Malta is in the driving seat to build an attractive ecosystem for Startups. The smallest island state on the periphery of Europe, Malta has successfully adopted some best practices to help startups succeed.
To take a closer look at the challenges and the pace of change which startups are experiencing in the midst of a pandemic, our Head of EU Affairs Josephine Vassallo Parnis has caught up with Startup expert Dr Christopher Haley, Senior Entrepreneurship Strategy Specialist at The World Bank.
Chris is an expert in innovation and entrepreneurship policy. He is a ‘Startup Europe’ Ambassador. Previously, Chris was Head of New Technology & Startup Research at Nesta, the UK innovation foundation. Here he led Nesta’s research interests into how startups and new technologies can drive economic growth, and what this means for businesses, intermediaries and governments.
Thank you for joining us at the Startinmalta platform, Chris.
01.
You have over 18 years of experience researching and working with new technology and startups. How do you view the pace of innovation in Europe right now and what are the next generation technologies you’re most excited about?
Europe has a tremendously rich and varied intellectual heritage. There is a constant production of brilliant new ideas. But for various reasons, we seem to have problems in scaling them. Some of this relates to lack of finance – Europe still lacks deep pools of capital in many locations. However, that’s not the only thing: regrettably, we also have problems with mindset and cultural attitudes towards entrepreneurship in some places. In addition, there is still a lack of innovation-friendly regulation and startup-literate regulators. For instance, whilst it may be well-intentioned, European data protection regulations risk disadvantaging European artificial intelligence firms, in my view, since they cannot operate with the same vast data lakes as competitors in China and elsewhere.
Which areas of innovation am I particularly excited about? There are many! But I’m particularly bullish about the blockchain space, which is developing at blistering speed, particularly in DeFi (decentralised finance). In my view, tokenisation and distributed autonomous organisations bring tremendous potential for vast efficiency savings and genuinely new value creation. However, again, one of my concerns is that European regulators and innovation support systems still don’t understand this space: most haven’t even got to grips with the advent of Bitcoin, let alone the second-and third-generations of blockchain innovation which have followed in the decade since then!
02.
At EU level we have seen a number of startup initiatives, the recent one being under the Portuguese Presidency whereby MS have signed the Startup Nations Standard declaration at Digital Day to adopt best practices in order to level the playing field covering a number of policy issues such as the fast startup creation, talent, stock options, innovation in regulation and access to finance. What’s your take on this? Do you think that the set of recommended policies will accelerate the pace at which Europe can catch up with other regions in this sphere?
The Startup Nations Standard declaration seems broadly sensible: certainly, I think it is helpful for countries to acknowledge formally the importance of reducing bureaucracy, applying appropriate anticipatory regulation, ensuring access to finance and talent, and recognising the role the state can play in accessing markets, through things like public procurement.
However, in my opinion, to really ‘move the needle’ with European entrepreneurship, we also need to look at issues of mindset, ambition, and culture. Changing this requires more attention to enterprise education. We need to get more young people to understand the importance of value creation, and to recognise that starting a business is both an economically and socially good thing. Most of this is currently missing from the declaration, unfortunately.
03.
Based on your experience, what advice/tips would you give to entrepreneurs looking to raise capital for the first time?
Raising capital is probably the most time-consuming activity for any entrepreneur; certainly, it is one which requires a lot of persistence and determination. Entrepreneurs should avoid giving away equity unless they really have to, so my first comment would be to ensure that you’re making the most of non-dilutive grants before seeking equity investment. It might also be worth thinking about crowdfunding and ‘alternative finance’ mechanisms:- especially if you’re developing B2C products, crowdfunding can help generate publicity and also allow for some iteration of your product with sympathetic early adopters. In addition, some types of crowdfunding may also allow you to raise working capital without giving up equity.
