Risk capital : alternatives for the future of corporate financing in Malta

Abstract

Financing and the availability of funds has always been a key issue for businesses, especially in small countries with very limited resources like Malta. Apart from traditional forms of finance, such as bank lending, other forms of finance (including venture capital and other forms of risk finance) have grown in popularity worldwide over the years. Malta has been lagging behind in this aspect, with numerous attempts at creating venture capital initiatives all proving to be short-lived and having limited success. While a number of studies have looked at the opportunities that may be available to Malta, very little research has looked at how the social, political and economic environments present in Malta impact Malta's attractiveness to risk capital. The aim of this study is to assess Malta's position with respect to attracting venture capital and private equity, given the current environment, when compared to European counterparts. The research and analysis undertaken within this dissertation made it possible to pinpoint areas of weakness in attracting venture capital and also made it possible to assess whether other forms of risk finance, such as crowdfunding, could plug any gaps which venture capital could not address. An index based on six factors identified through literature, namely Economic Activity, Development of Capital Markets, Taxation, Investor Protection & Corporate Governance, the Human & Social Environment and Entrepreneurial Culture was created to facilitate the comparison. It resulted that Malta was considerably below index average (the index consisting of 28 EU member states). This was down to the size of economic activity and capital markets in Malta together with a poor entrepreneurial culture. Malta's small size was found to be a ma Taking measures to boost ii these together with taking advantage of opportunities, knowledge and expertise available in mainland Europe, access to which is facilitated by Malta's membership of the EU, were found to be possible solutions to increasing venture capital investment and risk financing in Malta.