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Fund in focus: Portugal’s Caixa Capital

In November, one of the world’s biggest digital tech conferences, Web Summit, will take place in Lisbon, Portugal. When this was announced at the end of last year’s conference (which has been held in Dublin since its inception) there was considerable surprise around the world. The question people were asking was: why Portugal?

The capital, Lisbon, has just also been named as one of the top 5 favourite European sites for startup founders according to a new startup heatmap report published by the European Startup Initiative (ESI), placing it behind Berlin, London, Amsterdam and Barcelona. Portugal as whole is attracting startups. While a negative net migration flow of startup founders can be observed in Southern Europe, when looked at individually, Portugal actually has a net positive migration flow of founders. Meaning, more startup founders are moving into Portugal than moving out. The success of Lisbon’s startup ecosystem is more than mere media buzz. Lisbon fares much better than its reputation in the media.Stephan

We interviewed Stephan Morais, Executive Board Member of Portugal’s leading seed and growth stage investment firm, Caixa Capital, to find out more about Portugal’s rise and Caixa Capital´s key role in establishing the country’s as a global tech ecosystem.

The Go4Venture questions:

  • Can you tell us how Portugal is changing, and about the emergence of the tech startup ecosystem in the country?
  • With the huge number of companies starting up in Portugal, what was and is your strategy for building a portfolio of quality companies with high-growth potential, and how has Caixa Capital been a key player in building the international network?
  • What have been Caixa Capital’s greatest successes (and what do you think didn’t work so well)?
  • What do you think about the future of the tech investing landscape in Portugal?

Go4Venture: Can you tell us how Portugal is changing, and about the emergence of the tech startup ecosystem in the country?

Portugal Total FundingFive years or so ago, Portugal was facing a tough economic environment, severely affected by the tail end of the global economic recession. At the same time, the country continued to produce a significant number of engineering graduates, with some executing their degrees and even PhDs overseas (mostly in the US) as a result of huge investments in education over the last decades and through programmes such as Erasmus.

This resulted in a new generation of highly educated Portuguese talent, with international ambition and connections. Many of those who went abroad chose to return to Portugal where employment opportunities for their level of education and global ambition were limited, compelling many towards entrepreneurial undertakings.

All these factors coupled with the great digital infrastructure in the country and several government-led support programs created the perfect conditions for developing a young fledgling startup ecosystem. These graduates wanted to become entrepreneurs. Innovation hubs with links to universities flourished and a small number of startups started to become successful and get funded by business angels and a few VCs like Caixa Capital and Portugal Ventures.

The fact that the Secretary of State for Entrepreneurship, Competitiveness and Innovation at that time was Carlos Oliveira, also helped: he previously co-founded MobiComp, which was acquired by Microsoft in July 2008. A few incubators and accelerators also appeared in the ecosystem, like Startup Lisboa, initially headed by the current Secretary of State for the Economy João Vasconcelos. Therefore government support was important at that stage.

Still, I believe it is early days for the Portuguese tech startup ecosystem; the best is yet to come. Portugal only started becoming interesting about three years ago, and these new companies are only just beginning to emerge as players in the global market.

There are some success stories from earlier companies that act as role models for the newer emerging companies – like Farfetch, which was founded in 2008 by Portuguese entrepreneur José Neves, and has just raised US$110mn in a Series F round for its fashion marketplace, at a valuation of over US$1bn, with Caixa Capital as the only Portuguese fund as shareholder.

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Go4Venture: With the huge number of companies starting up in Portugal, what was and is your strategy for building a portfolio of quality companies with high-growth potential, and how has Caixa Capital been a key player in building the international network?

In addition to role models, funding is also a key requirement for growing the startups and continuing to mature the ecosystem.  This is one of the areas where Caixa Capital plays a key part in nurturing the investment climate, and helping to produce quality companies that international investors potentially invest in. There have been lots of companies coming through the many incubators and accelerators that have sprouted up in Lisbon, Porto and other cities in Portugal.

However, there were very few professional investors, and the business angels were just beginning to appear. At Caixa Capital, we started angel investing ourselves, both through angel vehicles and directly in companies coming out of the best local accelerators.  This served a dual purpose:  to raise the standards of the startups, and to allow Caixa Capital to cherry-pick the best companies.

As part of this strategy of cherry-picking, nurturing, and placing the best companies on the international stage, we have aligned our investment strategy with the leading incubators and accelerators in the Portuguese entrepreneurship and innovation ecosystem. These include:

