New kids on the block

The world of alternative finance, where the traditional intermediary such as a bank is bypassed, is quickly gaining traction. The effects of the credit crunch and dissatisfaction with the offerings of traditional financial institutions have served to accelerate it. This year it’s expected that almost £250m of UK lending will be facilitated through alternative funding platforms [1]. Its growing prominence has led the Bank of England to suggest that over the next decade the area could become a major force in the financial market [2].

It has garnered a reputation as the new kid on the finance block but has actually existed in some form for almost a decade. One of the big UK companies Zopa, was founded in 2005. It’s an industry with momentum but what exactly are alternative finance platforms?

Alternative Finance Platforms

The marketplace is becoming crowded with an increasing number of platforms. Peer to peer (P2P), peer to business (P2B), social finance, disruptive finance, democratic finance and crowdfunding are just some of the terms used to describe the various different types of alternative finance. The commonality is that they bring together those looking to lend money and those looking for funding through an internet platform, which acts as the facilitator. In return it takes a commission from one or both of the lender and borrower (typically around 1% but can be up to 10%) and/or fee.

Financing Models

There are various different models that categorise the platform offerings. Some are with the aim of a financial return, others are reward or donation based. Each will have its own risk profile.

• Equity financing gains a stake in a company in return for capital. Generally this type is utilised by start-up and early stage companies, who are considered at the higher end of the risk spectrum and who often don’t have access to other financing arrangements or the immediate ability to service loan repayments.
• Debt financing is where the business is loaned money and arranges to pay it back with an agreed rate of interest over a period of time. Most platforms provide this to established businesses with at least 2 years of trading history and in good financial health.
• Asset
  financing involves investing money into an asset, such as machinery or a property, and offers a form of secured lending for lenders looking to reduce their risk exposure.
• Other financing variants also exist and include reward financing, where the return may be a product or privileged access to a company offering, and invoice factoring – where it is possible to bid on outstanding invoices in order to provide a cash advance to the respective company who has issued the invoice and receive the return value of the invoice and an addition fee.

The matrix below summarises some of the different UK platform operators and their offerings.

Crowdfunding: Too crowded?

The table shows there are a large number of platforms and with the exception of Zopa, all of whom emerged in the last three years. What is apparent is they are not all competing for the same segment of the market and the differing models currently allow room for many to exist. Whether there will be market consolidation further down the line or market players will expand the range of models offered remains to be seen. Given the infancy, it's also too early to say whether this will become a mainstay solution to SME funding. However, with the continuing dissatisfaction with traditional financial institution's offerings, there will be more scope for market growth.

Sources

[1] - NESTA Crowdfunding Report

[2] - Crowdfunding could revolutionise lending says Bank of England

Entrepreneurship is ‘a management style that involves pursuing opportunity without regard to the resources currently controlled. Entrepreneurs identify opportunity, assemble required resources, implement a practical action plan, and harvest the rewards in a timely, flexible way’ (Harvard Business School).

According to The Global Entrepreneurship Monitor (GEM), the largest single study of entrepreneurial activity in the world, Entrepreneurship in the UK is increasing. In 2012 Total early-stage Entrepreneurial Activity (TEA) in the UK was 9% compared to an average of just 6% between 2002 and 2010. This relates to people between 18 and 64 who are either a nascent entrepreneur, or owner-manager of a new business. The rate of nascent entrepreneurship alone in the UK has risen from 3.3% in 2001 to 5.3% in 2012.

The GEM report also illustrated that in 2011, for the first time since recording began in 1999, over 20% of the working age population in the UK either expected to start a business in the next three years, were actively trying to start a business, or were running their own business.

This rise could perhaps be due to the recent high numbers of unemployment leading many to start their own business, rather than struggle to find employed work. In 2012 for example, 18% of those surveyed by GEM stated their reason for being involved in TEA was due to there being no other option for work. In 2011, this number was lower at 11%.

One of the main reasons that the percentage of entrepreneurs still remains low however is fear. In 2012 36% of people surveyed by GEM indicated that fear of failure would prevent them from starting their own business.

Roseanna Fletcher

Sources:

GEM 

Aston University, UK business start-up expectations and activity rose to new highs in 2011 

Update 24/06/13: EE has switched on its double-speed 4G services in the Tech City area of London, offering startups in the area headline speeds of 80Mbps on the network. EE chief executive, Olaf Swantee described it as a move to ensure “UK businesses have the tools that they need to thrive, and to take the UK into a position as a world leader for technology, innovation and entrepreneurship”. Consideration is also being given to similar services being rolled out to other growing tech clusters in areas such as Bath, Cambridge, Glasgow, Liverpool, Newcastle and Sunderland further improving the UK’s digital backbone.

Thanks to Everything Everywhere (EE), the current 4G sole provider, 4G is now available to more than 50% of the UK, across 74 towns and cities. The fourth generation mobile network has been available in the UK since October 2012 and there are clear benefits. According to Ofcom 4G is around 5 to 7 times faster than the current 3G networks, with an average speed of 6Mbit/s, compared to 1Mbit/s.

Some however are sceptical about whether the added value received from 4G is worth the higher price tag. EE has recently launched 30-day SIM-only plans in response to this. Consumers who have doubts are now able to try the service without committing to a long-term contract. These plans are just £2 a month more expensive than a 12 month contract, ranging from £23 a month for 500MB, to £63 a month for 20GB, all including unlimited calls and texts.

The Ofcom 4G auction held at the beginning of 2013 helped to promote competition in the marketplace. This will inevitably lead to 4G prices decreasing. The auction raised £2.34bn, the winning bids coming from EE, Hutchison 3G UK, Niche Spectrum Ventures (a BT subsidiary), Telefónica (O2) and Vodafone. It is expected that these network providers will begin to offer 4G services in the autumn of 2013. Results from Ofcom’s measurements into the differing speeds however, will not be released until spring 2014.

