Market Gaps on Access to Finance - Bank of Valletta

Lifecycle stage Current financing needs Current financing options Scope for financial instruments
Start-up
A firm in the start-up stage requires further
financing to test the market/ product, and
implement adjustments. Financing will then be
required for marketing and for the initial working
capital requirements. The survey results confirm
the fact that start-ups tend to face greater access
to finance obstacles.
Increased financing needs
Initial working capital requirements
In terms of financing, the firm is still relying, in all
likelihood, on its initial seed funding sources to
keep it going (personal savings, family and
friends), and is probably not yet profitable. The
survey results show that 90% of start-up financing
derives from the two above-mentioned sources.
For this reason, those running the business must
be very careful not to use up their available funds
too quickly.
Apart from the initial seed funding, SMEs in the
start-up phase might again be eligible for
earmarked grant assistance as discussed under
the Inception stage. As shown in the survey
results, about half of the start-ups have utilised
national/ EU funds.
Though less risky and uncertain than in the earlier
inception stage, commercial banks might still
deem start-ups as “non-bankable clients” due to
their risk profile and potentially low collateral
coverage. In fact, the survey results point
towards lower usage of bank financing by startups.
The JEREMIE initiative has managed to fill in
this gap by providing a safety cushion in the form
of an EIF-backed guarantee, leading to lower
pricing/ collateral requirements. In fact, c. 40% of
JEREMIE successful applicants as at December
2012 had initiated operations within a period of
less than 24 months.
In terms of local private equity funding, there
currently still exists a gap for start-ups in Malta as
previous attempts to set up venture capital funds
for technology-driven ideas and formal business
angel networks have not (to date) been
successful. According to the survey results, only
one start-up successfully tapped equity from third
party sources.
Lack of accessibility to bank financing
Specialised grant schemes
Lack of equity programmes / VC funds/ formal
business angel networks
Lack of equity investor readiness
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In order to make firms in the “start-up” phase
more bankable, financial instruments based on
loans, loan guarantees or a mix of both needs to
be retained/ extended. Likewise, a hybrid
approach considering both debt-based financial
instruments and grant assistance would match
the financing requirements of firms in this stage.
80% of start-up respondents would welcome
further grant assistance.
The survey results also indicate that start-ups
are more willing to consider equity from other
sources. In terms of equity financing, venture
capital funds are aimed at targeting firms
specifically in this sector, where the risk-return
trade-off is at its peak. Locally, such initiatives
have had limited impact. Any intention to relaunch
such initiatives would, however, require
government intervention or the involvement of a
pan-European initiative.
Box 3.5.4.1 and 3.5.4.2 provide examples of
financial instruments being proposed for the
upcoming MFF which could be applicable for this
sector.
Further scope for grants, especially for
R&D/ innovative start-ups
Further scope for financial instruments
blended with grants
Equity instruments for innovative
companies in all lifecycle stages
Potential for VC funds and business angels
in selected sectors