As of 2020, global online alternative finance for businesses had surged by 51% year-on-year to $53 billion, according to the jbs. This expansion lets startups stay private longer, fundamentally altering the traditional path to scale.
Venture capital has long been the perceived gateway to startup growth. But a rapidly expanding, debt-heavy alternative finance market now allows startups to scale significantly while remaining private.
Traditional venture capital firms may face increased competition for top-tier deals. Founders will likely need to become more sophisticated in navigating a diverse funding ecosystem that prioritizes different forms of capital.
The New Funding Frontier
Online alternative finance for businesses reached $35 billion in 2019, a 13% year-on-year increase, according to the 2nd global alternative finance market benchmarking report. The 13% year-on-year increase in 2019 solidifies alternative finance as a mainstream funding source, moving beyond niche status. In 2020, business funding represented 47% of the total volume of online alternative finance, as reported by jbs. The 47% share of business funding in 2020 means significant capital directly supports startup and SME growth. Alternative finance is now a core component of the modern funding landscape, challenging traditional venture capital dominance and offering startups viable avenues to scale without immediate equity dilution.
Debt Takes the Lead
Online alternative finance for businesses overwhelmingly originated from debt-based models, accounting for 94% of all business funding in both 2019 and 2020, according to the jbs. Startups are increasingly trading equity dilution for balance sheet leverage. Trading equity dilution for balance sheet leverage can accelerate growth but also amplify risk, especially for early-stage companies in uncertain markets.
The dominance of debt in online alternative finance reflects a strong market preference for non-dilutive capital, allowing founders to retain ownership and control. Founders prioritize long-term equity retention, fundamentally changing how startups finance expansion and bypassing the traditional venture capital model. Prioritizing long-term equity retention can delay traditional exit routes like IPOs or acquisitions, as companies maintain greater internal control over their growth trajectory.
