Tuesday, 03 March 2020 13:40

Portugal: an investment destination?

Nuno Maldonado Sousa, partner at Kennedys’ Lisbon office, has been working in the market for several years and has seen the changes occuring. Portugal is on the map for investors coming from Europe and South America but “hiring models have been institutionalized, which does not favor the dynamism and versatility that new projects require”, he says. So, how does that work in the end?

Do you consider that Private Equity is still important for the development of small and medium enterprises in Portugal?

When we talk about the Private Equity it is important to distinguish two realities that have very different characteristics; on the one hand, we have institutions constituted to finance companies by taking up capital positions, which also act as a guarantee for investment and, on the other hand, independent investors, usually acting in more or less organized groups, which channel capital from wealthy savers. We believe that venture capital remains a valid form of operation. In the second group of investors, we have seen interesting surprises. These groups of investors are usually composed of top managers who finance companies and projects to improve the performance of their assets. Although they do not perform executive functions, they have often brought the serenity that is lacking to younger entrepreneurs and knowledge of more sophisticated markets and are also channels that allow access to networks and markets. This is a reality to which we are attentive and the operations we have followed have been remarkably successful when measured in the medium term.

What you are saying is that startups are still a safe investment? Many projects ended up not having continuity 

The concept of a startup that we consider is the one we imported from the USA; they are companies that are vehicles of a project that sometimes is a success and sometimes is not. The successful ones have continuity; the unsuccessful ones don’t and so they liquidate quickly to free up resources for another attempt. The measurement of the outcome of the initiatives by the investor has to be done by the set of operations, in the medium or long term. Some investors perform well and others not so well. Atomized measurement does not seem to make much sense in this investment concept. Investment security is associated with the expected return; startups are part of the available means and have to be seen with their rating.

Did the market change a lot?

We usually follow operations on the financed side, which only allows a very partial view of the sector. The impression we get is that hiring models have been institutionalized, which does not favor the dynamism and versatility that new projects require. To have winning projects it is necessary to adopt adequate, tailor-made solutions and this requires bold decisionmakers.

Are foreign funds interested in the country?

We have had requests from groups of foreign investors who want to develop SMEs (Small and medium-sized enterprises) with moderate investments, mainly from Europe and South America, which we have channeled to the appropriate agents. There are interests and operations will continue to appear.
The CMVM (Securities and Exchange Commission) has criticized the excessive weight of granting loans, namely through shareholder loans, to companies in which risk capital is involved, “very close to the banking activity”, they say.

What is your opinion?

It is a trend we have seen from venture capital institutions but we no longer see it when we talk about groups of investors, who normally share the financing of projects with other sources, in a programmed manner. It seems to us the preferable solution, to insert the financed companies in the market. It then evaluates the projects and forces the entrepreneurs to compete daily and exceed their performance. We believe it is healthy to divide financing by equity - private equity - by public, national or European funds and bank credit. The presence of these entities in operations is a seal of the projects potential.

What are the most significant areas of investment?

The real estate sector has gained strength in recent years. The real estate sector is always a destination for investment in Portugal and we have also been following it. Nevertheless, we have seen these forms of financing appear associated with other areas of economic activity. The operations we have had in Portugal are mainly in the high technology sector, in life sciences and the provision of services to companies of high technical standards.

Article by Patricia Cardoso.

To read the article in full please download issue N.92 here

Iberian Lawyer
N.93 • April 2020

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The Latin American Lawyer
N.12 • March 23, 2020

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