Issue link: https://maltatoday.uberflip.com/i/1511181
8 OPINION 9.11.2023 At last, Malta desires to attract Unicorns Dr Ovidiu Tierean Dr Ovidiu Tierean is a Senior Marketing Advisor at PKF O n 31st October, Economy Min- ister Silvio Schembri announced the introduction of a venture capital fund for start-ups that, under normal banking rules, cannot get a com- mercial loan. He laments that Malta is the only European country that did not have a venture capital fund. What could be the cause of this situation? In Europe, the performance of venture capital funds from public money has been mixed. A 2022 study by the European Court of Auditors (ECA) found that public venture capital funds have underperformed pri- vate funds on several key metrics, includ- ing internal rate of return (IRR) and real- ized returns. e ECA study found that the median IRR of public venture capital funds in the EU was 10.5%, compared to 12.3% for private funds. Public funds also had a lower rate of realized returns, with only 60% of funds realizing a positive re- turn, compared to 70% of private funds. e ECA study attributed the underper- formance of public venture capital funds to several factors, including a lack of in- vestment experience among fund manag- ers on public administered funds. Certainly, studies show a more cautious and risk averse investment approach by appointees on State governing boards. An inbred aversion is common among local banks particularly when investing in early-stage companies, which are riskier but have the potential for higher returns. Readers may ask why in the past decade we never managed to build a proficient business incubator that turns up success- ful startups which can survive interna- tional competition? A study, by the University of Luxem- bourg, found that public VC funds were more likely to invest in companies that were located in less developed regions of the EU. So, the primary task is to outline ministry's objectives for a State venture fund, by undertaking a list of the indus- tries you want to focus on, the types of startups you want to support, and your desired rate of returns. Next question is what are the essential legal structures needed to attract and maintain a healthy crop of start-up companies. Ideally, a ba- sic approach is a flexible legal structure of the fund, whether it will be a public fund, private fund, or a combination of both. Naturally, the ministry must seek legal ad- vice to ensure compliance with regulatory requirements. Other essential steps to make this a fruitful exercise and not another damp squib, is to identify alternative sourc- es of funding for the venture fund. is may come from government grants, the Development Bank, private investors, corporate partners, or a combination of these. e Maltese government may wish to offer incentives or grants to encourage investment in startups and innovation. Next step is a vital consideration which concerns regulatory compliance: it should not be draconian, as was the case back in 2015, when a rushed Blockchain method- ology collapsed. Next, applicants need to develop a Business Plan. is is a prereq- uisite, so let them create a comprehensive business plan that meets fund's mission, investment strategy, target sectors and expected financial returns. e ministry plan should detail how it wants to ush- er a new culture towards startups and SMEs. Getting the horse to the water is an essential first step. We can never reach the acclaimed success of Silicon Valley in US, but at least let us hope the ministry assembles a team of experienced profes- sionals with expertise in venture capital, start-up mentoring, and industry-specific knowledge. Our exports need a boost and a new di- mension. Needless to say, having a strong team will help in the selection and growth of portfolio companies. An unbiased pro- cess of due diligence will help develop a rigorous process to evaluate and select startups for nurturing and guidance. e State appointed team carries an onerous duty to assess the management team, business model, market potential and scalability of start-ups. A professional business incubator caters for effective networking and host regu- lar educational meetings to guide young entrepreneurs up the slippery slopes of internationalization. Only by inculcating a solid ecosystem reached by regularly hosting educational fora to establish in- novation hubs and networks within the startup and SME's group in Malta. is means a healthy collaboration in regular practical sessions with incubators, profes- sors, accelerators, universities, MCAST, and industry associations to tap into lo- cal talent and resources. e Chamber of SME's has been active to provide men- toring, business development support, together with access to networks, and guidance on international scene. Obviously more needs to be done. Mal- ta Enterprise has copious schemes and offers to applicants which unless guided by a professional, one is bewildered where to start. e lack of success in this sec- tor is evident that we must change tack at Trade Malta. It must seriously provide access to international acclaimed facilita- tors to reach partners and collaborators in EU markets. Help start-ups with export strategies and connect them with interna- tional investors, customers, and partners. At a time of generative AI domains why are startups not helped to create a strong online presence, or to participate on Metaverse. Reaching out to subsidized industry events, and targeted conferences overseas fielded by FinanceMalta. By following these steps, Malta can cre- ate a supportive environment for startups and SMEs to grow and export their ideas. As, the government in the coming months aims to embark on creating a public ven- ture capital fund, it must navigate several critical considerations to guarantee the fund's success and make a purposeful im- pact. First and foremost, the government needs to establish clear objectives and a strategy for the fund. is means defin- ing the fund's intended outcomes, such as stimulating innovation, job creation, or industry support, and outlining a com- prehensive strategy to guide investment decisions. Finally, establishing govern- ance and oversight mechanisms is vital for transparency and effectiveness. is often involves forming a board of direc- tors or an advisory committee to provide governance and oversight. Managing in- vestment risks is essential, and the gov- ernment should devise a comprehensive risk management plan. is plan includes assessment and mitigation of potential in- vestment risks and establishing risk toler- ance levels and strategies how to manage those risks. Clearly defining investment criteria is crucial. is includes specifying the types of businesses eligible for funding, the de- velopment stages they should be in, and any geographical preferences. is meth- odology involves financial, technical, and market assessments while ensuring unbi- ased evaluations. Brand new companies may receive up to €10,000 to develop their ideas and up to €200,000 to cover salaries. Let us augur that the ministry will succeed to grace Malta with lively Unicorns that individually reach a billion-euro status.