Identifying and analysing best practices of alternative financing
Identifying and analysing best practices of alternative financing
2019-01-14
Altfinator aims to transfer best practices from more advanced to less advanced markets. The success factors and working models of best practices on alternative financing were analysed, however the translation of working models into target countries does not seem to be straightforward.

In today’s complex and rapidly changing world competition is global. Internet-based platforms connect individuals and companies worldwide and indicate a digital transformation for each industry. Fostering innovation is a key objective of the European Union, especially supporting innovative SMEs. Innovative SMEs often face the lack of finance. The objective of the Altfinator project is to foster the alternative financing ecosystem in Europe, especially focusing on geographies where the potential impact might be the highest.
 
Nowadays it is impossible to invent everything in-house, therefore it is critical to analyse global best practices and learn from them. Global best practices can enable other ecosystems by bringing inspiration, ideas and new resources. Within the Altfinator project this means that alternative financing best practices were globally analysed to provide examples and inspiration for players of the European ecosystem and support the entry of new players on the market. 
 
The selected best practices include initiatives of online platforms, specific regulatory measures on fostering the use of alternative financing, special techniques, models aiming to foster the use of alternative financial instruments. The approach within the Altfinator project is to identify, analyse and select best practices in the benchmark countries, namely UK, USA, the Netherlands and Estonia, and transfer the knowledge and models to less developed countries in terms of alternative financing.  These geographies have been selected based on their widespread use of alternative financing.
 
The collection and analysis of best practices was based on a methodology, which contained a mix of desk research, analysis of academic and business literature, and expert interviews. After collecting the relevant experts from benchmark countries, semi-structured deep interviews, as well as validation group workshops provided qualitative inputs to our research. The experts chosen for interviews were all highly qualified, with deep knowledge on alternative financing and start-up creation, with a wide international network and track record in business development. 
 
One of the early lessons was, that almost all best practices were a result of some very specific local economic, regulatory and/or social circumstances, therefore their implementation is a highly complex task and high level of customization is needed. Our best practice analysis on the benchmark countries focused mainly on crowdfunding platforms, however the alternative financing solutions that are not platform-based, still play a very important role (like financing through Venture Capitals and Angel Clubs). We can also conclude that the success of the benchmark countries is based on completely unique factors and the four countries followed a highly different path. However, there are some common characteristics: all AF concepts are based on the trust between the investors and the companies to invest in, which should be fostered by relevant events, building up investor networks and closer connections between the innovative companies and the investors.
 
It is not advisable to translate the best practices and apply them in the target countries. In order to spread the use of alternative financing in the target countries, especially in South- and Eastern-Europe, enabling environment plays a key role, which fosters the emergence of alternative financing forms. In order to create an enabling environment, it is necessary to develop the financing culture and increase the acceptance of the alternative financing forms within the society (for example by providing state guarantees).
 
The full report is downloadable here.
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ALTFInator has received funding from the European Union’s Horizon 2020
Research and Innovation programme under Grant Agreement No 792040

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