The Breakout Room at AltFi

It was my pleasure to own a front-row seat in the breakout room at Tuesday’s wildly successful AltFi Summit. This more intimate space was designed to allow an investor-based audience to give the various platforms a good grilling – and they did not disappoint! Below are described some of the highlights from a fascinating day of close-quarter encounters with an array of platforms.

One point that many of the bigger platforms kept returning to was the value of a strong track record. As Kevin Caley of ThinCats pointed out – why would an investor wish to stray away from the more established hubs, that have proven that they can deliver over a substantial timeframe? If I were to glean a reply from the day’s proceedings, I’d say that platforms are opting to occupy increasingly specific niches in order lure custom away from the larger and more general sites.

As Lisa Griffiths of Funding Circle explained, the major platforms are also cautious about growing too quickly. The more vital consideration is to manage the way in which growth is achieved. In other words – ensuring the continued quality of loans is much more important than dizzying growth rates.

The unique vetting approach taken by ThinCats certainly caught the attention of a few investors. Most p2p business lending platforms screen prospective borrowers for suitability online and/or over the phone. ThinCats are unique in that they actually arrange to meet every business that wishes to borrow via the ThinCats platform. This is an integral part of their due diligence process, and one that some seem to feel is missing from the wider p2p space. An equally interesting revelation about ThinCats is that the platform is so-named to represent the team as the opposite of Fat Cats… who knew!

One of the most oft-repeated ideas of the day was that AltFinance platforms are not just a last resort option for businesses in a position of weakness. As Ari Last of Market Invoice explained, the sector as a whole is making a conscious effort to shed that stigma. Invoice finance in particular, claimed Last, is garnering interest from a range of businesses – many of which are in fact in strong positions. This represents a recognition of the flexibility and efficiency of invoice funding as a method of managing cash flow. Market Invoice aim to be transacting £30 million a month by the close of 2014.

The Alternative Business Funding portal also arose in conversation. 40% of loan-seeking businesses are rejected by the banks. How are we to redirect this sizable segment of companies to AltFinance providers? The new portal, supported by seven of the largest alternative finance platforms, is being put forward as the answer. Businesses specify their funding requirements and the site narrows down the most appropriate option for them. Banks can safely recommend businesses to this site as they are not advising them to select a particular platform. A timely innovation – particularly with Vince Cable’s talk later in the day of obliging banks to recommend rejected businesses to the AltFinance space.

The topic of regulation inevitably popped up throughout the day. Christian Faes  of LendInvest offered his thoughts early on, stating that he deemed the current regime to be rather light-touch. Chief among his qualms is the fact that no minimum threshold for credit checks currently exists. In other words, a platform could theoretically list a business without any due diligence whatsoever. Now, the thinking is that no platform would be so reckless as to risk their reputation in this way, but the point stands that regulation needs go further in certain areas. You can read Faes’ full thoughts on this matter (in the form of a rather controversial article!) here: http://www.altfi.com/article/131.

The p2p consumer lending session was co-hosted by Rhydian Lewis of RateSetter and Giles Andrews of Zopa. Lewis explained that 98% of customers using RateSetter would recommend the service, and that they and other p2p platforms have an extremely high retention rate when it comes to users. The challenge for the p2p sector is originating new borrowers and lenders. This is all part of the broader challenge of raising public awareness of the alternative finance spectrum.

We had an interesting mix on the crowdfunding panel, and one that I feel perfectly demonstrates the previously mentioned need for new entrants to occupy a niche. First up, Luke Lang firmly stated that Crowdcube were the first, biggest, and best equity crowdfunding platform in the world. Crowdcube offer a pure and simple brand of equity crowdfunding. They have supplied funding worth over £20 million for entrepreneurs. Next we had Bruce Davis of Abundance Generation, who have seen just shy of £5 million invested via their platform. The Abundance platform specializes in sustainable energy projects. Investors get a high IRR of 6-9%, as well as the social benefit of supporting an ethical project. Finally we heard from a pre-launch platform – Henry Freeman of CrowdShed. The CrowdShed platform will feature a number of unique twists. It will combine the equity and rewards based varieties of crowdfunding. It will feature a physical, London-based space (the CrowdShed), where the team will host informative workshops and talks. CrowdShed will also look to take equity in some of the startups that they fund. Innovations galore! This sliding scale of distortions to the typical crowdfunding model aptly demonstrates the need for new entrants to diversify if they are to succeed.

An intriguing panel on impact research in AltFinance was masterfully moderated by Bryan Zhang – co-author of the Nesta Report. There were three key takeaways here:

• A number of platforms now boast provision funds – and RateSetter, for example, constantly laud the fact that no investor has ever lost a penny using the platform. But as Rupert Taylor of AltFi correctly identified, the important thing for researchers in this field is to discover more information about the underlying quality of the loans. Contingency funds are all well and good, but they will not hold up as an infallible safety net in the event of a recession-led spike in defaults.
• Standardized definitions within the industry are a major barrier to evolving any attempt at statistical indices, i.e. when does an arrear become a default? The industry needs to coalesce to decide such matters.
• As Tanya Ziegler, of Knowledge Peers, pointed out – attempts at collating data within the alternative finance space are futile if that data cannot be compared with data from the traditional finance sector. Comparative models are of vital importance. Crafting them will be a major challenge for researchers. 

Dan Kiernan of Intelligent Partnership gave an insightful presentation about the challenges for AltFinance platforms looking to work with IFAs. Following on from this presentation, Intelligent Partnership have now developed a guide for platforms that are looking to distribute their investment opportunities through regulated advisors. You can access the guide here: http://intelligent-partnership.com/category/research-hub/training/.

As we approached Vince Cable’s much-anticipated keynote in the main room, an array of next-generation platforms took the floor in the breakouts. These participants are relatively new entrants, and none of them quite fit into the mold of a typical alternative finance form.

• https://www.quidcycle.com/ – QuidCycle is the brainchild of Founder Frank Mukahanana, and is purpose-built to free families from debt-cycles through the use of p2p lending. Lenders get a better return – borrowers end up paying drastically less debt over a three or five year term than they might otherwise.
• http://www.crowdmission.com/ – Founded by the experienced entrepreneur Karen Darby, CrowdMission is an equity crowdfunding platform for businesses with a social mission. Gone are the days, argued Darby, when investors were content to secure an acceptable IRR but care nothing for where their money went. CrowdMission provides a great return – in both monetary and social terms.
•  http://www.lendingworks.co.uk/ – A new entrant into the p2p consumer lending space, Founder Nick Harding explained that the Lending Works shield is the key distinguishing element of the platform. The Shield insures lenders against borrower defaults, cybercrime and fraud – and represents the evolution of p2p investor protection.
• http://agreeit.com/ – AgreeIt is a Facebook app that enables friends to lend to or borrow from one another within their social network. A potentially powerful model, Founder Omar Fansa explained that in time, users of the app would acquire a social credit score – based on reviews from the friends with whom they are lending and borrowing.

Breakout room proceedings ended with a string of showcase sessions – in which the various platforms pitched directly to a tailored audience of investors about why they are ready for institutional scale money.

It was a privilege to sit in on the action from the breakout room and to get under the skin of the Alternative Finance phenomenon.