Interest in Portugal has grown substantially over the last decade. Coupled with forward-thinking and constantly evolving legislation, the country has become a desired location for global families and high-net-worth individuals. In the last few years there has been an influx of new start-ups and companies founded on ethical principles which has been an exciting and dynamic time for Portugal.
STAG is a Venture Capital Fund Manager, based in the city of Lisbon, which manages a variety of funds that offer strong potential growth for investors. These funds focus on investing private equity, from countries around the world, into Portuguese companies.
1. What exactly is a Venture Capital Fund?
Venture Capital Funds seek private equity from investors in order to provide funds for start-ups and small to medium sized companies. All of these companies are selected as they offer fantastic opportunities for growth. 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 and they provide consultancy and business guidance services to help ensure that the companies receiving the investments, achieve their full potential.
The firms that receive venture capital investments have the capacity to deliver very attractive returns for investors, all with different risk appetites, but with a long term, investment horizon, so there are various options depending on the type of investor.
2. Why is there a demand for fund investment?
One of the most popular reasons for investing in a Fund is that it is one of the potential routes for Portuguese citizenship through a capital transfer of at least €500,000 to investment funds, that have been approved for Golden Visa purposes. This route is likely to prove more popular than property purchases over the next few years and it does create opportunities in the fund space in that there is increased demand for these vehicles, making the raising of capital easier, and cheaper, than obtaining outside financing.
As investment in a Venture Capital Fund does not trigger taxes similar to the ones that the client needs to take into account, for example, when buying a property. Such taxes on real estate purchases include a transfer tax (on average 6%), stamp duty (0.8%), annual municipal tax (between 0.3% and 0.5% annually), etc. On top of that, it is a tax-efficient investment, whereby several benefits are granted (for instance, the exemption of withholding tax on the payment of the income generated by the fund to the unit holders, as long as they are not tax resident in Portugal).
Each fund has a dedicated 3rd party fund manager which, in addition to controlling the fund and reporting to the Portuguese authorities, allows professional management of the Fund’s investments.
Last but not least, it requires a very light “footprint” in Portugal, allowing a quick exit from the investment if needed. Each fund has a dedicated 3rd party fund manager which, in addition to controlling the fund and reporting to the Portuguese authorities, takes care of the payments to the fund units, and assists should there be the need to sell the owned units. The process is seamless – which also makes it very attractive as there is no clause.
3. STAG was founded in 2020, at a time when the Covid-19 worldwide pandemic was at its pinnacle. Even during this challenging time, STAG has assisted a substantial number of clients to invest into appropriate funds for them. How many funds do you have at this time?
During 2020, over €400 million was invested in student housing and co-living – another very dynamic sector in Portugal – and in the first half of the year alone more than €1.57 million was invested in Portuguese real estate, as part of the application process for acquiring a Portuguese Golden Visa.
2021 went on to be a record year for investment for STAG Private Equity Funds and for the Portuguese Private Equity market in general. STAG Funds attracted investors from more than 30 nationalities around the world, with North America, Britain, and Turkey representing the majority of the Funds raised.
Even during a time of constraints and uncertainty, now really is the time to be making smart, long-term investments and planning ahead. We are seeing this proactive approach from a lot of our clients, and we are delighted to announce that, at this time, we have seven funds under management, which can be viewed on our website here). We assist our clients in making sure they find the right investment fund for them, and we work with them to make sure their objectives are met. We are also pleased to say that we are establishing new fund structures, so that we are able to offer a different investment solution to our clients.
4. How is the investment made into a Venture Capital Fund rewarded?
Unlike many traditional forms of financing, Venture Capital adopts the challenges and risks of the market. Venture Capital investment returns are not equivalent to the interest generated on the capital invested but are based on the success of the financed company. Therefore, the gains of Venture Capital Investors are completely dependent on the success or failure of the target companies (those that have been selected to invest into).
5. Earlier you mentioned that investing at least €500,000 in a capital transfer to investment funds, is one of the approved routes for a Portuguese Golden Visa. Can you tell us more about this?
Yes, of course. There are several investment routes available to apply for a Golden Visa (the full list can be found here). In the past, one of the most popular routes for applicants is the acquisition of real estate with a value of at least €500,000 (in most cases). However, there is an alternative route for applicants which has proven a lot more popular in the last two years: investing a minimum of €500,000 in a Venture Capital Fund, with the objective of providing capital for companies, as a route to permanent residence, and to Portuguese citizenship at the end of the fifth year of being classified resident in Portugal. The capital must be injected in a Fund that that has a maturity of five years (or more) and at least 60% of the investment must be made in commercial companies, with a head office in Portugal. It is important to state that all funds managed by STAG are Golden Visa eligible as they all comply with this criteria.
6. How do you see the future of Portuguese funds changing?
From 1 January 2022, changes were introduced that are designed to correct real estate price distortions in the areas of Lisbon, Oporto, and the whole Algarve region, so this will impact the number of individuals choosing to invest in funds instead of real estate for their Golden Visa application. Investors are now blocked from buying residential properties in these areas, as well as in coastal areas such as Setubal and the Silver Coast and are being directed to areas more inland. Areas of Portugal such as the Douro Valley, Aljezur, Peneda-Gerês, and Madeira, also offer attractive investment potential and I do not think it will be long before these become particular hotspots for HNWIs. But just to quickly note, the restrictions do not apply to commercial property.
However, this will not be the only thing that influences individuals to invest in Funds though. Covid-19 has impacted the world, but optimism is certainly starting to rise as vaccine programmes have proved successful and there is more certainty this year. For the UK and Europe, Brexit has taken place. All of these factors have led to new trends in the market. We are more interested in investing in sustainable, ethical investing and environmental causes. Technology has changed and artificial intelligence is booming. All of the recent influences that have come from Brexit, the global pandemic, have affected the Funds sector internationally, and it is a very exciting time for investors as there are so many unique opportunities available.
Many of our existing Funds focus on sustainability. During 2022 STAG aims to launch more Funds focused on innovative technology and sustainability.
STAG, as a Portuguese venture capital fund manager, is delighted to be heavily involved in this exciting time of commercial innovation and entrepreneurship in Portugal. All Venture Capital Funds are managed by a management company, such as STAG, who invest, for a limited period, in companies offering a high growth potential.
We have established 7 funds which have raised €140 Million under management (our Fund portfolio can be viewed here) and we will continue to analyse new projects and Funds to be launched this year”.