If you are looking for venture capital, it helps to establish relationships with potential investors quite early, so that you are on their radar. Also be aware that VCs talk to each other, even whilst they are competing for deal-flow, so don’t burn your bridges or bad-mouth one investor to another! Do undertake your research, however: check their investment criteria and what they’re like to work with. It is also important to think about the right size of funding round: raise too little, and you’ll need to start again almost as soon as you close the first round; but raise too much and you may find investors pushing you faster than you want, as well as making future rounds much more difficult for yourself (since investors expect an uplift in valuation each round, and it may be more difficult to demonstrate growth in valuation from the previous round).
Finally, think about corporate VCs as well as institutional ones: most corporate investments do not result in acquisition (the prospect of which sometimes deters entrepreneurs) and there is evidence that corporate VCs can bring helpful market insight and connections, as well as making it easier for you to internationalise.
04.
Did the pandemic change the way investors look at start-ups?
I’m not an investor, so can’t speak for the investment community. However, research suggests that, overall, whilst there may have been a slight decrease in the value and volume of deals, both institutional and corporate venture capitalists have generally weathered the storm fairly well. Perhaps that is not too surprising given that volatility and disruption typically benefit startups more than established firms (since the former have the nimbleness to adapt more quickly). That said, there is some evidence that investors are now looking a bit more at cash generation and downside protection rather than growth and the potential upside. In addition, the pandemic has clearly driven very rapid technological change in industry – particularly in terms of remote working, e-commerce, AI, cybersecurity, biotech and supply chain management – and so many investors are obviously paying greater attention to these areas, as one might expect.
05
What do you see as the biggest obstacles that could prevent a promising startup from scaling?
Much depends on the particular startup, their sector, and ecosystem in which they are located: the obstacles faced by a startup trying to grow in a highly-regulated, capital-intensive sector like drug development will be rather different to one in software, say. However, common obstacles to scaling include lack of finance, difficulty in recruiting talent, and problems in accessing markets. (Ironically, market access can sometimes be a greater issue for startups in medium-sized European countries than in small ones: entrepreneurs in small countries often realise from the outset that they need to go international in order to scale, and so prepare for this early on, whilst entrepreneurs in medium-sized countries are sometimes slower to realise that their local market size is insufficient).
That said, in my view the more problematic obstacles for firms are mindset and management expertise. If the founders don’t have the ambition to grow, or the ability to recognise that the management of a 30-person company is quite different to a 3-person startup, it can be quite tricky to fix this. Mentoring can help, but the founders need to be ‘mentor-able’.
06
You have been a guest speaker at our annual Startup Café event which is a space dedicated to budding startups and entrepreneurs. What tips would you give to our startup community?
Generic advice often risks being rather insipid, but my primary recommendation would be: go for it! Lots of people have good ideas, but 99% of them never try to realise them. In other words, one of the greatest obstacles is people’s self-belief, so deciding to start is the most important step. Even if the startup fails (and most will), you are likely to learn more from the experience than you imagine. Certainly, that experience will do young entrepreneurs no harm, if they subsequently decide to work for a corporate firm.
That said, self-belief shouldn’t mean a huge ego. Swallowing your ego is an important step, since it can otherwise prevent you from listening to advice and understanding feedback from the market.
In addition, I suggest using some of the tools and frameworks that have been developed in recent years. One of my favourites is the Business Model Canvas, which is a great tool for clarifying your core business model. I also recommend the Lean Startup methodology – which emphasises that the early stage of your startup should be geared towards learning about market demand as quickly as possible, by developing a minimum viable product (MVP) and then trying to accelerate the feedback loop from customers, in order to iterate quickly and improve product-market fit.
07
As you are aware, Malta is a small island but nonetheless during the last years has been nourishing a good start-up eco-system. Do you think that island states could be better suited than larger countries to host start-ups?
Being small has pros and cons. One disadvantage is that the local market size is relatively small, so startups need to think internationally from the outset if they are to scale. Investment pools are also likely to be smaller, and there will be fewer ‘unicorns’ and other success stories with which to motivate other prospective entrepreneurs.
