It has been a dynamic week for business, which saw the launching of Projects Malta by the Prime Minister at the Chamber of Commerce. His outlook was cheerful following his cordial meeting with German Chancellor Angela Merkel, who promised to loan a number of experts to help set up a development bank.

Dr Muscat said Malta registered its highest employment rates during the last months of 2014, a trend which is expected to thrive well in the future - based on a recent European Commission economic forecast. This forecast maintained a healthy momentum with GDP growth estimated to have reached 3.3 per cent last year According to the forecast, GDP growth should moderate, somewhat, by 2016 but is expected to remain strong relative to the rest of the euro area. More good news concerned the rate of inflation in prices, as HICP inflation was estimated to have bottomed out last year and should gradually recover in 2016, while the favourable macroeconomic climate should help the budget deficit fall below two per cent of GDP. All this did not result from a wave with a magic wand, but reflected strong domestic demand, underpinned by dynamic investment in the energy sector and favourable labour market developments, and, to a lesser extent, exports, which, albeit weak, continued to outpace imports. Real GDP growth rose in the third quarter of 2014 to reach 3.8 per cent in annual terms, up from 3.4 per cent in the second quarter, which really and truly was the fruit of the government's strong hand at the economic tiller. This is an exemplary rate but of course, as the Prime Minister remarked, we cannot rest on our laurels, as there are many challenges ahead.

During the official launch of Project Malta, its chairman, Adrian Said, explained that the company would focus on both service-based projects and infrastructural projects (mostly on PPP model). Contrary to some rumours doing the rounds, he stressed that the company does not aim to create new rules or bureaucratic systems; it wants to create more effectiveness and efficiency. A lot of emphasis was placed by the speakers on the need to bridge differences of opinion between the private and public sectors, not least the desire to weed out unnecessary bureaucracy. All this points to a vibrant economy which, taken at the flood will lead to fortune; as well as the additional good news that exploration for oil and gas has started again in earnest. Thanks to the hard work of Joe Mizzi, a two-year agreement has been signed with Ratio, a well-known Israeli company which has been awarded offshore Area 5 under an exploration study agreement.

This is a high-risk area, never explored in the past, close to lucrative Tunisian waters, located approximately 70 kilometres southwest of Malta, totalling approximately 8,700 square kilometres. This bodes well for other companies to be attracted to invest in our largely untapped acreage after the government announced recently in the EU Journal that Area 4 is now available for exploration, after being abandoned by exploration companies Genel and Rockhopper last year. All this activity can be seen in the light of the government's intention to attract more investment to the island with the introduction of a development bank and setting up the necessary infrastructure for venture capitalists.

The concept of setting up a venture fund to assist start-ups and SMEs has been touted by different administrations for the past 20 years but never got off the ground. Both the Chamber of Commerce and Industry and the GRTU had, in the past, urged the government to wake up to the idea of setting up better access to finance for innovative ventures which, at the moment, may not be bankable, taking into consideration banks' appetites for safe and highly collateralized projects. The introduction of Venture Capital (VC) facilities is now back on the government agenda and it wants to act as a facilitator, rather than taking the reins itself to drive the concept home.

So why did VC never flourish in Malta? No studies are available to discover the barriers that kept VCs at bay, but of course part of the reason may be that local entrepreneurs are not so keen to welcome a private equity partner and, perhaps, a director on the board, particularly in family-dominated companies. The obvious resistance to VC could be the ease of raising money via unsecured bonds, for which there is usually a big demand. But Malta is not alone in not welcoming VC.

As a general rule, European entrepreneurs find it more challenging to get funding for a business than their American counterparts do. This creates more competition among entrepreneurs and helps build better businesses and encourage more efficient use of capital. But it also stymies, a little bit, the willingness of people to build businesses; hence the sluggishness in European economies saddled with chronic unemployment queues. It is common knowledge that Europe has a challenge with the size of its investor base and the Commission is doing its best to take steps to make the European market more vibrant. Europe lacks the university endowments and pension funds that act as "patient capital" and support the funding of innovative companies through venture capital fund investments in the US.

Here, it may be useful to quote a case involving a start-up called LoveFilm which proved to be a highly successful venture. LoveFilm is one of Europe's largest home entertainment subscription services that operates in the UK, Germany and Nordic countries. The business achieved operational profitability in 2008, and in early 2009 it signed up its one millionth paying subscriber. With ambitious plans for the future, the business required funding to repay an existing venture debt facility and invest in new on-demand technologies.

It is no exaggeration to state that LoveFilm's success is due to the solid backing from Index Ventures, Balderton Capital and DFJ Esprit, with Amazon holding a significant stake. In addition to VC equity, the business had been financed by a venture debt facility, as it had historically not generated sufficient cash to take on conventional senior bank debt. The financing structure was tailored to forecast company cash flows. It is well-known in the industry that venture capitalists are typically very selective in deciding what to invest in; as a result, VC firms are looking for extremely rare, yet sought-after qualities, such as innovative technology, potential for rapid growth, a well-developed business model, and an impressive management team. Fund managers are most interested in ventures with exceptionally high growth potential, as only such opportunities are capable of providing financial returns and a successful exit within the required time frame (typically three to seven years) that venture capitalists expect.

In the past, entrepreneurs in Malta lacking collateral and wanting to make headway in exploiting a bright idea, could never see the light of day as they were not bankable. This is because in most cases, projects are illiquid and require an extended time frame to come to fruition so banks reject them, yet these are still eligible for VC. Now the government has woken up to the realisation that it needs to act as a catalyst. Shortly, it will announce an awareness campaign, both locally and abroad, to whip up interest and introduce VC concepts. The business community in Malta will also be made aware of the advantages of VC - in a nutshell, under strict rules a venture capitalist "exits" by selling its shareholding after a fixed term as the business grows.

[email protected]

The writer is a partner in PKF an audit and business advisory firm.