Why Malta needs investmentbased crowdfunding

As the manager of Malta’s only crowdfunding platform Zaar.com.mt, believes that progress has certainly been made in the sector recently but adds that it is now time to introduce investment-based funding to further enable projects to secure the funding th

Crowdfunding is one of the most influential developments to the business world in recent years. It has revolutionised the way good ideas get financed – by lessening (or, indeed, removing) the need for bank loans or high-interest funding, and instead taking ideas to the public to ask for their support en masse.

After all, not all ideas are immediately bankable, so crowdfunding bridges the gap between lending between family and friends and official angel investors. And it has proved its worth – in many cases crowdfunding has raised thousands of euros to ensure that products and services make it to the market, when they probably wouldn’t have otherwise.

Zaar.com.mt launched one-anda-half years ago as a platform that can help ideas to get funded through crowdfunding. So far though, all of our crowdfunding opportunities have been rewardsbased, because that is the only option that our current legislation will allow. This means that fans of a project can only support it in return for a “reward” or a “thank you gift” and not for equity in the company.

However, rewards-based crowdfunding isn’t a one-size-fits-all solution and we at Zaar believe the market needs alternatives to help ensure we have a more dynamic set of options to offer potential entrepreneurs.

A much-needed surrogate is investment-based crowdfunding, which provides an alternative way of accessing finance and raising capital. This time, instead of a reward, it provides backers equi- ty shares in the company – something that could turn out to be very lucrative in time.

However, the framework to put this kind of platform in place doesn’t exist yet, which is why, together with the MFSA, Zaar held a seminar on Discussion Paper that was released last year to help set the ball rolling. Attendance to this event was high and the lively discussion that ensued highlighted that those present were eager to see this option introduced. Thus, what is needed is a lightweight legislative framework that gives guidance and confidence to the industry and that develops according to market needs.

Of course, locals with an investment-based business idea could choose to use a cross-border or international platform, but this isn’t always easy because of the legal and logistical barriers in place. Plus, this is a loss for Malta and the business world here. Instead of sending good ideas overseas, we need to provide an investment-based opportunity here as, not only will it service our own projects, but will also help to attract international ideas too.

Thus, I see this as a much-need- ed step and one that I am glad the MFSA is looking into taking. It will certainly complement the options already available to budding entrepreneurs and make a difference to their chances of success.

At Zaar we believe the time is right to make this happen. We are thus eager to meet with parties interested in collaborating on making investment-based crowdfunding a reality in Malta, and look forward to discussing the options with all of the stakeholders, including like-minded organisations and interested entrepreneurs.