The demand for 4G is expected to grow quickly, with almost the entire UK population anticipated to have access to 4G mobile services by the end of 2017. Ofcom also recently announced that they are planning to support the release of further spectrum for possible 5G mobile services.

Roseanna Fletcher

Sources:

EE, 4G goes live in 12 more towns across the UK. 

EE, 30 day SIM-only. 

Ofcom, Ofcom announces winners of the 4G mobile auction. 

Ofcom, What is 4G? 

BBC, Ofcom raises £2.34bn in 4G auction. 

V3, EE brings 80Mbps 4G Services to Tech City in London

Recent security breaches are once again raising the question of how secure our data is online. Earlier this year for example, over a quarter of a million Twitter accounts were comprised when passwords and usernames were stolen. A more recent high-profile example consisted of attacks from the political organisation ‘Syrian Electronic Army’, who hacked news organisations’ accounts such as the Financial Times and Associated Press (AP). These privacy and security concerns are increasingly causing both businesses and consumers to re-think, or outright reject, their online presence, reducing the amount of opportunities that they are exposed to.

In response to these attacks, Twitter recently announced that they were tightening their security process with two-phase authentication. Users will now be able to opt to have verification codes sent to their mobile phone during the login process, in an attempt to eliminate unwanted access. It is becoming apparent that all social networking sites need to follow in these footsteps, ensuring that the public are secure in the knowledge that their data is being kept private and secure.

Social networking is just a small area of concern within online data security. In the third era of modern computing that we are now in, known as ubiquitous computing, where computing devices are progressively being embedded into everything, improving online data security as a whole needs to be prioritised. A Financial Times article recently noted some risks that exist from more devices being connected to the Internet, such as the possibility that information collected could be accidently published online, and the raised number of hacking opportunities that are being created. Moreover, as ‘bring your own device’ (BYOD) becomes ever more popular in the workplace, companies need to ensure that their corporate personal data remains secure on personal devices. As a result, it is clear that superior security practises need to be put in place.

Roseanna Fletcher

Sources:

BBC, Twitter: Hackers target 250,000

BBC, Twitter tightens security after recent hacking spate

Financial Times, Cyber crime: Thinking fridges raise threat level

The Guardian, Bring your own device, Still the companies responsibility 

Internet speeds around the world are ever increasing. According to Akamai Technologies State of the Internet Q4 2012 report the UK only ranks 18^th fastest in the world, with an average speed of 6.8Mbps. Despite this, the Q4 2012 Institute of Directors (IoD) survey illustrated that the majority of their members were satisfied with their fixed-line Internet speeds. Organisations positioned in rural areas however, counted for the majority of dissatisfied members, with 51% being unhappy with their download speeds, and 58% with their upload speeds. IoD argues that the rural broadband policy that currently exists in the UK, to improve Internet speeds in rural areas by 2015, lacks ambition, funding and urgency.

The speed and reliability of mobile Internet services in particular was highlighted as a real issue for organisations. Only 25% of IoD members were satisfied with their mobile download speeds and just 35% with the reliability of their mobile Internet service.

The report concluded that the UK needs to focus on improving the speed and reliability of both fixed-line and mobile Internet in urban and rural areas. This would result in improved business productivity and overall competitiveness, as well as give organisations the opportunity to offer more flexible working opportunities for their employees.

Roseanna Fletcher

Sources:

Akamai Technologies State of the Internet Q4 Report

IoD ‘Counting the cyber threat to business’, Spring 2013.

Key current trends

I was fortunate enough to attend a leading investment bank's global technology conference recently in London. Here is a short note on some of the key trends.

GDP Growth Rate

Source: www.pwc.co.uk/economic-services/global-economy-watch/gew-projections.jhtml

UK – GDP Growth Rate (%) (From year 2000 to 2012)

Source: www.indexmundi.com/g/g.aspx?v=66&c=uk&l=en

Intangible assets are resources that are not of a physical form, yet are extremely valuable to a business. They can contribute to up to 80% of company value. Examples of intangible assets include: patents, trade secrets, brand reputation and know-how.

Companies find it difficult to yield the value from these assets, as it is difficult to identify them. In three simple steps, Inngot solves this problem by allowing any organisation to identify and describe all of their intangible assets and establish their value.

1. The company creates a profile by choosing the elements that apply to their innovation.

You might have asked yourself the question: What does an investor look for in an entrepreneur? What personal characteristics make for a successful entrepreneur?

By kind permission of Kingsley Napley, London based lawyers

What is Crowdfunding?

Crowdfunding is the practice of raising capital through numerous small investors. This is predominantly done online and the investment platform will rarely have a lower limit with many accepting as little as £10. In return the investor will receive either share equity and/or an “exclusive gift” which could be a ticket to a concert or a backstage pass where the investment vehicle is a band. The hosting platform generally takes around 5% commission.

Top 5 broadband speeds worldwide

(According to Akamai, a leading Internet monitoring firm. Q1 report, 2012)

1. South Korea – 15.7Mbps*

2. Japan – 10.9Mbps*

3. Hong Kong – 9.3Mbps*

4. Netherlands – 8.8Mbps*

5. Latvia – 8.8Mbps*

*Average broadband connection speed

In May 2012 the UK did not appear in the top 10 ranking for worldwide fastest broadband speeds, with an average of just 6.8Mbps.

Figures from the Office for National Statistics (ONS) show that around 8 million Britons are working part-time, a record high over the last two decades. The growth in part-time employment has helped to reduce the total unemployment figure which has now fallen to its lowest level for a year.