Results of the year: P2B- and SME- lending, online-factoring, crowdfunding and crowdinvesting in 2016

Slava Solodkiy
Feb 7, 2017 · 9 min read

Read full story in the new issue of Money Of The Future 2016\2017 report

Despite the fact that the main stir among foreign media is caused by online- and p2p-lending for individuals (such as LendingClub and Kreditech), the market for alternative lending for business has grown a lot over the past few years. This sector is a way capacious in terms of growth potential, as traditional banks offer a historically bad service for SMEs. To date, the range of tools is wide enough:

· Get money from online services that facilitate lending to business (online SME lending services)

· Sell your receivables from counterparties and partners to another company or obtain a loan guaranteed by them (online factoring)

· Attract private investment (P2B-lending)

· Attract private investors as shareholders (crowdinvesting)

· Ask potential customers for money to implement your product/service (crowdfunding)

Talking about online SME lending services, it is worth to mention that three of the largest U.S. players, — OnDeck, Kabbage and CAN Capital, — have formed ILPA alliance to standardizes the processes and rules of the industry, the rules for companies willing to distribute debt capital. They have also launched the SMART Box, which compares prices and conditions of such websites. Industry consolidation is a vital issue, and we must give credit to these three players for their proactive role. OnDeck, which launched an IPO in 2014 (although its stocks have fallen from $20 to $4–5), lends to SMEs from the balance and as a marketplace; it is also actively increasing partnerships with banks (JP Morgan Chase, Credit Suisse, which has provided it with $200M, as well as small banks). Kabbage (which has raised $240M in investment and disbursed $2B worth of loans) is also actively teaming up with partner-banks and developing consumer lending market through its subsidiary called Karrot. CAN Capital (with $6B worth of 170К loans disbursed to 70К merchants) also focuses on the partnership with banks.

Image for post
Image for post
Image for post
Image for post
Image for post
Image for post

Online factoring as an alternative source of capital for SMEs is also actively developing: such services either purchase accounts receivable from their balance sheet or sell them to partner banks, or act as intermediary marketplaces selling to other market participants (they lend either from the balance or on the pledge of accounts receivable as marketplaces).

According to Fundbox (with $325M market capitalization) over the last 12 months, the total amount in unpaid invoices across the U.S. is approximately $825 billion. This problem exists not only in the U.S. (where there are Hijro\Fluent Network and other companies): a lot of services already exist and emerge in the UK (Tungsten, Platform Black, Due Course, Market Invoice) and other countries (Indian Kredx, Capital Springboard in Singapore, Australian Waddle, InvoiceBazaar in UAE).

Image for post
Image for post
Image for post
Image for post
Image for post
Image for post
Image for post
Image for post

Smaller banks are interested in such platforms (both lending and factoring) because they provide investment opportunities and automation of cooperation with SME-customers — as far as they cannot compete with the big banks in this sphere.

This sphere (online factoring) is very complementary to companies involved in supplier relations automation (accounting, expenses, eInvoicing) such as: Taulia (attracted Series D round from BBVA and other investors, was planning its IPO, but postponed it to next year), Tradeshift (850К customers, dozens of them featured in Fortune500, $10B in transactions per year, raised a $200M round from PayPal and other investors and is valued at $500M), and even older business networks like Ariba (2М companies, $1T in transactions, are actively penetrating the Chinese market) and The Interface Financial Group (such old companies are now actively seeking for new niches in a rapidly changing market). Automation business marginality is rather low, but the customer base is very large. It holds great promise not only for partnership but also to mergers and acquisitions. Not to mention the online accounting services like XERO and QuickBooks by Intuit (most of the new services have their decision-making process based on data from these companies). These giants are facing a challenge, which can be described by a motto “Disrupt yourself”. It feels as if they soon begin to “stall” under the weight of their past.

Image for post
Image for post

Niche solutions for a specific target audience are a success. For example, the online lender Bluevine (raised $49M in Series D funding from Citi Ventures and other investors, has got a $200M portfolio and has recently launched a related product — extension of credit facility — under the brand name Flex Credit), which focuses on F&B- companies. As well as FastPay (with a $1,5B portfolio, which raised a round from Citi Ventures and other investors) has launched “FastPay for Enterprise” solution for digital media sector.

C2FO is an interesting company, which does not offer online factoring but rather provides opportunities, algorithms and processes to motivate your partners (through discounts or bonuses) to pay receivables faster. The service is operational in 70 countries and has already “motivated” $1B in “early payments” (and raised a round from Citi Ventures and other investors). Some companies allow you to automate and better manage procurement: Basware (public company with capitalization of €527М), Coupa (has recently gone public, $1,3B capitalization), and a newcomer Procurify.

Image for post
Image for post

Blockchain has got enormous application opportunities: not only in terms of transactions, but also for storage, verification, deals signature, compliance and verification of contractors, and many other related processes. As well as online insurance for this kind of transactions, suppliers and contractors, and their debt.

