Market Gaps on Access to Finance - Bank of Valletta

Economic sectors Current financing needs Current financing options Scope for financial instruments
Innovative/ creative
industries
Malta performs below EU average in innovation,
with its main weaknesses being a shortage of
qualified human resources and low levels of
public and private investment in R&D.
Government policy is aimed at addressing these
weaknesses and is behind the development of
innovative/ creative sectors. This is especially
the case with the digital gaming industry and the
film industry. Other initiatives are being carried
out to develop audiovisual products, theatre and
design. These are all potential growth areas,
especially given the likely increase in demand
through the Maltese Presidency of the EU in
2017 and Valletta being awarded the European
Capital of Culture in 2018.
The large majority of start-ups would be
operating in the innovative sector, including ICT,
gaming and renewable energy. The business
needs for this sector would therefore relate to
attracting specialist skills, investing in the
necessary infrastructure, and R&D expenditure.
According to the survey results, firms in this
sector have the largest access to finance issues –
starting off from obtaining external financing in
their start-up phase, to their day-to-day
operations, as well as to finance specific projects
or investments in their growth stage.
Weak R&DI performance
Government directed policy
“One-off” project based funding
2017 Maltese Presidency of the EU
2018 European Capital of Culture
Given the predominantly intangible nature of
these companies’ product/ services, traditional
providers of finance have generally shied away
from this sector. Looking at the funding history
of some of the local established IT/ ICT
companies in Malta, it is clear that most started
as small units with limited capital, generally
internally sourced. At the point where further
capital was required to fuel growth, these
founders informally approached leading local
entrepreneurs, who were generally seeking
diversification/ freewheeling opportunities. Some
of these local businessmen are still shareholders
in such IT companies. The involvement of these
individuals was also beneficial to the company
since it facilitated access to bank financing.
Investment in these companies was also
facilitated through clearer exit strategies routes –
a number of companies have merged, have been
acquired by larger international companies or
have sought financing from capital markets.
Government has stepped in through various
grant schemes through national/ EU funds,
including ERDF Innovation Actions (Innovation
and Environment) grant scheme,
ERDF e-Business Development grant, tax credits
for the development of digital games, Innovative
Start-ups Programme, CREATE, and Invex. This is
also reflected in the survey results, where half of
the respondents in this sector have utilised
national/ EU funded schemes.
A number of previous VC fund initiatives in Malta
had targeted this sector.
Difficulty in tapping bank financing, especially
for start ups
National/ EU grant schemes
Interest from local businessmen
Limited take up / success for VC funds in the
past
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This sector provides the greater scope for equitybased
financial instruments, as evidenced by the
survey results - about two-thirds of respondents
are interested in non-traditional sources of
finance. This is mainly spurred by the higher
potential returns, growing interest in the sector,
but also a founder readiness to accept new
partners bringing in not only the necessary capital
but also new business ideas.
This is also the sector where traditional sources of
finance are less likely to provide financing. Hence
the funding gap created by traditional sources can
be offset by the increased interest from the
private sector.
There is therefore significant market scope for
further equity investment. Boxes 3.5.4.1, 3.5.4.2,
3.5.4.5 and 3.5.4.6 all refer to financial
instruments that will be available in the upcoming
MFF. Examples could include:
(a) VC fund for innovative companies (not
necessarily start-ups). Where critical mass is the
main stumbling block, such fund could be designed
to have a wider scope (covering other sectors), or
be a sub-component of a pan-European VC fund.
(b) looking for equity investment through
informal business angels (local entrepreneurs)
or formal business angel networks.
(c) equity guarantee schemes, such as one of
the products offered through JEREMIE
(d) hybrid financial instruments providing both
equity and debt elements.
(e) Public – private partnerships, such as the
University of Malta’s Research, Innovation &
Development Trust Fund.
A proposal for a Culture Venture Fund and
crowd funding has also been put forward as
part of Malta’s Strategy for the Cultural and
Creative Industries (e.g. WEFUND.com).
Further scope for grants, especially for
R&D and start-ups
Further scope for financial instruments –
loans and loan guarantees, but also risksharing
hybrid forms
Equity instruments for innovative
companies in all lifecycle stages
Potential for VC funds
Crowd funding for creative/ cultural
concepts