CMVM's yearly report noted that venture capital is not as adventurous as it would be expected with investors choosing less high-risk projects at an early stage, such as startups.
Venture capital investment is certainly growing in Portugal, although at a slower rate than in other EU countries. Investors here would rather not ‘venture’ too much with startups at the moment, as Portuguese Securities Market Commission (CMVM) notes in its yearly report on the securities markets regulations.
This step might mean that angel or venture investors aren’t providing startups with much support on their very first steps towards entering the market, opting for a safer route such as directing these financial resources to the rebuilding or restrengthening of more stable enterprises, a rather conservative measure that throws high-risk investment out the window.
Most financial experts advice against these conservative measurements. According to Harvard Business Review’s experts on disruptive strategies, Larry Downes and Paul Nunes, these attitudes have negative impacts in the economy and “if markets contract even modestly, traditional creditors quickly become anxious, encouraging or even forcing retrenchment at the precise moment when investment in innovation is critical to survival and future expansion”.
"If markets contract even modestly, traditional creditors quickly become anxious, encouraging or even forcing retrenchment at the precise moment when investment in innovation is critical to survival and future expansion.”
From 2007-2017 prudent investors could boost profit by 20%
CMVM sums up how much a cautious investor could have gained during the last decade given the many bankruptcies and upsets in the financial market climate in the country, with interest rates dropping to historic lows (a measurement that was mostly promoted by central banks).
On average, CMVM calculated that “during the ten-year period the investor would have obtained an accumulated 20% return rate (or 7,3% in real terms, if the inflation effects are deducted)”.
Diversifying proves to be the right strategy for investors
Diversification strategies, however, have paid off for Portuguese investors, and “the large majority of investors have decided to diversify their investments expanding their investment portfolio” CMVM noted in its yearly report on the securities market. They added that venture capital hasn’t yet affirmed itself in the Portuguese financial market.
The yearly report noted as well that venture capital is not as adventurous as it would be expected with investors choosing less high-risk projects at an early stage, such as startups.
“Investment in holding companies channeled around €1,2m and they are a vehicle for investment in other areas; investment in real estate through venture capital funds hit €363,1m accounting for 10,6% of the total in the sector”, CMVM concludes.
PT’s collapse also scares investors
Another reason pointed out by CMVM for the decrease in venture capital funds’ bet on startups and high-risk investment is Portugal Telecom’s collapse. As CMVM’s annual report shows, last year’s complex financial products (CFP) market value reached €402m, which represents a 37% fall from the €639m spike registered the year before.
CMVM explains as well that the ‘green alert’ CFP’s (grading given to CFP’s whose capital is completely risk-free, notwithstanding the issuer’s creditworthiness) have significantly increased both in the amount of CFP’s and in its relative weight.