The latest research conducted by the School of Management of the Politecnico di Milano and presented at Innexta's Alt-Finance Day revealed a difficult scenario for alternative finance in Italy. Recent increases in interest rates and government bond coupons have negatively affected this sector over the past year, making it less competitive in the eyes of investors and complicating its ability to attract issuers in both debt and equity.
The current situation - downturn in minibonds and equity crowdfunding
According to data from the Report on Alternative Finance for SMEs in Italy, the first half of 2023 recorded the lowest number of minibond issues in the last 36 months, with only 48 transactions for a total value of EUR 318.24 million. Thus, there was a considerable slowdown compared to the previous year's record, when total funding exceeded EUR 1 billion. In particular, crowdfunding seems to have been strongly affected, with a decline in equity and slight growth in lending-based crowdfunding.
To complete the picture, venture capital, the component of private equity dedicated to investments in micro-enterprises at the seed and start-up stage, grew by €410 million. Lastly, it should be noted that funding on the stock market by SMEs, particularly on Euronext Growth Milan, amounted to less than EUR 100 million in the first half of the year.
What to expect in 2024 - opportunities for alternative finance
Despite the current negative picture, research suggests that the risk of a credit crunch for SMEs could open up new opportunities for alternative finance. All of the crowdfunding platforms present at Crowdinvesting Day attracted a great deal of interest, demonstrating that, despite the challenges, there is still a fair appetite for alternative financing instruments.
Despite the downward trend, the Italian private debt market as a whole recorded transactions worth around 70 per cent of the value of the entire 2022. SME financing securitisations emerged as a leading sector, demonstrating that other segments of private credit are helping to support the industry.
Growth prospects for the crowdfunding sector (both equity and lending) are in the balance. The slight growth of the lending segment, in fact, does not seem to be able to counteract the forecast of the equity area, which will most likely grow below the previous year's levels.
The data presented also highlights the significant role of invoice trading, despite the challenges related to deteriorating corporate liquidity ratios. For direct lending, although there has been a slowdown, confidence is expressed that SMEs will continue to use this instrument in the coming years. Analysis on crypto-assets and tokenisation is still limited, but an increase in transactions is expected in the near future.
Optimism for the future?
Despite the current difficulties plaguing alternative finance in Italy, it is important to emphasise that challenges are often accompanied by opportunities for growth and innovation. The risk of a credit crunch for SMEs could act as a catalyst for renewed vitality in the alternative finance sector, encouraging the adoption of new models and strategies.
Looking ahead, 2024 could present some positive surprises. The resilience demonstrated by crowdfunding platforms during the Crowdinvesting Day event suggests that there is still significant investor interest.
Furthermore, the subset of basket bonds, with several programmes expected to restart during 2024, offers a positive signal for the sector. The evolution of the Italian private equity market, with a rising trend and increasing focus on venture capital, indicates that there are positive dynamics at work.
Finally, the albeit limited analysis on crypto-assets and tokenization shows that these operations will become increasingly widespread in our market as well, following more structured processes in light of the regulations introduced in recent years.
In summary, although alternative finance in Italy is going through a challenging period, 2024 could offer fertile ground for the sector's recovery and growth. The adaptability and innovation of Italian platforms and service providers will be of strategic importance to capitalise on emerging opportunities and shape a more robust future for the entire sector in the Italian financial landscape.