on August 24, 2018

Brief notes on venture capital and its legal regime in Portugal

on August 24, 2018

Breves notas sobre o capital de risco e seu regime jurídico em Portugal

One of the great challenges faced by companies in general is access to the appropriate financing to ensure the achievement of its corporate purpose. From small family businesses to multinational conglomerates, organizations will almost certainly need access to external resources at some point for business continuity and competitiveness.

Such resources can be used not only for the occasional settlement of debts, but also for the implementation of projects whose purpose would not be attainable with the mere use of own funds. We understand, therefore, that accessibility to different modes of financing is - or should be - a constant concern of business society managers. Along this path, venture capital has become a very popular alternative in recent years in Portugal, mainly with the economic recovery and the accelerated emergence of startups locations.

In general, risk capital (venture capital) such as the operation of acquiring, for a limited period of time, equity instruments in companies with high development potential, as a way to benefit from the respective valuation. From the point of view of the financed company (venture-backed company), represents an alternative source of financing and liquidity to traditional bank loans. On the investor side, it is an investment in the equity of a certain company, and it is up to the investor-financier to contribute to the improvement of corporate management and to the maximization of the company's value - thus increasing the gains that will be obtained in the future divestment.

Thus, the dynamics of relationships are summarized in a system in which the investor receives a certain social participation in the financed company, and, in return, must provide for the transfer of the resources to which he has committed, in due time. Such resources may include, in addition to financing, the reputation of the company before third parties; access to a more extensive network of contacts (networking); and the transfer of knowledge about the product or service (know-how).

In Portugal, the legal framework for venture capital is established by Law no. 18/2015, of 04 March. Under the terms of the diploma in question, investment in venture capital can be carried out by individual investors in venture capital. risk; venture capital companies, to include risk capital fund management companies and venture capital investment companies; venture capital funds; and other entities provided for by law.

The establishment of venture capital funds, as well as the start of activity of venture capital investors and venture capital companies, depends on prior registration with the CMVM - Comissão do Mercado de Valores Mobiliários. We note that, for the constitution of venture capital companies, there is a considerably greater rigor with regard to the rules of authorization, operation, transparency and supervision, when compared with the other figures.

To cite some examples, in order to authorize the formation of a venture capital company in general, the CMVM requires: information about the people who will effectively direct the activities and about the members who will integrate the governing bodies; information on the identity of the future shareholders (natural or legal persons) who will hold, directly or indirectly, qualified shares in the entity, as well as on the number of shares held, voting rights and the percentage of the corresponding capital; the complete description of the program of activities with the entity's organizational structure, including the description of resources (human, technical, material and computer), the way in which the entity intends to comply with Law No. 18/2015, and other policies and procedures that are relevant to demonstrate compliance with the entity's obligations; and indication of future close relations between the entity and other natural and legal persons. It is certain that Portugal is experiencing a very interesting moment for investors and entrepreneurs, with several policies to encourage innovation. Despite this attractive scenario and the advantages available to investors, the legal aspects of investment operations in general can be extremely complex. In view of the high degree of risk of the modality dealt with here, reliable specialized legal advice is undoubtedly essential to mitigate adversities and increase the chances of business success.