An examination of startup financing dynamics in Malta : challenges and opportunities

Abstract

Like any other business, startups play an important role in the creation of jobs and fostering economic growth. However, startups have another crucial role; that of pushing innovation. In order for startups to grow and expand, they need access to sufficient financing resources. Startups, especially those in the early stages, are often thought to be risky mostly because of their lack of tangible assets to serve as a collateral, and a limited operating history. As a result, they often find it challenging to obtain adequate funding which prevents them from growing, expanding and achieving their full potential. This dissertation examines the financing needs of startups in Malta, the funding options available to them and the difficulties encountered in accessing them. It also explores the role of government assistance and support schemes in addressing these challenges and improvements that can be made in the Maltese financing ecosystem for startups. The research involves the collection of primary data through the use of two surveys; one distributed to Maltese startups (covering their financing needs, challenges, and government support) and a complementary questionnaire for bank representatives. The study aims to capture perspectives from both entrepreneurs and financial institutions to provide a holistic view of the financing landscape. The results indicate that Maltese startups find it challenging to access external finance, particularly in securing traditional bank debt due to high collateral requirements and risk aversion by investors. Although the Maltese government supports the startup ecosystem though various initiatives, many startups remain unaware of available support or perceive the application processes as too complex and burdensome. Moreover, alternative financing mechanisms are still underdeveloped in the Maltese startup ecosystem. The findings of this study show that the financing ecosystem in Malta needs to be more diversified and accessible to young ventures like startups by streamlining application processes and by the adoption of innovative funding instruments that are tailored to startups’ specific needs.