Follow us on
Difitek
  • News
  • What We Offer
  • Contact Us
  • Visit our Site

Crowdfunding Is Not A New Asset Class Its A New Crowd Economic Model

9/9/2013

 
Picture
"The secret of change is to focus all of your energy, not on fighting the old, but on building the new." Dan Millman


Crowdfunding is often labeled as a new asset class. Generally speaking assets do represent value of ownership and asset classes are groups of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. Well-known asset classes are equities, fixed-income, money market instruments, real estate and commodities. So in the strict sense crowdfunding is not a new asset class, but it facilitates the investment process via online platforms across many different established asset classes. 

One tends to believe that the facilitation of online transactions is well established in the financial services industry. The explosion of the internet in the mid 1990s and the adoption of e-commerce by financial institutions gave birth to online banking services as well as electronic stock trading. Even though e-commerce was considered a disruptive innovation and did significantly change many business procedures in the industry, it didn't question the existence of financial institutions as we know them. But that is precisely the disruptive potential crowdfunding has.

It begins with process efficiency

At the forefront of developments is peer-to-peer lending which is growing at an impressive rate due to attractive interest rates for borrowers/lenders. While it continues to pass major milestones, it is paving the way for the adoption of crowdfunding in other asset classes. Equity crowdfunding is already beginning to follow in its footsteps. Even though the volume is still marginal, compared to the size of traditional private equity markets, it is already beginning to disrupt the business model of angel investors and venture capitalists. Next in line for disruption is the real estate sector. Crowdfunding platforms enable real estate development companies to shift from time consuming and inefficient offline processes to online interaction with hundreds of investors presenting all the investment information digitally. What initially looks like an incremental improvement over the existing investment process, is in fact a dis-intermediation of the supply chain of capital allocation.

Threat to their business model

Another indicator of the disruptive nature of crowdfunding is the emergence of “Institutional Crowdfunding” which intends to match large and established companies with institutional investors. While transaction sizes are much larger, corporates and institutional investors benefit from the same crowdfunding qualities, such as total transparency and the ability to screen and analyse investment opportunities. Such corporate finance activity is typically the domain of investment banks but their involvement as an intermediary will eventually be no longer required. Such dis-intermediation is a common pattern across the entire asset class spectrum and it will be only a matter of time until investors are able to build a portfolio of holdings via crowdfunding in a format that rivals traditional investment funds. Intermediation, aggregation and risk diversification are the key functions of today's banking sector and capital markets but exactly those functions are ultimately challenged and replaced by crowdfunding platforms which will act as the new, democratised conduits of financial flows.

Emerging collaborative economic model

But the potential of crowdfunding is far bigger. It can turbocharge the resurgence of the co-operative model - a digital age co-operative - and it can enable the decentralisation of global corporate control which today is concentrated in few transnational financial institutions.[1] It can also be instrumental in a transition towards investing locally, recently termed 'locavesting' [2]. It is becoming more and more evident that investing in local communities supports small businesses that create jobs and form healthy and resilient communities. This developments goes hand in hand with the 'mutualisation' of knowledge via crowdsourcing and crowd-lancing for example. All these qualities of the 'crowd economy' represent a deep transformation of economic practices towards an emerging collaborative economic model. Such a model does not only provide a basis for the more efficient use of natural resources, but it also reduces the strain on the environment and provides for fairer wealth distribution. And that is big change for the better.

References:

[1] The Network of Global Corporate Control, Vitali, Glattfelder, Battiston, Chair of Systems Design, ETH Zurich (http://ethz.focproject.net/viewer/tnc)

[2] Amy Cortese, Locavesting, The Revolution in local investing

Photocredit: Juan Martinez: https://bit.ly/p/7Ek3rk


Picture
About the author - Rex Kempcke

Rex is an innovative banker with more than 15 years experience in retail banking, treasury and commodity trading at Commerzbank, J.P. Morgan and ABB Financial Services. Through his passion for entrepreneurship and new markets he got involved during the dot-com era in building up a business incubation unit for ABB, subsequently spinning off a company which pioneered the implementation of the European emissions trading scheme. He continued his career in the climate change sector first by joining EcoSecurties, a leading startup company in developing carbon reduction projects worldwide, and more recently as director in the environmental markets team of BNP Paribas.

Rex strongly believes that crowdfunding will cause a paradigm shift in the financial service industry and that it will make a significant contribution to the transition towards a sustainable economy. 





Comments are closed.

    RSS Feed

       

    Categories

    All
    All Sectors
    Americas
    API
    Asia
    Australasia
    Clean Energy
    Crowd Valley
    CTO Blog
    Difitek
    Equity Investment
    Europe
    Events
    Expert Analysis
    Fintech
    Global
    Interview
    Lending
    Local Funding Network
    Marketing
    Market Watch
    Oceania
    Platform Updates
    Presentations
    Press Release
    Real Estate
    Regulations
    Russia
    Social Capital
    Webinar

Back to Difitek website


Copyright 2018 Crowd Valley Inc. 
All Rights Reserved.

Crowd Valley does not engage in the offer, sale or transfer of securities and securities may not be offered, sold or transferred via this website. Securities may not be offered or sold in the United States absent (i) registration under the U.S. Securities Act of 1933, as amended (the Securities Act) or (ii) an available exemption from registration under the Securities Act. Please consult legal counsel in the appropriate jurisdiction before offering, selling or buying securities as registration under the Securities Act or similar state legislation may be required.

Please note that the provision of the information on this website does not create and is not intended to create a relationship between Crowd Valley Inc. and any other person. You are not and should not regard yourself as being a client or customer of Crowd Valley Inc. and must not expect Crowd Valley Inc. to have any duties or responsibilities to you, act for you or your clients, or be responsible for providing protections afforded to customers or yourselves or be responsible for advising you in any respect.