Julian Pace Ross is one of the  four founders of Altaro, a company that is well-known in Malta and beyond for its data recovery and IT security systems, while Philip Camilleri is co-founder of SmartAsset.com, an online marketplace that connects consumers to financial advisers.

Both Pace Ross and Camilleri had scientific backgrounds and graduated from the University of Malta; both were fascinated with technology and had an entrepreneurial disposition. The internet boom had a determining influence on their lives.

But despite a number of parallels, their life journeys were different. Whereas Pace Ross remained in Malta, Camilleri’s job took him to London and eventually New York, and he remained overseas ever since. Chance led him to meet his business partner in New York where their venture, SmartAsset.com, took off.

Support ecosystem and finances

The stark contrast between the Maltese and US start-up support ecosystem and exposure to finances is evident in the depiction of their story.

Like many start-ups in Malta, the growth of Altaro was driven by the private finances of the founders, whereby they had to draw on their life savings to scale the business through and through. But as Pace states − and this is surely a distinguishing factor of Altaro’s success story from the start − the founders’ vision was always on the global market.

Pace and his co-founder, Simon’s, decision to partner up with the two other founders was led by the fact that these two individuals had already gone global with a previous venture they had had. Positioning themselves as a global industry, rather than deciding to focus on the local market, gave Altaro − in Pace Ross’s words − “the critical mass” (in terms of client base) to start growing.

From his experience, Pace strongly advocates against Maltese start-ups using the local industry as a test bed for their ideas, prior to launching globally. His experience led him to conclude that the limitations of Malta’s market size do not allow for the desired growth and often lead start-ups to lose faith rather quickly.

The advantages of having access to a broad market and network of opportunities is equally evident, if not more pronounced, in Camilleri’s journey. After having failed to obtain buy-in from investors on three occasions, SmartAsset managed to get into an incubator programme named Y Combinator. This immediately opened the doors to further potential investors who were happy to take a chance on SmartAsset without demanding anything in return. This was the first of various investment levels the venture went through until it was able to raise a total of $160 million.

From his experience in the US, Camilleri says that once you are able to attract the first tranche of investors, others will follow suit for the simple reason that there is comfort in numbers and mutual recognition and trust among the investment community.

Limitations of Malta’s infrastructure

Pace Ross’s and Camilleri’s stories expose the shortcomings and limitations of Malta’s infrastructure, where significant private investment in start-ups is limited, if not inexistent.

Rather than being focused on attracting this network of investors to Malta by providing them with a package of creditor-friendly legislation, incentives and other solutions they may be seeking, Malta’s strategy has largely focused on providing finance opportunities through government grants and schemes.

By doing so, apart from creating certain bureaucratic requirements that start-ups find difficult to cope with − such as, in Pace Ross’s words, a three-year business plan which can never be maintained by a start-up − we are missing the opportunity of leading private investors, who in turn could drive the global start-up community to the jurisdiction, to our shores. 

Relying on banks and other traditional forms of raising capital is also a non-starter for tech start-ups. Due to their very nature and need to minimise risk, these institutions demand collateral security, which is not available to start-up founders at the very early stages of their working life.

Once you are able to attract the first tranche of investors, others will follow suit

Neither has Malta adopted creditor-friendly measures that would allow for intellectual property to be used as an asset to be placed in security and which the lenders could seize in case of default.

The legal and practical issues emanating from the intangible asset (intellectual property) are increased when AI is used in their development due to concerns of intellectual property (IP), data and other breaches in the underlying software.

Malta’s window of opportunity to be among the first to legislate for clarity on these matters is closing, with other jurisdictions clearly focused on setting standards (and attracting the attention of the industry) amid the lack of harmonisation on these legal issues.

Perseverance

A mix of luck, perseverance and self-belief is another clear ingredient of both success stories. Being turned down a couple of times should not determine the fate of an entity; one needs to believe in the possibility of success. 

In Pace Ross’s case, the goal from the very start was to grow the start-up to a scale where the founders could sell out. Again, from his experience, the need to establish oneself on the international market was key to a successful sell-out.

For this reason, the entity structurally moved to the UK and the intellectual property was parked in this entity. This is due to the fact that purchasers who are interested in buying out a scaled-up start-up want to feel comfortable with the structure of the target and the framework in which it operates.

When making such structural moves, legal due diligence, drafting of commercial agreements and managing intellectual property rights are key aspects.In Camilleri’s case, the US-based trajectory towards selling out was, on the other hand, quite straightforward.

As the US is a mecca for tech start-ups, the structure of such entities is well-established from their very initial stages and investors know what to expect. In summary, both Pace Ross’s and Camilleri’s experiences highlighted the relevance of thinking global and adopting a model that would ultimately allow for investment and the sale of the venture with the least legal and bureaucratic issues possible. 

To listen to the full episode, head to Spotify and search ‘Ganado Meets’. 

Paul Micallef Grimaud is a partner at Ganado Advocates.