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PENSCO Blog

Fresh alternative asset insights and the latest news on real estate and private equity investing.

Wave of Financial Disruption Felt from East to West Coast

  |  By Christopher Orr, SDIP

The wave of disruption that technology is bringing to the financial services world is creating a palpable buzz in the industry, dominating recent conferences on both the East and West Coasts.

Last month, I flew to San Diego to attend the 2015 Angel Capital Association Summit, while my colleague flew to New York to attend the LendIt USA conference. The result? Two well attended, high-energy conferences where attendees were keeping a close eye on how equity crowdfunding and peer-to-peer (P2P) lending are changing the world of finance as we know it.

At the ACA conference, those in attendance were talking about the ways in which equity crowdfunding is shifting how angel investors connect with one another and with potential investors. For years, angel investing was done privately, on an individual basis. But now, equity crowdfunding platforms are connecting a wider swath of accredited investors with private placement deals.

This digital disruption means that the landscape for early-stage investing has changed more in the last few years than it has in centuries

This digital disruption means that the landscape for early-stage investing has changed more in the last few years than it has in centuries, according to ACA Executive Director Marianne Hudson. In the 2015 PENSCO Crowdfunding Report, Hudson said that this is providing accredited angel investors with the opportunity to:

  • Access a wider range of deals: A growing number of angel investors are becoming interested in deals they see on accredited platforms in regions that are beyond their own communities. These platforms may also offer deals in an angel's sector specialty or "hot" markets such as Silicon Valley. With minimum investments as low as $1,000, accredited platforms are presenting angles with the  ability to diversify a portfolio through multiple investments, helping to improve chances of a good return.
  • Access to new investors to help fill out investment rounds: The ACA is seeing a new trend -- angel groups are posting deals on platforms to access new investors in order to complete investment rounds. While the ACA has only seen a handful of these deals, they're expected to grow quickly.
  • Connect with like-minded investors and deals: As accredited platforms innovate, investors are gaining access to a broader swath of deals and companies. This allows them more ways to network with other like-mind investors and invest in the kinds of companies they care about.

Meanwhile, on the East coast at the LendIt conference, attendees were buzzing about an announcement that Lending Club and Citi were partnering to facilitate up to $150 million in loans to low- to moderate-income borrowers in underserved communities.

 Those at the LendIt conference said they expected to see more partnerships emerge between big banks and P2P lenders.

Lending Club debuted its $1 billion IPO last year, and the Citi announcement highlighted just how quickly P2P lending is gaining traction among individuals and investors -- both big and small. One of PENSCO CEO Kelly Rodriques' predictions for 2015 was that P2P lending would rise in popularity among self-directed IRA holders, who can invest in these opportunities with their retirement dollars. And those at the LendIt conference said they expected to see more partnerships emerge between big banks and P2P lenders.

2014 was an exciting year for equity crowdfunding and P2P lending, and in the first half of 2015, that excitement continues unabated. There will no doubt be more news to follow on this front, as regulators continue to hash out finalized rules for the JOBS Act and P2P lending expands its reach. At PENSCO, where we custody alternative assets for our clients' IRAs, we're keeping a close eye on these changes as they give rise to expanded investment opportunities that IRA investors can take advantage of to build their retirement savings.