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Portuguese Venture Capital Funds: What and Why?

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Venture Capital Funds are investment vehicles which seek private equity investment in start-ups and small to medium sized companies, offering strong growth potential. 

What and Why?

Venture Capital Funds are investment vehicles, as detailed above, and they differ from mutual funds and hedge funds in that they focus on a very specific type of early-stage investment. 

Venture Capital Funds seek private equity to provide funds for start-ups and small to medium sized companies offering strong growth potential. 

The firms that receive venture capital investments have high-growth potential, for investors with different risk appetites, but with a long term, investment horizon. 

Venture Capital Funds take a more active and overseeing role in the day to day management of the companies where the investments have been made. They provide consultancy and business guidance services to help ensure that the companies receiving the investments, achieve their full potential.

In Portugal all Venture Capital Fund Management Companies and Venture Capital Funds are supervised by the Portuguese Securities Market Commission (www.cmvm.pt).

Stages of Fund Investment

Companies can be invested into at different stages of their life cycle:

‘Seed Capital’

The term seed capital refers to the type of financing used in the formation of a start-up. 

In this case the funding is provided by private investors, usually in exchange for an equity stake in the company, or for a share in the profit of a product. 

The majority of the seed capital a company raises, generally comes from business owner(s) and often family, friends, and other acquaintances. 

Seed capital funding is considered high-risk because the business is not fully functional and has no track record. Investors who provide seed capital funding often therefore do so for a stake in the company. 

Once a start-up has demonstrated feasibility, it is more likely to attract venture capital or angel investment, to provide the additional funds necessary to really get the business up and running.

‘Start-ups’

Venture capital investment aim companies (usually referred to as start-ups), are generally focused around a single flagship product or service, that the founder wants to bring to the international market. 

These companies typically do not have a fully developed business model and, more importantly, lack adequate capital to move on to the next phase of business. 

Generally, the capital, raised at this stage will be used for marketing, creation of stock or the launching of a product (existent or new) and/or service.

‘Early stage’

This investment is aimed at newly established companies, which have completed the product development phase and have already managed to start a trade but are not as yet earning any profit. 

Such funding is generally dedicated towards improving the manufacturing and distribution process, as well as undertaking marketing.

‘Growth stage’

Investment is targeted at companies that have proven their product in the market and have secured finance and income. They are in the process of growing and trying to scale up but are possibly encountering some obstacles to achieving this growth.

The focus here is not on pure innovation but expanding on what is already working for the business.

Additional Information

If you have any questions or require additional information regarding Portuguese Venture Capital Funds and the opportunities that they present, please contact Sean Dowden at the Lisbon office of STAG: advice@stagfundmanagement.com.

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