Former unicorn China Rapid Finance went public last month at a $350M valuation

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Today, 8 of the 22 global private fintech companies valued at $1B or more are alternative lenders. But 11 years after the founding of Lending Club, investments to private alternative lending companies are hitting new lows, according to CB Insights data.

Recently, Prosper Marketplace, one of the largest US alternative lending platforms, informed most of its investors that it had overstated its annual returns due to a system error. China Rapid Finance, which last year raised funds at a $1B valuation, went public last month at a $350M valuation.

We used the CB Insights database to look at funding trends and geographic deal share distribution to private alternative lenders. Companies included in our alternative lending category provide companies and entrepreneurs with a platform to raise capital or a marketplace to obtain a loan outside of the traditional methods. This does not include short-term (installment, payday, etc.) loans or credit scoring and underwriting.

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Annual deals on pace for 5-year low

Deals and dollars to alternative lending companies trended up between 2012 through 2015. Funding saw a 188% funding increase from $1.54B in 2014 to a record $4.43B in 2015 across 94 deals. But at the current run rate, 2017 will see a dip to approximately 42 deals worth $2.01B. And this funding run-rate is actually inflated by SoFi’s $500M Series F, which represents 73% of funding in the year-to-date. The full-year total could come in far lower than $2B.

Alternative lending companies saw both deals and dollars retreat on a year-over-year basis in 2016 with 78 deals worth approximately $2.45B in funding. Despite ending the year down, 2016 saw the largest-ever investment to the space, a $1.2B investment to unicorn Lu.com, a China-based peer-to-peer lending site. The investment valued Ping An-backed Lu.com, which is reportedly considering an IPO, at $18.5B.

ALT LENDING ANNUAL V3

Quarterly deals hit 3-year low 

Digging into the quarterly data, Q2’15 saw a record 30 deals worth approximately $1.45B in funding. The top deal in Q2’15 was a $485M private equity investment to Lu.com that included BlackPine Private Equity Partners, CDH Investments, China International Capital Corporation, and Sagamore Investments.

Q3’15 was a record quarter for funding with approximately $2.14B invested across 24 deals. Funding was largely driven by SoFi‘s $1B Series E investment. Lu.com‘s record investment mentioned above caused the second-largest funding spike in Q1’16.

Deals have been trending down since Q1’16 and neared a 3 year-low in Q4’16, which saw 11 deals worth $170M in funding. Deals were up slightly in Q1’17, with 13 investments worth approximately $698M in funding.

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Geographic distribution of deals spreads out globally

Since 2012, the US, UK, and China have consistently led deal share. However, that deal share lead has progressively diminished. In total, there have been deals in 21 countries outside the US including in France, Germany, and Israel.

In 2016 as deals declined overall, the US saw deal share drop 12 percentage points and the UK saw a drop of 8 percentage points, while other countries saw deal share increase.

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