Crowdfunding as an alternative to financing SMEs in Malta

Abstract

The present dissertation explores the concept of crowdfunding as an alternative to financing SMEs (small and medium-sized enterprises) in Malta. Crowdfunding, a “method of raising money from a large amount of individual investors, typically through the Internet, for a project or organisation” was initiated via the JOBS (Jumpstart Our Business Startups) Act of 2012 by President Obama in order to enable the general public to exchange funding for equity (InvestorWords 2015). In Malta, awareness of the concept of crowdfunding is very limited. Thus, the present study addresses this lacuna. The study, first, provides an overview of SMEs in Malta and discusses the difficulties that these enterprises face when it comes to access finance. The concept of crowdfunding is introduced in this context as a possible useful alternative source of finance to these SMEs and whether it is simultaneously sustainable for the Maltese economy. The study adopts a qualitative research methodology to determine the viability of crowdfunding for SMEs as applied to the local environment. Semi-structured interviews were conducted with distinct bodies, all of which are exposed to SMEs in one way or another. The responses from these interviews were then analysed and provided the relevant data for the findings of this research. Generally, the findings reveal that access to finance is in fact one of the main barriers that startups and SMEs in Malta are fronting. In this respect, there should be alternative sources of finance to assist these SMEs in order to help them progress in their business lifecycle. Despite the distrust in local crowdfunding initiative, suggestions of how the activity can still function are also presented. This contradicts the belief that crowdfunding will entirely solve the financial gap, but it will help in bridging the gap whilst creating an opportunity for entrepreneurs to showcase their ideas. The study concludes that critical mass in Malta and the Maltese conservatism might keep the idea of crowdfunding far back from being introduced in practice. Although these might be themselves major drawbacks, they might be used to Malta’s own advantage. The system can still function if the interested parties manage to strike a balance between investing and remaining conservative. In conclusion, the study makes a set of recommendations by highlighting the need for further awareness, setting constraints and assessing sectors, all of which complement to an effective crowdfunding concept at a national level.