I wrote earlier this week about some of the institutional analytic and connectivity tools that are emerging as the crowdfunding and P2P markets mature. There is a nice summary of similar tools aimed at individuals and small funds investing in P2P lending platforms: \Overview of P2P Automation and Analytics Sites.
“…Analytics and data has been a large part of p2p lending from the start and investors are always looking for an advantage to potentially maximize returns. Investment automation allows for a much better investment experience versus selecting notes on the platform by hand”…
The rapid growth in crowdfunding platforms is remarkable. As the market matures, some key trends are emerging which I think have important implications for future areas of growth.
Fragmentation. With over 600 platforms (Crowdsourcing.org) today, the market has become highly fragmented. Pick any segment — equity, loans, real estate — and you’ll find multiple platforms.
Institutionalization. Crowdfunding and P2P platforms are increasingly turning to institutional capital sources to provide liquidity and scale. This includes investor groups, “institutional” investors that have raised funds, and banks (recent articles here and here).
Electronification. As participants have become more sophisticated, so too have the platforms. Electronic access through APIs, both for data analysis and investment, have become prevalent.
When you combine Fragmentation, Institutionalization and Electronification the future looks quite interesting.
- Investment analysis becomes much more complex. Relying on the tools of one platform are not longer sufficient. Institutional investors need to bridge marketplaces. They want an aggregated view of where the “market” is for a particular security, loan or asset. They want to dissect relative value across platforms. They want to consume and analyze large sets of data using standardized or proprietary analytics.
- Connecting to multiple platforms, to either consume data or submit investment requests, becomes a pain point. Connections are costly to setup and maintain. By themselves they provide little competitive advantage (for now at least). Participants would much prefer to deal with a single connection point.
- Electronic trading becomes a capability for potential differentiation. Given the small investment amounts and desire to redeploy capital, institutional investors need tools to enable them to invest in an efficient, rule-based approach that leverages APIs that are now available. As these electronic capabilities mature, I would expect more advanced algorithmic trading to increase. While some participants may prefer to build these capabilities from scratch, I expect others will prefer to license a platform and invest in developing trading strategies on top of it.
Helping accelerate these developments is the desire for crowdfunding sites to grow their marketplaces as quickly as possible. In general, they appear to have adopted an approach which is open to the broader ecosystem, and does not discriminate based on type of investor or trading style.
As a result, I see a tremendous opportunity for “second order” crowdfunding players that are focused on providing data, analytics, connectivity services and electronic trading platforms. There are already some notably companies addressing these needs (e.g. Crowdnetic, LendingRobot). I expect we’ll see many more in the future.