Venture capital finance : an alternative source of finance for local business

Abstract

My favorite quotation as a description of what constitutes venture capital finance, is that by Dr. Neil Cross, a Senior Executive with 31, one of the world's largest and longest established Venture Capital companies, and a former Chairman of the European Venture Capital Association. He described this line of finance as follows: 'the prov1s1on of risk bearing capital, usually in the form of a participation in equity, to companies with high growth potential. In addition, the venture capital company provides some added value in the form of management advice and contribution to overall strategy. The relatively high risk for the venture capitalists are compensated by the possibility of high returns, usually through substantial capital gains in the medium term.' Venture Capital Finance is a relatively new feature in the local financial sector. However, for many years it has existed under a different stance. The existence of many companies that are established in Malta can be attributed to a lesser extent to venture capital. Many of these companies started off, through a personal loan or investment by some of the more affluent Maltese families. One such person was Marquis Scicluna and his investment in Parsons. This dissertation will focus on the potential that Venture Capital Finance holds as a valid financial complement to the local business sector. It will seek to analyse whether this financial facility has had an impact on the local financial sector, and if not the reasons as to what is inhibiting its expansion and development. It will also seek to identify the necessity of having such a facility available to the local entrepreneur.