Industry Report: Disruptive Finance is Making Finance More Transparent, Efficient & Democratic for Entrepreneurs & Investors

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New forms of finance are poised to inalterably change the entire finance industry ecosystem we know today.  Investment crowdfunding, and the various iterations of alternative finance, are still in the early stages of its evolution.   The disruptive finance industry is measured in mere billions now, in stark contrast to the total addressable market which is measured in trillions. But soon the “alt” in finance will become the norm as information barriers are removed, process inefficiencies addressed, thus engendering a more transparent, efficient and democratic process in capital allocation.

DealIndex, a young alternative finance aggregator and part of the GrowVC portfolio of financial innovation, has authored a report on industry growth gathering direct feedback from 18 diverse platforms from around the globe. The document seeks to “demystify” the new online model of collaborative funding.

While many casual observers associate crowdfunding with rewards & donations based funding projects, equity crowdfunding and debt based direct lenders are quickly usurping the less agile, and more costly, traditional financial processes.  Commercial banking, investment banking and affiliated service providers are being disrupted by online capital conduits and a new support ecosystem.  It is not just matching investor to entrepreneur or borrower, it is also the service industry that supports the banking industry today that will be changed.

money global internationalAccording to the DealIndex report;

“While alternative finance is primarily known for crowdfunding and P2P lending, we discovered entire asset classes, important functions of investment banking, including a supporting ecosystem of due diligence, risk management, and infrastructure that had transversed the offline and online world of financial services. We started to see how these seemingly disparate players in alternative finance – involved in different aspects of fundraising, and from all over the world – are interrelated. Assets including alternatives and M&A, represent significantly bigger (albeit challenging) asset classes and have started moving online. More importantly, we learned how these players mirror traditional investment banking services and had already started collaborating with the financial services industry.”

Young FinTech startups are positioned to challenge established financial firms that measure their existence in decades. Capital inevitably flows to the highest risk / return opportunity and as the technology has evolved to facilitate sizable transactions, institutional money has started to flow into the growing legion of disruptive financial firms.

Neha ManaktalaThe report posits that alternative finance is “developing a collaborative and synergistic model”, and points to the adoption of internet finance by major firms such as Goldman Sachs and Metro Bank.  But while it is true that some firms will adapt, some will acquire; others must eventually fade away as this is the nature of a business lifecycle.

DealIndex co-founder and CEO Neha Manaktala states;

“Having been on both sides of fundraising including at Morgan Stanley Investment Banking, Actis Private Equity and as an entrepreneur, it is exciting for me to be part of the potential to improve the way different aspects of financial services are performed; all the while deepening collaboration, not just between alternative finance players, but with the financial services industry in general…This industry report thus aims to offer a comprehensive overview of this emerging sector, as well as to provide valuable insights on the complexity of the wider alternative finance ecosystem from various perspectives.”

Oscar A JofreReport contributor Oscar Jofre, founder and CEO of KoreConX said he was thrilled to be part of the study. “This is all about companies changing the traditional channels of finance using the technology, aiming to bring positive impact in people’s lives.”

Alternative Finance Growth DealIndex

Entitled “Democratising Finance”, the document highlights the foundational aspects of new finance including:

  • Increased transparency and access to otherwise closed off asset classes;
  • Redefinition of the term “investor” across the entire spectrum of private and public asset classes. The crowd gets access to privileged deals and the world’s largest financial institutions have started investing in companies much earlier in the life-cycle of a company;
  • Collaboration is a cornerstone of the industry as the syndication model takes hold with mobile, social media and millennials all generating network effects;
  • Increased volume of funding activity in private companies & assets, and increased amounts of companies getting funded with customers getting involved in product development / playing a role in innovation as investors; and
  • How technology, speed, and data have come together to reduce the inefficiencies in searching and accessing private investment opportunities, thereby saving issuers and investors time in the procurement process.

According to Neha this report is the first in what will be a quarterly series with additions including asset classes like real estate and debt in granular detail.

“As alternative finance increases in size, so does the complexity of its ecosystem”, said Gonçalo de Vasconcelos, CEO of SyndicateRoom and a report contributor.

These are the 18 different platforms highlighted in the report: AgFunder, Bankless24, Crowdfundraiser, Crowd Valley, DealGlobe, Equidam, EquityNet, Grow Advisors, HealthiosXchange, iAngels, KoreConX, MyMicroInvest, OneVest, Raizers, Snowball Effect, SyndicateRoom, TradeUp, VentureFounders.

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