Are institutional and professional investors considering alternative finance projects?
The Study ‘Assessing the potential for crowdfunding and other forms of alternative finance to support research and innovation’ which was recently released also looks whether and why institutional and professional investors invest in research and innovation (R&I) via alternative finance (AF) (e.g. crowdfunding projects).
The role of institutional investors remains limited when it comes to AF for R&I. Institutions were responsible for only 24% of peer-to-peer business lending investments, and only 8% of the investment on equity-based crowdfunding came from institutional investors in 2015 (Cambridge, KPMG, 2016). Similarly, according to the Study, on average, 5% of investors are institutional investors and more than half of platforms reported not having institutional investors registered at all. However, the situation is slowly changing...
Banks enter strategic partnerships with AF platforms as well as set up their own lending platforms. ABN Amro has launched the Dutch AF platform Seeds. A mobile bank, Hello Bank! launched an AF platform Hello crowd! in cooperation with Ulule (FR) crowdfunding platform. Robobank (NL) is in the trial period of building an online platform (Rabo & Co) that brings together businesses and its private Banking customers. The French public investment bank, BpiFrance, set up the TousNosProjets.fr, an online platform creating a French alternative finance marketplace. This platform brings together all of the projects currently raising funds and is sponsored by French operators authorised by BpiFrance. The bank supports AF by publishing details of 1,380 projects from 33 donation, loan and investment platforms (Business France, 2015).
Moreover, there are several examples of alternative finance platforms that enable the “crowd” to invest in projects backed up by professional investors. Through the UK platform VentureFounders, experienced investors can join VCs and angels to invest in early-stage, fast-growth UK businesses, which have been vetted and backed by professionals. The German crowdfunding platform, Deutsche Mikroinvest, offers investment opportunities solely for professional investors. UK platform, Investing Zone, enables investors to invest alongside corporate finance. SyndicateRoom, a UK crowdfunding platform, collaborated with Gust (the largest angel investment platform in the world) and Wayra (a leading accelerator) to enable individual investors to invest alongside BAs.
What are the key barriers for investors to get even more involved?
- Ecosystem-related risks: reliability of AF as a form of investment and lack of regulation.
- Project-related risks: financial aspects of projects, lack of collaterals, general liquidity of the market.
- Fundraiser-related risks: lack of expertise and management skills.
- Investor-related risk: no real understanding of the potential of the product raising money
- Platform-related risk: asymmetry of information, manipulation of credit scoring, and inappropriate due diligence checks.
Want to learn what are the proposed solutions addressing these issues?
Download the full Study here.