By Chris Hancock on Tuesday 27 October 2015
Whilst the P2P and crowdfunding industries are relatively nascent, many of billions of pounds have already been invested via them by individuals. A recent report by Massolution* predicts that global volumes for the market will reach $34.4 billion by the end of 2015. In spite of this, no central marketplace has been established. Two weeks ago Crowd2Fund launched its crowd Exchange where investors can define the price and re-sell debt or equity investment, to another investor - crude and radically simple.
Since its launch, The Exchange on Crowd2Fund has seen a flurry of activity with the first few trades completed successfully, earning investors an otherwise unobtainable premium and giving sellers of investments early access to their cash.
One of the first trades on the platform was for a Hummus Bros Mini Bond investment, sold at a 10% APR coupon, a 2% premium on the initial offer of 8% APR. Interestingly there has been an overwhelming response from the financial sector, with Crowd2Fund receiving many requests from crowd investors asking to list their investments, which have seen growth, from other platforms on the Exchange. Soon Crowd2Fund will enable a function allowing the sale of investments from other platforms. This will be a tremendous achievement by the Crowd2Fund legal and engineering team. Additionally it will benefit the crowdfunding sector at large due to introducing increased liquidity, which will be drawn into the market over the longer term.
I have also been warmed by the offers of support for this project from a legal, advisory and technology perspective in order to ensure we maintain momentum with the development of this new and exciting proposition, which we believe has significant social and economical benefits. We have even received a hand written letter from retired City traders requesting to be part of this exciting new project.
After being invited to discuss the project with one of the City’s most established and respected brokerage firms it occurred to us that this market potential stretches well beyond the crowdfunding sector. It is claimed that £30bn of private investment is locked into EIS funds alone with very restrictive ability to exchange or trade with other investors. In our opinion this is overly restrictive for individuals who not only may sometimes need access to their capital but if a central exchange was developed this could radically increase the liquidity into ‘the real economy’ and provide a much needed boost.
Some may ask why hasn’t an exchange for private investments been built before, after all, investing and lending to private companies is nothing new. We believe that due to a combination of mass adoption of the internet, more financial awareness for individuals and growth of crowdfunding has caused a tremendous demand for an exchange.
Furthermore, the Exchange could bring many other additional social and economic benefits. It is arguable that more widespread and transparent trading of individual debt investments, could have avoided the financial crisis due to allowing individuals to trade debt investments openly and therefore avoid the sub prime debt and credit default swaps being conducted by the banks which ultimately resulted in the crash.
There are a number of regulatory considerations needed to ensure that we are operating within our regulatory permissions. Currently we only perform match trading on the exchange, this is far less complex than operating a full exchange and bidding system, similar to a stock or foreign currency exchange. This is something that is being considered for the near future where sellers will set a reserve and then people will be able to bid on an item with the highest price winning the bid.
Reporting on business performance and ongoing due diligence is another important piece of planned functionality. We plan to make it easier for businesses to report to investors on their financials and general progress transparently using a self governing design principle similar to AirBnB or Uber. This will give additional visibility to people who are buying investments on the exchange.
I am excited by the reaction the first iteration of The Exchange has received. The positive response indicates that in time the platform will be able to add significant liquidity to the P2P and crowdfunding sector. Ultimately this will lead to providing more capital for businesses who create jobs and are significantly important to support overall economic growth. Crowd2Fund and its partners will continue to research and develop in this new and exciting and important area of FinTech.