What is Alternative Finance?
There seem to be many definitions of Alternative Finance (AF). People new to finance seem to think that AF means Crowdfunding. But instead, it refers to virtually all the (ever-multiplying) ways that businesses and consumers obtain funding, beyond banks and stock markets. By ‘ways’ we mean combinations of sources, instruments and technologies.
List of AF sources
Here is an incomplete list of AF sources (focusing on business funding): Yourself (!), Friends and Family (equity or debt), Angel Investors (Business Angels), Private Debt, Trade Credit (between buyers and sellers), Grants (government/ EU/ etc), Venture Capital, Corporate Venture Capital (direct or internal/ external fund), Private Equity, Incubators, Accelerators, and last, but not least, Crowdfunding (equity and debt).
Crowdfunding is the latest addition, which has received a lot of media attention lately. It includes several models, covering both equity and debt finance, delivered via ‘high tech’ platforms. Debt Crowdfunding then includes several (sub)models such as P2P Lending and Mini Bonds.
(In the US, more and more people refers to P2P Lending as Marketplace Lending, while some are suggesting that a better name for Equity Crowdfunding would be Marketplace Investing, as more and more angel and institutional investors get involved.)
The best AF source
To decide what AF source is better for you, several factors have to be considered. One is the *Stage* your company is in, e.g. Early Stage and Growing (pre-revenue), Post-revenue and Growing, and Established and Expanding. Another one is the *Sector*, e.g. Food and Beverage, Information Technology, and Energy. Then there is the *Funding Type* preference, which is firstly a decision between equity and debt finance.
If you are starting a new company, the best source of finance is YOURSELF! Probably. That is if you have enough cash in the bank (or bitcoins?) to get you to the break-even point. And you are prepared to take on all the risks. If you decide to go this route, it is still useful to do something you would have to do to get finance from anybody else: put together a realistic business plan.
If you are a member – learn more about this by downloading the following presentation: