Delving into the Cambridge-Nesta Report

By Sam Griffiths on 18th February 2016

P2P/Marketplace Lending

Cambridge University’s Centre for Alternative Finance and Nesta published their annual Alternative Finance Industry Report yesterday. The comprehensive 56 page report gives a great snapshot of the Alternative Finance space, revealing key details about the  inner workings of the space and the hopes and fears of the participants.

Delving into the Cambridge-Nesta Report

Last night’s launch event, at report sponsor KPMG’s offices in Canary Wharf, produced some lively debate with a panel including Giles Andrews, executive chairman of Zopa, Julia Groves, chair of the UKCFA and Robert Wardrop, Executive Director of the Cambridge Centre for Alternative Finance. The panel were challenged on a variety of subjects from how to get Londoners to participate more in community share projects to the lack of women participating in alternative finance and the debate around the credit worthiness of minibonds.

The full report can be read here. However, for those not able to read the report cover to cover, we’ve summarised the key findings and drawn out some of the points that we find particularly new and interesting below.

The volume data that the report outlines tallies closely with AltFi Data’s daily updated statistics with the exception of equity crowdfunding where the report has a significantly higher figure (£245m vs £169m) – read more about the difficulty in tracking accurate equity crowdfunding volumes here. The report casts its definition of alternative finance slightly wider than the Liberum AltFi Volume Index, including segments such as reward-based crowdfunding, community shares and pension-led funding. Real-estate peer to peer lending is highlighted as the fastest growing segment which tallies with our analysis outlined just a few days ago.  AltFi Data also applaud and appreciate the excellent job that Nesta have done of breaking down and defining industry taxonomy. The chart below is an excellent way of defining the distinct sub-sections of the species!

One of the most interesting findings confirms something that I’ve observed but never seen hard facts to back it up. Namely, that the number of alternative finance platforms launching today is nowhere near the level seen a few years ago. In fact, the number of new platforms incorporated in 2015 was down 75% on 2013. The chart also confirms that it takes roughly a year for a platform to get from incorporation to launch, again another rule of thumb confirmed by data.

The report surveyed platforms attitudes to regulation and both in equity crowdfunding and in peer to peer, the overwhelming majority of platforms (around 90%) felt that regulation was ‘adequate and appropriate’.

However, this attitude sits uncomfortably alongside the biggest fear in the industry: ‘The collapse of one or more well known platforms due to malpractice’. Over half of the survey’s respondents perceived this as a ‘high’ or ‘very high’ risk.

Looking at investor types in equity crowdfunding, the report found that 27% of investors were sophisticated or high new-worth individuals. Leaving the remaining 73%, presumably, as retail investors and underlining the relative unsophistication of the majority of investors in the space. In contrast, real estate equity crowdfunding is currently 77% sophisticated and high net worth investors.

All in, this is an invaluable reference tool for the industry and if you can spare the time, it is well worth reading in detail.

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