An alternative way to play the growth in alternative finance
There’s a reasonable chance that if you’re reading this website then you already think that alternative finance could be set for rapid growth. The $64m question then becomes how to play this growth story as an investor? As founder and executive director of AltFi I’ve taken over CrowdView this week in order to encourage you as an investor to consider looking at this website as a way to play the potential growth within this exciting space. My co-founder Rupert Taylor and I are between us investing £15,000 of our own money in a crowdfunding campaign currently live on CrowdCube – the link to CrowdCube is HERE. Hopefully, after reading this short note you might understand why we’re putting our money where our mouth is – and maybe even consider joining us.
First though a bit of context about investing in early stage businesses such as AltFi. They’re risky, very risky compared to boring stuff like cash or government bonds, but as an asset class early stage businesses are not quite as risky as they sometimes seem.
Just a few days ago our sister company AltFi Data released its annual Where Are They Now report. This eloquently explained both the risks and rewards of investing in early stage businesses on crowdfunding platforms. The report definitively proves the status of the 751 companies that have crowdfunded since this method of raising capital was conceived in 2011. The results are impressive. The survival rate is high. Even in the aged cohorts - 2011, 2012, 2013 – 74 per cent of the companies are still trading.
There is also evidence across all cohorts of far more ‘up rounds’ than ‘down rounds’. The result is that the IRR of the entire portfolio, including EIS benefit, is >18 per cent, or >8 per cent before EIS.
So, given this investment backdrop, what’s AltFi got going for it as an investment idea? In case you didn’t know already, AltFi is a media and events company operating in the relatively new industry of alternative finance, focused mostly on P2P lending and crowdfunding. We built the site because the mainstream media wasn’t really covering this important industry in great detail and there was a need to fill the vacuum for news and data and create networking opportunities for the players in the industry.
In the three years since its launch AltFi has established itself as an important and respected participant in alternative finance reporting. We have seen our site users increase by almost 80 per cent in twelve months.
Source: Google analytics - AltFi site traffic 2016 V 2015
We would argue that our events are also increasingly the go-to place for industry insiders to network and discuss new trends. As this sector has grown AltFi and its sister company AltFi Data – in which we own roughly a third of the shares - are now increasingly referenced by the wider mainstream media including the Financial Times and MoneyWeek.
The alternative finance industry has experienced rapid growth over the last four years and most commentators believe that this is set to continue.
Source: KPMG - Global Insights From Regional Alternative Finance Studies
Barely a week goes by without news indicating exponential, global growth. Just last week in crowdfunding equity, for instance, my colleagues on AltFi News reported the following developments:
- The first equity crowdfunding platform in the Middle East, Africa and South Asia (MEASA) region launched in Dubai. According to CEO of the Dubai International Financial Centre, Arif Amiri, “The MEASA region is the world’s fastest growing region with a $7.8tr market of 3bn people, home to a vast array of start-ups with a strong entrepreneurial spirit.”
- In the US Indiegogo, has announced a partnership with MicroVentures to launch new equity crowdfunding platform,
- And the Cambridge Centre for Alternative Finance (CCAF); revealed it will publish its Africa & Middle East Alternative Finance Report this December noting that “Crowdfunding is fast taking shape across East Africa return-based equity and loan-based crowdfunding are starting to emerge.”
AltFi already has a valuable position within this fast growing global financial ecosystem called alternative finance. Our reason for existence is that both existing and emerging players need to stay ahead of the news in order to stay relevant and ahead of their competition – AltFi plays a crucial role not only in news but also analysis and data interpretation. To help with this increasing globalisation AltFi plans to open its first foreign bureau in New York in early 2017. Our focus in the next 18 months is to take our strong reputation for quality content in Europe and boost our profile – and traffic flows – in the US and Australia. As our geographical reach expands, and traffic flows increase, we should be able to rapidly boost profitability.
The business model
AltFi is currently funded by a combination of advertising, sponsorship and its ticket sales for its events. It has already attracted big name sponsors at its various regional and global summits such as OnDeck in the US and Funding Circle as well as all the leading consumer platforms in the UK such as Ratesetter and Zopa.
The company is currently not that far away from profit breakeven but there’s an obvious opportunity for the business to grow in tandem with that of the alternative finance space, although as with all startups, the business model and revenue sources are likely to change and pivot as new opportunities present themselves.
Our hope is that by growing our reach via increased traffic flows, we can build new advertising products that can be sold to a wider set of customers looking to reach decision-makers within the industry – especially those that trust our in-depth coverage. AltFi also has a number of additional revenue based products due to be launched in the next few weeks, including a news aggregator service as well as consulting opportunities.
But we also want to increase our ‘thematic’ reach i.e cover new areas within the fintech spectrum that are already relevant for our audience. To that end, we intend to build on our existing reputation and focus on the growing area of digital banking based fintech as well as robo-advice.
We like to think our business proposition is not complicated. One social media commentator used the analogy that “AltFi is selling picks and shovels in the gold rush.” In AltFi’s case, the tools are its news, data and analysis which are vital for industry pioneers.
Crucially we believe that with our leading position within the fintech ecosystem AltFi might prove to be an attractive acquisition target for larger media companies especially when one takes into account AltFi’s ownership of a chunky stake in AltFi Data, which is a valuable asset in an era when data is king and data companies are becoming sought-after assets. This year, for instance, we’ve seen IHS buy London-based financial data firm Markit Limited for $5.5bn and only last month the nine-year-old investment data provider PitchBook, which delivers data on capital markets, VC and private equity was bought by Morningstar at a $160m valuation.
Obviously, like all new businesses, it’s important to say that there're lots of potential risks not least our ability to execute to plan as well as the emergence of new rivals – these could derail us if we don’t stay competitive and well-funded But as a play on growth in alternative finance, AltFi we think might be worth investigating.