The University of Chicago’s Polsky Center for Entrepreneurship and Innovation has released their 2017 report on the alternative finance industry in the Americas. It’s a lot to take in—77 pages of rich data provided by more than 273 lenders, platforms, and consultants (including Lighter Capital). Here are our major takeaways.
1. Alternative finance is coming into its own
The subtitle of the 2017 Americas Alternative Finance Industry Report is “Hitting stride.” 2016 saw a slowdown in new companies entering the space and a consolidation as many smaller ones folded. Incidents in highly visible segments of the market led to calls for greater transparency, and many companies changed their operational practices and capital structures.
But the big takeaway here is growth. The US alternative finance market grew 22% from 2015, to a market volume of $34.5B. Canada and Latin America/the Caribbean grew much more rapidly—62% and a whopping 209% respectively—but the markets are much smaller (both within the $300M range).
2. Businesses love alternative finance
While marketplace/P2P consumer lending still makes up the lion’s share of the alternative finance market ($21.1B of a total $35.2B), business lending is quite healthy. In 2016, 143,000 businesses in the US raised $8.8B in funds using online financing methods.
Equity-based models have hovered around $1B for the last three years, but debt financing has grown every year. The rise of RegCF-enabled equity crowdfunding platforms may cause a bump in 2017, but the trend is clear: more and more businesses are embracing alternative debt financing as a means to grow.
3. Equity crowdfunding is finding its way
With the SEC’s 2015 vote to regulate crowdfunding, equity-based models started to emerge in the second half of 2016. While it remained flat year-over-year, expect to see substantial growth in the future—as long as providers aren’t spooked by regulations.
State-level regulations are seen very differently by equity-based platforms than by debt-based ones. 51% of debt-based platforms and 55% of equity-based platforms found state-level regulations to be adequate—but only 18% of debt-based platforms complained of excessive regulation, and a surprising 41% of equity-based platforms objected to what they saw as overly restrictive state-level regs.
4. Lighter Capital is having an impact
2016 saw $6.1B in balance sheet business lending, up 169% from 2015. This model has grown at an average annual rate of 136% over the last three years, and now accounts for 17.4% of the alternative financing market.
Our $26M of balance sheet lending in 2016 makes up about 0.5% of all the balance sheet lending to businesses in 2016. Not too shabby. We’re also well-represented in Washington State’s capital provision, as shown here:
All images courtesy the Polsky Center for Entrepreneurship and Innovation.