This marks the final article in our series on the alternative finance market and the potential for huge change in analyst demand in the future. Alternative finance through crowdfunding and peer lending is changing the way companies get funded and the way people apply for loans. The World Bank expects the $30 billion alt-finance market to reach $90 billion by 2020 and many other estimates expect even faster growth.
Being able to take advantage of this growth as an investment analyst or asset manager means preparing your skills to be in demand for the new revolution in finance. Analysis of crowdfunding deals and peer lending shares similarities with traditional financial analysis but there will also be aspects that will be totally new. Not only will the new market need analysts for securitization and initial deal valuation but asset managers and teams will be needed for the secondary trading market when it develops.
Check out How Crowdfunding and P2P Lending will Change Wall Street
Learn How to Analyze Crowdfunding Opportunities
Learn How to Analyze Peer Lending Opportunities
Preparing for Alternative Finance Opportunities with the CFA Curriculum
Several of the sections within the CFA curriculum will give you a good start on analyzing alternative finance opportunities. For analysis of equity crowdfunding, you’ll need a mastery of financial reporting and analysis as well as insight into private company valuation. Pay attention to the section on quality of financial reporting and how to spot financial shenanigans. You’ll need to see through the accounting tricks and income statement manipulation to understand the true financial health of a startup company.
Understanding investment appropriateness and asset allocation will be important when talking with clients about alternative finance opportunities, especially when talking about investing in personal loans and other alt-type loans. Equity crowdfunding returns are likely to be very similar to venture capital, meaning most deals will fail with only a few providing a return.
The CFA curriculum around fixed income investments will be the most closely related to peer lending analysis. Understand that most peer loans are for shorter durations and won’t be at risk for downgrades.
Real estate crowdfunding has been one of the biggest beneficiaries of the boom in alternative financing. Developers are finding a much easier funding source compared to traditional bank or institutional financing. I’ve talked to several developers that have started their own crowdfunding portal just to fund in-house deals. There isn’t as much in the CFA curriculum around real estate development as there is for other investment analysis but look to some of the material on private equity valuation to get you started.
Making your Name as an Alternative Finance Analyst
The huge demand for analysts in the alternative finance space could just as easily start online and as a freelance market as it could a traditional market at institutional firms. Peer lending and crowdfunding are an evolution of traditional finance into the social space so it would make sense that analyst demand could start from online as well.
There is already some demand for analysts and asset managers on the institutional level but the real growth will come from the retail investors. Right now, there is limited need for ongoing analysis because of the lack of a secondary market for crowdfunding equity and peer loans. Once secondary market trading really gets going, we’ll see huge growth in analyst demand.
Besides a mastery of topics within the CFA curriculum, there are a few other things you can do to put yourself at the top of the list for this analyst demand.
Unless you’ve got prior experience valuing venture capital or startup deals, you may want to work with a few experienced analysts to learn the basics. Connect with a few investors on the equity crowdfunding sites to find out how the analyze deals and see if you can help out by putting together a report. Get the financial statements from a company seeking equity crowdfunding.
- Convert the financial statements into common-size statements, calculate financial ratios and analyze the proforma estimates.
- Analyze the market for the company’s product, sales potential and risks
- Build a valuation model around your financial statement analysis and through comparison with competitors
You may have to create a report or two on your own and without getting paid but you’ll be able to use these reports to pitch potential employers or clients. A simple website is easy to put together and can help showcase your analysis to investor-clients. Start early enough and you’ll have built a reputation for great analysis by the time the demand for analysts and asset managers really starts to ramp up.
‘til next time, happy analysis!
Joseph Hogue, CFA