In the alternative finance landscape, instruments such as equity crowdfunding, direct lending and minibonds offer diverse opportunities for both capital-seeking companies and investors. Understanding the differences between these instruments is crucial to effectively navigate the market.
Looking ahead to 2025, significant developments in these sectors are expected. Equity crowdfunding could still be affected by economic uncertainty, but the introduction of new regulations and tax incentives could stimulate recovery. Direct lending, thanks to its flexibility and the consolidation of the Originate-and-Share model, could attract a growing number of institutional investors and consolidate as an alternative to traditional bank lending. As far as minibonds are concerned, the return of confidence in bond markets could favour an increase in issues, especially if interest rates stabilise or fall slightly. Let us then review some numbers on last year's performance and try to identify what the future challenges might be.
Equity Crowdfunding
Equity crowdfunding allows companies, typically start-ups or SMEs, to raise capital by offering shares of their share capital to investors in return. In this way, investors become partners in the company, sharing in potential future profits and assuming the associated risks.
In the period between July 2023 and June 2024, equity crowdfunding in Italy raised EUR 106.53 million, a decrease of 25.5% compared to the previous year. Excluding real estate projects, the drop was 32.6 per cent, with 161 funded campaigns and a success rate of around 90 per cent. Despite the contraction, the real estate sector maintained a significantly higher average collection of EUR 1,184,833 per campaign.
Direct Lending
Direct lending involves investors lending capital directly to companies, without bank intermediation. Beneficiary companies undertake to repay the capital received within a predetermined period, paying agreed interest. This instrument is particularly useful for companies in need of immediate liquidity.
In the same period, lending crowdfunding raised EUR 167.82 million, a growth of 7.7 per cent. However, the direct lending market is less transparent than other asset classes, as many transactions are not officially disclosed. However, the collection of specialised direct lending funds is showing a positive trend internationally, suggesting growth in the sector in the coming years.
One of the key factors in the growth of direct lending is the increasing importance of the Originate-and-Share model, in which banks extend a loan to a company in partnership with a direct lending fund. This model makes it possible to share risk and optimise credit management.
Minibond
Minibonds are debt securities issued by SMEs to raise funds on the capital market. Investors who subscribe to these instruments become creditors of the issuing company and receive periodic interest until the maturity of the security, when the invested capital is repaid.
Between July 2023 and June 2024, the placement of minibonds raised EUR 28m, an increase of 34.5% year-on-year. After a 42% contraction in 2023, 2024 could mark a recovery phase for the sector. However, it remains to be seen whether this positive trend will be consolidated with the upcoming data from the Politecnico di Milano's Minibond Observatory.
Future prospects: what awaits us in 2025?
2024 was a challenging year for equity crowdfunding, with a contraction in the volumes raised and the number of funded campaigns. On the other hand, lending crowdfunding experienced moderate growth, while minibonds showed signs of recovery after a difficult year.
Looking ahead, direct lending could become one of the most popular asset classes due to the growing need for alternative sources of financing to bank credit. However, there will be no shortage of challenges: rising interest rates and macroeconomic uncertainty could adversely affect the availability of capital and the propensity to invest.
For minibonds, 2025 will be a crucial year to see whether the market will be able to consolidate the recovery observed in 2024 or whether structural difficulties will continue to limit its growth. In the equity crowdfunding sector, it will be crucial to observe the evolution of regulation and the adoption of innovative strategies to attract new investors.
The much-anticipated reports of the Alternative Finance Observatories of the Politecnico di Milano will provide further details on the performance of the various sectors in 2024 and the outlook for 2025, outlining the opportunities and risks that await these financial instruments in the coming years.