Crowdfunding – a member of the alternative finance division – is still a relatively new concept. Figures show it was only really measurable from 2009, the year after the global credit crunch when bank lending criteria tightened amid a shift to risk averse attitudes. This resulted in funding for business start-ups, further investment and even mortgages becoming scarce.
Since 2009 the crowdfunding industry has grown at a spectacular rate and in 2015 a report by Massolution, states the global crowdfunding industry was worth $34.4 billion, up from $16.2 billion in 2014 and $6.1 billion in 2013. And more growth is expected. At least it was, before the UK’s European Referendum (EU) resulted in Brexit which sent the global stock markets and the pound plummeting.
Crowdfunding’s History is Short but Significant
Amid the current heightened state of uncertainty, questions are rightly being asked about how different financial sectors are going to weather Brexit and what impact, if any, might the vote have on them.
With the more traditional financial asset classes such as stocks and bonds, there is a rich history to delve into which can help those who need some prediction and prefer a reliable outlook. The same isn’t true of Crowdfunding and the Alternative Finance sector in general.
What is true of crowdfunding is that it’s popularity grew in the aftermath of the 2008 credit crisis as investors discovered another, legitimate way, of doing business. Fast-forward a few years and there is regulation in place across a number of countries including the UK and the US with more crowdfunding ventures seeing longevity in the business. This support, vision and understanding is leading to more start-ups and some new developments and ideas in the way crowdfunding can be conducted.
Indeed, crowdfunding is a major ‘disruptor’ in the finance world, who’s fresh financial thinking has encouraged more investment from all types of investors across the globe. With this in mind, and some robust regulation in place, there seems little reason why crowdfunding should suffer at the hands of Brexit. If anything, the agile way in which people can present a proposition and make an investment will likely serve it well during this time of uncertainty.
Brexit Must Have Some Impact
Yes, of course it does. Asset values are searching for new levels and there is no end in sight to the current volatility. But, this means there are pockets of opportunity which could even lead to an increase in the number of crowdfunding investment possibilities that are available as entrepreneurs seek to take advantage of a shifting economic and financial landscape.
Don’t forget, while Brexit potentially beings with it a lot of change, including a divorce for the EU, it might also bring opportunity in the form of new alliances and deals that may not have been possible under the current regime.
Brexit also may bring some calm to the Crowdfunding industry as it likely means the level of regulation currently in place and managed by the Financial Conduct Authority (FCA) is no longer open to additional interference from EU regulators.
There is also the possibility that the UK will no longer hold a ‘financial passport’ into the EU where firms doing business with one EU member can continue to do business through that firm under its own country’s rules. However, any actual change remains two years away at the very least. And, in the name of free trade and the opportunity it brings the EU as well as the UK, any changes could well be minimal and not even impact this particular issue.
Crowdfunding Growth Still Seen On Track
A recent report by PriceWaterhouseCoopers (PwC) calculated the crowdfunding industry could be worth €570 billion in the EU by 2025, up from €28 billion in 2015. Following Brexit, PwC told City A.M. this should still be the case.
“While our analysis was carried out ahead of the UK’s vote to leave the EU, at present we do not expect the decision to alter our long-term trajectory for the sharing economy’s substantial growth,” PwC economist Rob Vaughan said.
“Economic and political uncertainty will act as a headwind to growth across every sector of the economy in the short-term, but the fundamental drivers of the sharing economy – technological advancements, demographic change and urbanisation – will continue to drive adoption in this space over the long-term,” he added.
While it’s still very early days, it seems the crowdfunding industry may continue in the way it began – to thrive amid adversity and provide an alternative means of investment and opportunity for entrepreneurs and those with an eye for business and start-ups.