes

New financial asset classes (Crowdfunding – Donation, Equity, Reward; P2P) are emerging fueled by investor demand for premium deal flow (Equity Crowdfunding –HealthiosXchange), lower fees (borrowers refinancing high cost consumer debt via Marketplace Lending – Prosper), philanthropic motivations (“Impact the World” via micro-finance – Kiva), desires to prepay for innovative products (Reward-Based Crowdfunding platforms – Kickstarter), and legislation (the JOBS Act). Are Marketplace Lending/Crowdfunding new asset classes? The stats say Yes! (Source: Massolution)

Growth rates accelerating

  • Market grew 81% from 2011-2012 exceeding 64% growth from 2010-2011
  • Funds raised via Equity Crowdfunding projected to increase from 4% (in 2013; 200MM) to 8% (in 2014; $800MM) of total capital raised in the sector
  • Limited Partners going direct – Sensitivity to high fees as demonstration by Calpers recent decision to eliminate hedge funds from their portfolios and retail properties

Crowdfunding (Donation, Equity, Reward)/Marketplace Lending (P2P) achieving critical mass

  • $5.1 BLN raised in 2013
  • $10+ BLN expected to be raised in 2014
  • 72% raised in North America in 2013; 26% raised in Europe; Remaining 2% raised primarily in Asia and Oceania

P2P an Asset Class by Itself

  • P2P lending surpassed $7BLN in originations through October of 2014
  • Prosper announced this past April having surpassed the $1 billion mark in loans. This was an important event for the peer-to-peer lending platform and it took 8 years to loan this amount. Six months later Prosper has easily doubled that figure and has now loaned over $2 billion. (Source: Prosper: $1 Billion in Loans in Just 6 Months, CrowdFundInsider, November 3rd, 2014, JD Alois)

Convergence is here to stay

  • Traditional banks and hedge funds increasingly adopting P2P platforms (i.e., sourcing and securitizing loans)
  • Limited Partners (LP’s) investing directly in emerging growth companies via investor syndicates (i.e., Maiden Lane – AngelList) and venture capitalists raising capital online (Signatures Capital – FundersClub’s “Partnerships”)
  • Broker Dealers/RIA’s adopting “white label” solutions (i.e., CrowdFundConnnect) to raise capital from alternative investors (Accredited, Family Offices, LP’s Direct)

Equity Crowdfunding – Adoption Rates are Robust

Investors Seeking “Yield” Backed by Real Assets and Access to Promising Tech Startups

Real Estate. Real Estate has been one of the most successful industries to crowdfund including debt (peer-to-real estate) and equity portals. Real estate crowdfunding portals make it easier for investors to identify, diligence and invest in premium institutional-quality deal flow including multi-family, office, industrial, hotels, and retail properties. “Real estate is arguably the industry to have benefited most from the explosive growth in crowdfunding. Crowdnetic has reported that real estate accounted for investments of more than $17 million in April 2014 followed by consumer products with $6.5 million. Crowdfunding platform Realty Mogul alone has raised over $26 million from investors since its inception.” (Source: David Drake, Board of Advisors – Global Deeds)

Technology. Leading Technology portals AngelList, FundersClub, and SeedInvest have successfully brought Angel/Venture investing online. Investor demand for early access to promising Valley-based startups is global, not just for those living in the surrounding area.

Reward Crowdfunding – Adoption Rates are Robust

Insatiable Appetite by the Crowd to Fund Creative/Innovative projects

Kickstarter has an enviable track record of raising capital for creative endeavors (musicians, artists etc.) in addition to providing the foundation for listed-companies to secure venture capital and ultimately successful “exits.”

“Facebook announced Tuesday that it acquired Oculus VR, the company behind the Oculus Rift gaming headset in a cash and stock deal valued at $2 billion. The Oculus Rift project gained prominence on Kickstarter, raising over $2 million in the summer of 2012. The company went on to raise more than $91 million in venture funding in 2013. With this exit, the Oculus Rift is easily the most successful Kickstarter project of all time.” (Source: Mashable)

Donation Crowdfunding – Adoption Rates are Robust

Platforms Increasing Efficiencies and Transparencies of Donating/Lending (Micro-Finance) Money Online

Automization = donors self-generate data such as photographing documents with a smartphone, filtering it electronically – lowers costs and increases the speed at which a startup can lend.

Read more or download the article here.