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Google’s Stake in Lending Club a Defining Moment for Crowdfinance
editorial

Google’s Stake in Lending Club a Defining Moment for Crowdfinance

Editor's Note: The following guest post comes to us from Alon Goren, CEO and co-founder of InvestedIn.

This month, Google announced that it led a deal to buy a $125 million stake in peer-to-peer/online lending hub Lending Club, which is now valued at $1.55 billion, triple its valuation of only a year ago. This high-profile move by Google into the financial world comes at a time when alternative financing – peer-to-peer/online lending, crowdfunding, etc.— is growing very quickly. Google upped the ante once again last week, when it was announced that Google Ventures invested $7.5 million in CircleUp, a crowdfunding platform that connects small businesses with accredited investors.

Related:
- Google Joins Lending Club's Big Name Backers
- CircleUp's Big Round
- 2013CF - The Crowdfunding Industry Report

The move by one of the most recognizable names in tech to invest in crowdfunding is truly a defining moment for the entire industry and validates the strength of crowdfinancing and financial innovation. It also demonstrates the crowd’s ability to transform financial markets. While the SEC has delayed releasing the final rules governing equity-based crowdfunding in the U.S., which was legalized by last year’s JOBS Act, industry analysts massolution reported last month that crowdfunding grew at an astounding 81 percent in 2012, with much of the growth seen in rewards-based crowdfunding – evidence that entrepreneurs and business owners are searching for alternative sources of capital.

Indeed, the online lending sector has exploded since the Great Recession, when credit became scarce for even historically solid businesses and consumers. The stage was set for disruptive innovations to target the financial services industry, and thus gave rise to the popularity of crowdfunding platforms, microfinance loans, online lending and accredited investor portals. According to financial website NowStreetJournal.com, the country’s two largest peer-to-peer (P2P) lenders, Lending Club and Prosper, have now exceeded $2 billion in loan origination. At the same time, industries that were more or less ignored by traditional venture capital firms — such as consumer goods — now have access to a multitude of eager investors and lenders through platforms like CircleUp.

Crowdfunding has had more than its share of naysayers — seemingly under the influence of the powers-that-be at traditional financial firms — but the facts are simple. Worldwide, reported instances of fraud are less than 2 percent – compared with the fact that nearly one in 10 Americans is the victim of credit card fraud, this is a remarkably low number. On the other hand, it makes sense, as an engaged, informed crowd can spot out posers and bad deals and publicize its findings to the rest of us.

Google, ostensibly a search engine, is not a name that is usually associated with financial services, but nonetheless has decided to invest in growth-stage crowdfinancing platforms. P2P has had a bit of a head start over donations- and rewards-based crowdfunding models, and therefore has matured to the point of attracting major investors. These developments point to one thing — crowdfunding, particularly equity-based crowdfunding, will be the next innovation that Wall Street and institutional investors finally embrace.

- Alon Goren is the CEO and co-founder of InvestedIn – a leading technology startup that specializes in social fundraising and crowdfunding platforms. Alon started InvestedIn to offer fundraisers a customizable, quick and affordable platform to use. Prior to founding InvestedIn, Alon worked as a manager for innovative entertainment tech giants as IMDB and MySpace. InvestedIn is currently offering a commission-free platform for non-profits called GoodCleanFund, available at www.goodcleanfund.com.

 

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