Portuguese State loses one-third of investment in startups

The State-owned venture capital entity that supports Portuguese startups, Portugal Ventures, has accumulated losses of €123.7 million from almost 300 divestments made since it was set up in 2012.

It invested €375.4 in startups and made €251.7 million from startups when they moved on. The amount of losses is equivalent to €32.95% of the State’s allocation of venture capital. Portugal Ventures is currently controlled by the Portuguese development bank Banco Português de Fomento.

Portugal Ventures invested in 264 startups and sold shares that it held in another 34. In a comparative analysis on acquisition costs (investments) and the sale of its share in almost 300 startups, the conclusion was reached that Portugal Ventures paid in €375.4 million and got back €251.7 million making a loss of €123.7 million.

And of the 12 years it has been in operation, Portugal Ventures only made a profit in 2016 of €7 million.

The data shows a discrepancy between the company’s net result and the result of the investment funds that it manages.

For example, for 2023 it showed a profit of €5.24 million, but the sale of stakes it had acquired in startups in the past resulted in a loss of around €4.4 million.

In 2014, its worst year ever in terms of fund losses, the company actually closed the year with a profit of €234 million.

But losses are not necessarily disastrous or untypical. Private VCs typically make losses of between 25-30% of their investments and loss ratios for early-stage VCs have held steady at about 50% on average over the last three decades. The loss ratios for late-stage investments have decreased significantly from 59% in the 1990s to 15% in the 2010s.

Over 305 million startups are created every year around the globe, and most of them don’t last long. There are many reasons why startups fail as it’s difficult for emerging companies to find a place in the market, compete with established competitors, and make a profit—let alone just break even.

According to Luisa Zhou.com it is estimated that 9 out of 10 startups fail. 38% fail because they run out of cash, 35% fail due to lack of market need, and by year 5, 50% of all startups will have failed. Some 60% of startups fail between pre-seed and Series A funding stages.
Around 35% of Series A startups fail before they reach Series B and roughly 80% of tech and e-commerce startups will fail.

And the faster a startup proceeds to towards unicorn status, the higher the stakes that the company will fail with almost 99% of all unicorns failing. A sobering thought indeed! So perhaps we should give Portugal Ventures a pat on the back for the courage to invest and risk in startups in the first place, knowing that only a small percentage will go on to do great things. After all it’s a risky business.

According to crunchbase, the median and average level of VC ownership in startups at exit was 53% and 50% respectively. In other words, by the time of exit, the VC will likely own half of the business.