The UK’s crowdfunding market developed in the long-tail of the financial crisis. With the flow of bank lending to SMEs and startups cut down to a trickle, the stage was set for the launch of alternative finance platforms. And thanks to Britain’s relatively light-touch regulatory regime, the crowdfunding marketplace was not restricted to Kickstarter-style rewards-based platforms. Following the launch of Crowdcube in 2011, equity crowdfunding has flourished, as has peer to peer lending through platforms such as Funding Circle and Zopa.
So what we have in 2016 is market that can, to some degree, broken down into two camps. The traditional – as characterized by the big banks, VCs and high net worth angels – and the internet based alternative of platforms offering variations on the crowdfunding theme.
But this week, the UK operation of international banking group Santander has taken a small but perhaps significant step into the alternative finance marketplace through a partnership with Crowdfunder, a platform specializing in providing finance to community businesses.
Under the terms of the partnership – announced this week – social enterprises and charities have an opportunity to raise half the money they need from the crowd and top up the remaining 50% via a
matching grant from Santander. Thus if a company is targeting £20,000 ( the maximum allowable under the initiative) the first step is attract pledges of £10,000 to trigger the release of a further £10,000 from the bank.
The first enterprise to benefit is Goldfinger, a company that designs and makes bespoke furniture, while also training training 16-25 years olds in skills such as carpentry and metalwork.
A Desire To Innovate
So what has prompted Santander to team up with a Crowdfunding platform, albeit one that specialises in social enterprises, charities and arts projects.
“We have a desire to be innovative,” says Sue Douthwaite, Managing Director of Business Finance at Santander. What’s more the bank wants to be seen to be innovative as a means to stand out from competitors. “We are operating in a market where there much talk about the importance of innovation but where there isn’t a lot of innovation actually going on,” sge adds.
The finance provided by Santander comes from the bank’s Changemaker Fund, a pot of money earmarked for projects and ventures that will help address social challenges within the UK. And as Sue Douthwaite points out, the partnership with Crowdfunder provides a means to identify projects that are not only worthwhile but also likely to have genuine traction within their chosen communities.
“A company qualifying for the matching grant will already have several hundred stakeholders,” she says. That kind of support from the “crowd” provides a degree of validation from those who pledge money and who are also likely to be continued supporters and/or customers as the venture develops.
As Matthew Giles, Head of Marketing at Crowdfunder points out, Santander’s contribution to the fundraising process ties in neatly with the platform’s existing modus operandi. “One of our USPs is that we help projects raising money through the platform to obtain matching finance,” he says.
Towards An Alternative
But does this tie up between the bank and a platform focused on social enterprises and charities signal that Santander may forge associations with crowdfunding ventures on more commercial grounds in the years ahead.
Douthwaite says informal relationships already exist. “We do have links with other crowdfunding platforms,” she says. “For instance, when businesses comes to us and we can’t provide help, we will introduce them to crowdfunding platforms.” This, she adds, is part of the bank’s commitment to providing an added-value service. “It’s all about our relationships with the customers,” she says.
Whether we’ll see banks formally partnering with crowdfunding ventures in the general business arena is another matter, but there are precedents. Asset and invoice finance – once considered as “alternative” as crowdfunding is today – are not offered routinely by high street banks. And in the equity crowdfunding market, the original model of many “small investors” pledging a few pounds each has evolved considerably. Today, professional angel and VCs invest alongside the “armchair” players. The traditional alongside the alternative.
As crowdfunding and peer to peer lending continue to develop, it will be interesting, if there is scope for further involvement on part of banks.
This article was written by Trevor Clawson from Forbes and was legally licensed through the NewsCred publisher network.