Introducing the Securities Crowdfunding Market Matrix



Nothing is as powerful as an idea whose time has come” Victor Hugo

When analysing the crowdfunding market it is typically broken down into four main categories such as donation, reward, debt and equity. Securities crowdfunding, which is the generic clause for debt and equity crowdfunding, is sometimes also called crowdfund investing or crowdfinance. As argued in a previous post,crowdfunding is not a new asset class; it is rather a new conduit for financial flows which dis-intermediates the supply chain of capital allocation, and provides efficiency and transparency in the investment process, enabling investor and issuer to interact in better and more productive ways. In addition it reduces the search cost for the investor and allows for a high degree of risk diversification.

So it is no surprise that crowdfunding is rapidly dispersing into many sectors of the financial services industry. A wide range of institutional investors are suddenly beginning to show an interest in crowdfunding as it allows them directly to invest small amounts (for them) into projects or companies that offer higher yields compared to traditional bond or equities markets. The key obstacles that normally block institutional investors from making investments in smaller businesses or projects are the excessive “due diligence” requirements in proportion to the size of the investment. This obstacle can be removed by crowdfunding platforms as they provide for standardized and transparent due diligences practises whose results can be shared by many investors. In addition it enhances the liquidity of such assets and gives the investor the ability to optimize and rebalance their portfolio. The advantages for the issuer are equally compelling as they have access to a deeper investor pool and a lower cost of capital. A good example is B2B lending which works in the same way as peer-to-peer lending but with a different type of ‘peers’ and larger amounts.

In order to understand better in which directions crowdfunding is evolving, we attempted to map out the landscape of emerging business models across the spectrum of securities crowdfunding portals. As with most categorisations it simplifies the reality and doesn’t consider distinctive features of each jurisdiction around the globe. For example, equity crowdfunding in the US is so far only allowed for accredited investors while in the UK and other parts of Europe there are different restrictions.

Securities Crowdfunding Market Matrix




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