Portugal Ventures a 10-year marriage with a happy divorce
Founded in 2012, Portugal Ventures manages 17 funds with €200 million in assets and has more than 80 companies in its portfolio managed by 40 staff. A public-private company, its shareholders include the State entities, corporates and most of Portugal’s banks
Venture capital (VC) is a bit like a marriage bureau. You marry several promising companies, see which marriages work out, and after 10 years file for an amicable but profitable divorce settlement taking out €10 million on the €1 million dowry” jokes Rita Marques, CEO of Portugal Ventures.
Portugal Ventures specialises in pre-seed and seed investments in companies with good ideas but few or no sales. Since many of these fledgling companies don’t make the grade, Portugal Ventures has to rely on the 8-10% that do take off to success.
“At the beginning, we had this philosophy which we called ‘spray and pray’. We invested heavily with a lot of spray investment involving relatively small amounts of money in a lot of companies and hoped for the best,” says Rita Marques.
“Now, however, we are somewhat more cautious and employ risk management. We try to focus on promising companies and that is hard to evaluate sometimes. The screening process is much more thorough and can involve several meetings with the founders,” she adds.
Rita Marques says the VC market has changed since 2012, with the appearance of Business Angels willing to invest small amounts, so now the minimum investment ticket Portugal Ventures applies is higher and often above €1 million.
“Although there’s more competition in the marketplace, our strategy is not to face it, rather differentiate and mitigate market failures. In 2012 there were no Business Angels, which is why we were investing €50,000, €100,000 in many companies,” she explains.
“Portugal Ventures as a public institution should go where the market has a failure and now the Portuguese market doesn’t have investors willing to invest more than €300,000 and that’s where we come in right now” says Rita Marques.
The venture capital company’s first ticket bracket is €300,000 to €1.5 million and it divides its investment in 17 funds.
“We have a lot of funds and each has a different participant who puts money into the funds. Two funds for tourism, digital, technology and so on,” Rita says.
The investors are very different, We have corporates and public institutions as shareholders, which promote growth and competitivity of the backed companies
“The reason why we invest in startups is because we have partners like these who inject money into our fund management portfolios,” Rita continues.
Portugal Ventures has an Active Fund with €20 million to invest in Tourism, a sector in which it has been investing in tour for years and currently has around 20 companies in its portfolio. Now, however, it is investing more in startups linked to tourism. “We decided to broaden our scope not just in pure tech areas”.
“Everybody is talking about Smart cities, solutions for ticketing and city mobility and we think these kinds of solutions have applications for tourism and help tourism to grow in terms of high-end tourist experience. Now we are investing in applications and new tourism and city solutions,” explains Rita Marques.
The campaign was launched in 2018 and was well subscribed. “We had a lot of applications from many projects of which we’re studying 85. They should be Venture Capital orientated, which means they need to scale rapidly as we are buying equity in the company as shareholders. That means we have someone of the board and that in eight years we want to sell shares and take out a typical 30% cash multiple based on 8x or 10x EBITA,” she says.
Call for partners
Portugal Ventures uses its business expertise to prepare companies for Round A investment — the first stage whereby the startup can attract international investment of €10-€15 million because it has raised sufficient sales revenue from a growing client base and now needs further money to develop and grow. The successful companies that have managed to raise international investment may then go on to second and third rounds B and C and so on.
“If the company is good enough, it should take them one year to go from seed status to round A investment status. In Portugal, unfortunately most companies take more than one year because of a lack of ambition. This means that the founders are too cautious and don’t ask for enough money” says Rita Marques.
Rita Marques points out that “sometimes we come across a project which is amazing and have to explain to the founders that it’s impossible to really develop it with less than €100,000 in order to accelerate and be selling in international markets.”
Rita Marques stresses that Portugal Ventures doesn’t have the kind of big-ticket funds that some seeders need to accelerate and admits that it needs more partners to invest and spread the risk for projects over €300,000-€1 million and this is where syndication and co-investment come in.
Syndication and co-investment
One of Portugal Ventures core investment strategies is syndication and co-investment
“In order to keep pace with the evolution of the market and meet the needs of the ecosystem we are now investing larger tickets. In order to do this, Portugal has been co-investing with other national and international partners as was the case with the last 3 investments we did in Shiptimize (a digital delivery management solution), Advertio (a customised advertising campaign creator) and Logical Safety (provides innovative safety solutions in the work environment)” says Marques.
“Sometimes we get approaches from would-be startup founders who only have an idea on a powerpoint. No investment was made by the founder to design a working prototype, there’s no ambition, no risk, just slides and we don’t invest in slides.”
Rita Marques says that it is very hard to attract international venture capital entities for seeders. “Everybody thinks that Portugal is under the radar of international investors, but it is not at the seed stage.”
One company that Portugal Ventures has helped to success is DefinedCrowd, a seeder with a single platform offering fully customisable training data workflows. The company now has 45,000+ crowd members and is growing fast with clients in 53 countries and solutions in 46 languages.
DefinedCrowd can supply high-quality data so that someone can speak, for example, with the intelligent personal assistant Alexa present in Amazon’s Echo speakers. Founded by Daniel Braga, the company recently achieved a round of investment of US$ 11.8 million (€10.1 million) at Series A.
“They started with us, got to Series A within 18 months and now have raised over €15 million from various investors, many from the US like Amazon”, Marques says.
Another is AnubisNetworks founded by Francisco Fonseca and six co-founders in 2006. In 2014 it went on to be bought by BitSight. OutSystems, one of Portugal’s few unicorns and which is no longer in Portugal Venture’s portfolio (It sold its position) went on to dizzying heights in the US and Germany. “Our objective is to eventually sell our positions in the companies within 10 years in accordance with Portuguese law,” says Marques.
“It’s basically a ten-year marriage between Portugal Ventures and the fund investors and between Portugal Ventures and the invested startup/seed companies and we know eventually the marriage will end up in divorce,” Rita Marques explains.
After 10 years Portugal Ventures offers four possible roads for companies to take. 1) Sell the share and get a healthy multiple; 2) Offer a company an MBO (Management Buyout) of the share (in cases where the multiples are not so attractive, and sales are stable); 3) Things went bad and we have to close the company and lose our money; 4) An IPO – floating the company on the stock exchange.
In future, Rita Marques foresees the venture capital market maturing in Portugal with two differences. The entrepreneur will be in better shape, have a more mature mindset and be capable of taking risks. They will understand the difference between Portugal 2020 and EU funding and the VC market. “We do see a lot of requests that look like EU funding applications. We don’t fund, we invest. When we invest €1 million, we want to get €10 million out in 10 years. We don’t want to mess around.”
The second change is the way VCs are doing business. The DNA is changing, corporates are starting to jump in. Portugal Ventures has a partnership with Coimbra-based software company Critical, for example. Sonae is another.