  • Lisbon challenge: an international 10-week acceleration program for ambitious tech startups in Lisbon; the 160 startups that have gone through this program have raised over €50mn; of these, three have gone on to YCombinator, seven to Seedcamp, and one to TechStars.
  • COHiTEC: a training program based in Lisbon and Porto for the commercialisation of science and technology research with a focus on life sciences and cleantech. This program helps participants develop entrepreneurial and technology commercialisation skills. Since inception in 2004, more than 650 researchers and management students participated with 151 projects, leading to the creation of 26 technology-based companies which have received investment of over €35mn.
  • Startup Braga: an innovation hub designed to assist high potential entrepreneurial projects for international markets; it provides business acceleration programs for startups with global ambitions. Braga is the third largest city in Portugal, and is a technological hotbed, with a renowned university (University of Minho) and the International Iberian Nanotechnology Laboratory (INL) – a leading international research centre.
  • Startup Lisboa: Lisbon’s top incubator, founded in 2011 by the Lisbon Municipality; provides entrepreneurs and companies with office space as well as a support structure to maximise chances of success, with services such as mentoring, links to strategic partners, access to angel investors, venture capital or loan funds, help with business basics, networking activities, communication and work spaces.
  • MIT Portugal incubator: a strategic partnership between Portuguese universities and research centres, the Massachusetts Institute of Technology and partners from industry and government, including Caixa Capital. A core component is an accelerator program which has created 55 active startups among the 80 semi-finalists identified, and €20mn raised by these companies.
  • Carnegie Mellon: providing the conditions and opportunities for some of the faculty members, students or alumni to launch their own entrepreneurial initiative. Several startup companies have been created as a result of the activities developed within the partnership, including Feedzai, a real-time data processing company, and Mambu, an online portfolio management software service.

What we mean by raising the standards of the startups is that, we are able to set these companies on a path to achieve the right milestones needed for an international Series A round. Using our international network, we have been also able to increase the number of international investors coming to invest in the top Portuguese growth stage companies. We’re leading the Portuguese companies with promise onto the international stage.

The accelerators we are working with are, to a certain extent, the pre-accelerators for YCombinator, Techstars, 500 Startups, Seedcamp and many others in Europe and the US. At Caixa Capital, we are like a conveyor belt advancing startups from the domestic accelerators into the international markets. Our typical pre-seed ticket for a startup out of the Portuguese accelerators is around $100k, at a valuation of $1mn to $2mn. We will then lead all the way to a Series A round of a few million dollars. We focus on the small companies, taking them from pre-seed to series A. It has been working very well, but its hard work and very hands on.

Go4Venture: What have been Caixa Capital’s greatest successes (and what do you think didn’t work so well)?

We are proud to think of ourselves as pioneers in the Portuguese market, with about €700mn of assets under management (AUM) of which about €500mn has been realised.  As Caixa Capital is a multi-stage investor, a significant part of that capital is committed to private equity. However, a substantial amount is still dedicated to venture capital activities. We currently manage a portfolio of 28 companies in venture capital, having made 6 new investments to date this year. Our activities aim to support global expansion of Portugal-related teams and companies.

We have five current funds: seed, early stage, growth, private equity and fund of funds. Through the various funds we manage, Caixa Capital participates as a capital investor, directly or through third-party funds, to support consumer, enterprise, life sciences, cleantech, energy, industrial, infrastructure, and service-based businesses. The private equity team manages growth equity for high potential companies, while the venture capital team invests in opportunities that help our companies create significant value; partnering with incubators, accelerators, business angels and major international venture funds, the venture capital team focuses on seed and startup investments.

Our greatest successes, in our eyes have been:

  • Nonius: we played an important role in growing the hospitality technology company globally and preparing them for exit last September. Having originally invested in 2011, Caixa Capital worked closely with Nonius´ management and provided funding to help it expand its operations and capitalise on global growth opportunities in Europe and Latin America, overseeing a greater than 4x increase in annual revenuesand a significant rise in profitability during its tenure;
  • Movvo: we have been investors in Movvo from day one, and instrumental in transforming a project by three founders into a product with global clients today. The company has just closed a series A of €5.5mn;
  • Uniplaces: we have been close to Uniplaces from the beginning, having first invested through some vehicles led by business angels and then invested ourselves just ahead of Atomico to allow the company to close a series A/B of €22.4mn last November;
  • Other companies we have been particularly proud of our involvement are Unbabel, Hole19, Farfetch and Veniam, which are all doing very well and have raised significant capital abroad with top investors both in Europe and the US.

About what might not have worked so well, in hindsight, one of the mistakes we made was not always carrying out enough reference checks on founders, but it’s hard because they are so young and have extremely limited track record.  In addition, we could have been better at ensuring that 1) the product developed is up to a good standard for scalability, and 2) that the companies were delivering on key metrics – that is the only way you can objectively measure product-market fit as opposed to rely on the assurances of the team.

Go4Venture: What do you think about the future of the tech investing landscape in Portugal?

As mentioned earlier, the ecosystem in Portugal is still quite young – and there are really only two VCs managing proper sizeable and regulated funds, one is Caixa Capital and the other is Portugal Ventures. But since there are few limitations to becoming a VC or angel investor in Portugal, I expect an explosion in the number of investors coming onto the scene here. The only challenge is that many will be inexperienced, so there will still be some time before a level of maturity comes into the market.

As far as Caixa Capital is concerned, our focus is on growing stronger Portugal-related companies. Our mission is to pick good early stage companies and take them into their series A or B. And we want to enhance our brand with other VCs, bringing international investors into Portugal, as we already often do. The Portuguese brand is well on its way to establishing itself as a global contender for a strong tech cluster, and we want to ensure that the world sees Portugal’s potential. We have something similar to the Israeli model, we start the companies here, the tech expertise always stays local but many times headquarters goes to London (we shall see with Brexit now) or to the US directly. We are focussed on adding value by having a hands-on approach to our portfolio and helping our companies internationalise with our support.

By |July 26th, 2016|Thoughts & Inspiration|0 Comments

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