Alternative assets have always been an investment typically reserved for the ultra high net worth individual and for institutional investors like hedge funds, private equity funds and venture capital funds. The retail investor has had little to no access to some of the most lucrative investment opportunities available. Instead of being able to be an early investor in a company like Facebook or Uber, retail investors have been stuck with taking risks on penny stocks. These stocks that have the ability to lose 99% of their value in one day. Private online lending through real estate crowdfunding can be the solution to this problem.
Disrupting the World of Finance
With any unfairness that affects a large amount of people, there are always going to be companies looking to disrupt the status quo. Take Lending Club for a great example. Back in 2007, their founder saw an opportunity to allow individual retail investors to take the role of a bank in the consumer loans equation. This concept of peer to peer (P2P) lending allowed consumers to borrow money for things like credit card refinance from other individuals that were looking for a greater yield than their savings account offered. The P2P lending phenomenon that kicked off in 2007 has only taken off over the past few years. Now it’s a multi-billion dollar industry, with the two top players (Prosper; being the other) having syndicated over $13 billion (#1and#2) in loans alone.
In December 2014, we even saw our first IPO in the industry with Lending Club going public (Ticker: LC). That $13 billion in origination equates to over$1 billion in interest paid to investors–investors that include both institutional, accredited (high net worth individuals) and non accredited investors.
Emergence of Marketplace Lending
With the success of these two peer to peer lending stars, an entire industry blossomed in only a few years, reaching multiple asset types. The P2P industry is also known as marketplace lending, direct lending or online lending–take your pick. Not only is this space making in a dent in the banking industry, it’s also transforming the private lending space. Previously, private (non-traditional) lending was only availa