P2B-lending services are also growing, like Funding Circle (over £1B worth of loans) and Nucleus (a variety of products for SMEs ranging from overdraft to factoring for different segments) in the United Kingdom. Despite the abundance of services, solutions and technologies, this kind of startups are practically absent in Asia, Australia, Middle East and Africa.

Image for post
Image for post

Such Singapore platforms like FundingSocieties, MoolahSense, CapitalMatch and NewUnion experimentally partner with major banks (DBS) to offer lending to the customers considered too small by banks with their subsequent “resale” when they grow up to the appetites of traditional giants.

Image for post
Image for post

Some interesting results are shown by the French Lendix (which has become a country leader, acquired its competitor Finaquare, and is now expanding to Spain) and Indian Loanzen (which finds SMEs related to their major network-partners as suppliers).

Image for post
Image for post
Image for post
Image for post

The most well-known crowdinvesting service is AngelList (SecondMarket and SharesPost can be barely called startups), and all other projects around the world are small to medium in comparison with AngelList.

Image for post
Image for post

The rapid surge of activity in this area in Asia comes from Malaysia, which was the first to issue crowdinvesting licenses (Crowdo, CrowdPlus, FundedByMe). Following the Malaysian example, Singapore has turned attention to the sphere and licensed FundedHere, Crowdo and OurCrowd (this Israeli startup has also raised funds from Singapore UOB Bank).

Image for post
Image for post
Image for post
Image for post
Image for post
Image for post
Image for post
Image for post
Image for post
Image for post

Crowdinvesting in real estate continues to gain momentum as an independent sector. In addition to the well-known RealtyMogul, we would like to highlight a new US player RealtyShares, Malaysian EthisCrowd (Islamic banking investments) and Chinese Dvocaitou.

Image for post
Image for post
Image for post
Image for post
Image for post
Image for post

The partnership of such platforms with stock exchanges is also worth paying attention to: it is a pre-IPO tool or trading tool for tech companies with low capitalization in comparison with the main stock exchange board: SyndicateRoom with LSE and a number of Singapore startups with SGX (many Asian startups currently prefer to be placed on ASX).

Image for post
Image for post

The cooperation of crowdfunding platforms with large companies is gaining scale: Amazon has launched a separate marketplace for products developed as a result of crowdfunding campaigns, while IndieGoGo has established a partnership with General Electric, Harman International Industries, Hasbro and Shock Top. Giants can now test their new ideas and technologies in a more interactive manner and using the services that contact with the most open to novelties users. Platforms also receive new major customers and engage their audience.

Image for post
Image for post

Platforms are building an ecosystem of complementary services: IndieGoGo launches equity crowdfunding (crowdinvesting); Tilt — online remittances; KickStarter has acquired a crowdfunding startup for musicians and artists called Drip (with Patreon and Show4me present in the niche).

Image for post
Image for post
Image for post
Image for post

However, despite the acquisition of KickStarter, it’s too early to talk about market consolidation through M&A (although, this would be a logically sound stage of development judging by the number of startups in this sector, many of those cannibalize each other in their fight over the same customers).

The scaling ability and plans of the majority of crowdfunding services generate questions and doubts. Except for KickStarter, which is now present on 18 markets after its expansion to Hong Kong and Singapore, the rest of the companies are demonstrating poor scalability.

PayPal has heightened our interest to crowdfunding market with two news. The company has canceled guarantees of reimbursement for the goods purchased through crowdfunding. This proves that the market is attracting a lot of attention and it makes up a large share of transactions for the giant, as well as indicates that the number of defaults in the production and delivery of prepaid products has risen. The second news turned out to be a rumor that PayPal might acquire one of the market leaders GoFundMe ($3B turnover, $600M capitalization, 25М users).

Image for post
Image for post

An interesting trend is that platforms also attract equity capital through crowdfunding\crowdinvesting: for example, CoAssets is listed on the ASX (which is in fact rather crowndfunding than classical IPO), or CrowdCube attracted 8 million pounds from 300 thousand of its members.

Image for post
Image for post
Image for post
Image for post

Many countries are currently concerned with how to support and accelerate the development of their startup ecosystems (including focus on fintech) and it would be logical to provide their financial market support not directly, but through this type of platforms. For example, countries such as Singapore, Malaysia, Hong Kong, Korea, Japan offer a large number of grants and co-investment programs for startups. If they had provided them automatically after a market player had reached some positive results, it would have simplified the market processes and accelerated the development of ecosystems, as well as made the market itself more transparent. For example, Indonesia is currently considering such a partnership interaction; iAngels is being implemented in Israel, while Santander Bank provides 50\50 co-financing through CrowdFunder platform.

Image for post
Image for post

Great thanks for Stan Vazhenin and Dmitry Solodkiy for their help with this and my other posts.

Read full story in the new issue of Money Of The Future 2016\2017 report

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch

Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore

Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store