On the other hand, just like a startup, a small state has much greater nimbleness, which it can use to its advantage. Malta can experiment with regulations in a way which is simply impossible for larger economies. It is possible to gain feedback from entrepreneurs much more quickly, and then adapt regulations and infrastructure accordingly. If there were the political will to do so, I could envisage Malta becoming an attractive ‘testbed’ for startups from all over the world.
In addition, all the evidence suggests that a crucial component of a healthy startup ecosystem is network density. One of the advantages of a small island is that it is easier to forge connections.
08.
For Malta, that is still in the process of developing a full start-up eco-system, what do you consider to be the main factors that need to be in place?
In my opinion, a good ecosystem has several components: access to financial capital (in sufficient quantity and at various stages); a conducive business environment (including easy processes for company formation and dissolution, plus sympathetic regulation and respect for the rule of law); good infrastructure (both physical and digital); an entrepreneurial culture (in which entrepreneurship is viewed as a worthwhile and valuable pursuit); rich human and social capital (that is, well-educated staff and experienced management, ideally with dense, overlapping networks throughout the ecosystem); institutions like universities and research-intensive firms which create knowledge spillovers; a local market in which you can test your product or service before internationalising; and experienced mentoring & managerial assistance (including accelerators). Finally, although it’s perhaps less important, I’d also add lifestyle: many entrepreneurs are highly mobile, so it helps if the surrounding environment offers a good quality of life!
A number of years ago, I ran a project called the European Digital City Index where we attempted to measure these components for various ecosystems across Europe. At that time, Valletta scored relatively low, principally because of the business environment (ease of doing business), weak access to financial capital, and a relative dearth of early-stage support programmes like accelerators. Fortunately these factors seem to be improving, thanks in large part to Malta Enterprise!
09.
And my last question: Collaboration between industry, the public sector and academia remains critical to sustain both economic and social development. What advice would you give for this collaboration to be strengthened?
Collaboration is so important to innovation and value creation, I’m amazed that we don’t spend more time deliberately teaching collaborative skills and working! Certainly, the ability to collaborate effectively across differences in size and culture can be a source of major competitive advantage for firms.
In my work, I’ve spent a number of years looking at collaborations between startups and corporates or the third sector. These often fall apart because the partners haven’t invested enough time at the beginning of the relationship ensuring that incentives are properly aligned. Both parties need to be honest about their objectives and identify as clearly as possible what outcomes they would consider a mutual success, and how these will be measured.
Problems can arise when there are core organisational values which were not made explicit at the start. For example, I’ve seen a promising collaboration between a startup and a major charity disintegrate because the latter had an ideological opposition to patenting, which it did not make clear at the beginning of the collaboration. It is also important to remember that personal relationships matter: if project managers are in post for less than the duration of the collaboration, this will mean that the relationship has to be ‘reset’ periodically.
It’s also helpful to have clear milestones for expected progress, as well as procedures for disengagement. Collaborations sometimes limp along unproductively because neither party wants to be the one who calls it quits!
It’s a wrap! – Malta Enterprise celebrates successful filming of Shark Tank The filming for the first edition of Shark Tank Malta has just come to a close. Malta Enterprise, a major stakeholder in the project, was present throughout, from initial point-of-contact with the contestants,
The company uses artificial intelligence and lab-on-a-chip technology to help aspirational parents by assisting fertility clinics reduce their standard 70% treatment failure rate. The company has announced the start of research and development of an AI-powered sperm and egg selection technology for fertility treatments. The
With the support of Malta Enterprise, Prickly Bits. Ltd opens in Malta to run Secret.Kiwi and Fe/male Switch. Earlier this year, the team of CADChain, a Dutch deep tech startup, was identified and invited by Malta Enterprise (ME) to contribute actively towards shaping Malta’s start-up/scale-up
The closing of the European Union co-financed FOSO POCO project has created a strong foundation, whilst opening new doors, for collaboration between social economy stakeholders from Tartu (Estonia), Cork (Ireland) and Malta. The one-year project, entitled Fostering Social Entrepreneurship Ecosystems post Covid19 – in short