Start-ups and microbusinesses have been largely overlooked for relief during the COVID-19 pandemic, despite being a key part of the local economy. ZAAR manager Matthew Caruana says alternative financing like equity financing and investment-based crowdfunding could be one of the possible financial solutions.

Shakespeare famously wrote, ‘though she be but little, she is fierce’ – and this sentiment applies particularly to Malta’s start-ups and micro businesses.

With a start-up loosely defined as a new project developed by an entrepreneur into a scalable business model, and a microbusiness typically incorporating a team of five (or fewer) employees including the owner, these tiny enterprises are nonetheless vital to the security and prosperity of the local economy.

“The importance of start-ups and microbusinesses in the economy is, today, well appreciated and acknowledged,” explained Matthew Caruana, Manager at Malta’s online crowdfunding platform, ZAAR.

“Yet, in my opinion, the current government support schemes to counter the ongoing COVID-19 crisis, such as wage supplements, loan guarantees or tax deferments, are not enough to cater for the needs of start-ups. They typically do not employ people, so do not have wage-related expenses apart from the wage of the founders, if they take any at all. They may not have loans as they might not yet be bankable, and they are loss-making, for now, so they do not currently pay tax. Beyond that, they might not be operating in a sector that was listed as highly impacted and are therefore not eligible for some of the schemes.

“Nevertheless, their clients or potential clients are probably not investing in these new projects because they are protecting a limited cash flow in these uncertain times.”

This loss of income or at least the delay in getting to the breakeven point will widen the start-up financing valley of death – the period in the life of a start-up in which it has begun operations but has not yet generated revenue or is still loss-making, making it impossible for them to go on.

The solution, Caruana believes, may partly be found in equity investment, whereby potential investors are offered the chance to own a part of the project or business, and thus sustaining their current difficulties to then enjoy some of its long-term profits or benefits.

“Through the equity investment model, the project owners sell securities, such as equity in the company, with complete control over the offering. Support could be offered to start-ups and high-growth businesses during the crisis by stimulating private equity investment into them by increasing the incentives offered to investors. For example, expanding incentives such as the Seed Investment Scheme to inspire private investors with idle funds to channel them towards start-ups and innovative solutions and thus sustaining the economy.”

Malta could attract foreign talent so that innovative solutions are attracted to kick off here

Meanwhile, the government could offer equity-based liquidity packages in collaboration with private investors, in which convertible loans are either repaid by the business following the crisis or are turned into equity stakes owned by the state, suggested Caruana.

“As well as these equity-based liquidity packages, the government could also create new grant schemes aimed at microenterprises, or even at start-ups set up by individuals who have lost their employment and have turned to entrepreneurship. Any payments related to the public funding schemes should likewise be fast-tracked to those who are self-employed or operate microbusinesses,” he added.

“After all, following every great crisis, the world witnessed an increase in innovation, and new business ideas and models. Malta should ensure that anyone with a great idea can find the right support to kick this off now. Be it an experienced or serial entrepreneur, or even someone who was laid off from another industry and now wants to create a new business instead of looking for employment in these tough times.

“On top of that, by putting these new schemes and incentives in place for start-ups, Malta could attract foreign talent so that innovative solutions are attracted to kick off here. The location and climate, the impressive healthcare system and these incentives could be the ‘holy trinity’ to attract high-growth start-ups and talent to the island. This would result in new high-value investment without adding a huge load on the infrastructure, as these set-ups are typically small and do not require huge offices or spaces,” Caruana added. “Focussing more in quality rather than quantity.

“There are other more long-term goals that could benefit these businesses once the ‘new normal’ following the pandemic has been established. Even before the onset of the COVID-19 pandemic, Malta’s financial ecosystem was already showing some gaps. We can make this more robust, long-term, by promoting alternative finance, and making it able to cater for wider business needs, such as investment-based crowdfunding, or easier access to capital markets. We also have the opportunity now to reduce the dependency on loans for start-ups and microbusinesses in the future, by creating an educational programme for entrepreneurs and would-be investors to help them better understand – and utilise – the equity investment space. For years, the Maltese start-up ecosystem has been highlighting that there is an urgent need for an intervention to fill in the market failure in creating business angels’ networks, venture capital or other forms of alternative financing. This situation coupled with a delay in revenue generation by start-ups in this time of crisis could be fatal.

“This business ‘pause and reset’ presented by COVID-19 could well be the chance to restructure our financial system to the benefit of these microenterprises that are the cornerstones of the local economy,” Caruana concluded.

Having said that, start-ups and microbusinesses are also encouraged look into the currently available reward based crowdfunding model as a form of pre-sales or funds raising to generate the revenue now, sustain the cash flow and then deliver the service or product later.

ZAAR is Malta’s only online donation-based crowdfunding platform and is a Gold Member of the European Crowdfunding Network (ECN). It aims to promote entrepreneurship in Malta and supports local businesses of all sizes. For more information about how crowdfunding on ZAAR can help local businesses, visit

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