Rules and Regulations

Purpose

The purpose of the 200M Fund is to make equity and quasi-equity investments in eligible Small and Medium-sized Enterprises (SME), in Co-investment with the entities envisaged in article 1 of the Framework for Venture Capital, Social Entrepreneurship and Specialized Investment, approved under Law No. 18/2015, of march 4th, as well as with other entities or individuals that can invest in the share capital of companies in Portugal and have already carried out similar operations to those provided for in said legal framework (the “Co-investors”) to:

a) Stimulate the incorporation and/or capitalization of companies, especially those in the early stages (seed, startup, later stage venture – series A and B); and

b) Promote the growth of venture capital in Portugal by mobilizing specialized Portuguese and international venture capital companies that, in addition to financial investments, help companies obtain knowledge and technical, commercial and financial expertise.

Co-investors eligibility and requirements

The following cumulative requirements shall be deemed the eligibility requirements of Co-investors:

a) They must be legally incorporated;

b) They must have no debts owing to Tax Authorities or to Social Security, to be confirmed upon signature of the financing agreement;

c) They may legally conduct business in mainland Portugal and under the typology of operations and investments for which they are submitting an application;

d) They have or can ensure the technical, physical, financial and human resources needed to carry out the operation until the application is approved;

e) They have repayments in order regarding financing from ESIF;

f) The co-investor(s), spouses thereof who are not legally separated, parents and children, or partners in cohabitation, do not hold nor have they ever held more than 50% of the share capital of a company that has not complied with a notification to return funds within the scope of an operation funded by European funds;

g) Venture capital co-investors accept to be audited by the audit entity of the Member State, the European Commission, the European Court of Auditors, as well as by the Portuguese Certifying Authority and undertake to provide all information required for continuous monitoring of the financial instrument by Banco Português de Fomento and Operational Programmes;

h) Their economic and financial situation is sound or they demonstrate an ability to finance the Operation;

i) They have not submitted the same application, for which the decision-making process is still ongoing or which received a positive investment decision, except for situations in which the application was withdrawn;

j) They have not been convicted in criminal or administrative proceedings for the violation of child labor laws and those of employment and workplace discrimination, in particular based on gender, disability and on the grounds that a person has a pre-existing aggravated risk to their health, in the three previous years reckoned from the date of the final sentence, except if a longer period results from the penalties imposed as part of the proceedings;

k) They keep accounts pursuant to applicable law;

l) They are not deemed an “undertaking in difficult”, as defined by article 2 of Regulation (EU) No. 651/2014, of 16 June;

m) They declare that the company is not subject to an outstanding recovery order, whether pending or not, following a previous Commission decision declaring an aid illegal and incompatible with the domestic market, pursuant to article 1(4)(a) of Regulation 651/2014, of 16 June;

n) They declare that no wages are in arrears;

o) The Co-investors may operate in the euro area.

p) If the co-investor uses other instruments of a public nature or has benefited from European Structural and Investment Funds (ESIF) to invest in partnership with the Fund, compliance with all national and european standards should be ensured, namely those involving limits on the accumulation of state aid or contribution limits of the ESIF.”

Beneficiary Companies eligibility and requirements

The Beneficiary Companies must meet the following eligibility requirements:

a) They must be legally incorporated by the time the Investment Operation is concluded;

b) They have no debts owing to Tax Authorities or to Social Security, to be confirmed upon signature of the Financing agreement;

c) They may legally conduct business in mainland Portugal and under the typology of operations and investments for which they are submitting an application;

d) They have or can ensure the technical, physical, financial and human resources needed to carry out the operation until the application is approved;

e) They have repayments in order regarding financing from ESIF;

f) Spouses thereof who are not legally separated, parents and children, or partners in cohabitation, do not hold nor have they ever held more than 50% of the share capital of a company that has not complied with a notification to return funds within the scope of an operation funded by European funds;

g) They have not been convicted in criminal or administrative proceedings for the violation of child labor laws and those of employment and workplace discrimination, in particular based on gender, disability and on the grounds that a person has a pre-existing aggravated risk to their health, in the three previous years reckoned from the date of the final sentence, save if a longer period results from the penalties imposed as part of the proceedings;

h) They keep accounts pursuant to applicable law;

i) They declare that the company is not subject to an outstanding recovery order, whether pending or not, following a previous Commission decision declaring an aid illegal and incompatible with the domestic market, pursuant to article 1(4)(a) of Regulation 651/2014, of 16 June;

j) They declare that no wages are in arrears;

k) They are SMEs as defined under Commission Recommendation 2003/361/EC, to be demonstrated by the time financing is received from the financial intermediaries by means of the Electronic SME Certificate, issued pursuant to Decree-Law No. 372/2007, of 6 November;

l) They have not closed the same or a similar undertaking in the European Economic Area in the two years prior to the approval of financing from the 200M Fund or, at the time of such approval, have specific plans to close said undertaking within two years, at the most, once the business plan to be financed has been finalized;

m) They are not officially listed on a stock exchange, except alternative trading systems;

n) They are not deemed “undertakings in difficulty”, as defined by Regulation (EU) No. 651/2014, of 16 June

o) They meet, at least, one of the following requirements:

        i. They have not operated in any market;
        ii. They have been operating in any market for less than seven years since their first commercial sale;
        iii. They require an initial risk finance investment which, based on a business plan prepared with a view to entering a new product or geographical market, exceeds 50% of the average annual turnover of the preceding five years.

p) Risk finance aid may also include follow-on investments in eligible companies, even after the period of seven years stipulated in (ii) above, if the following requirements have been cumulatively met:

        i. The total amount of risk finance of 15 million euros is not exceeded;
        ii. Follow-on investments are provided for in the original business plan;
        iii. The company benefiting from follow-on investments is not a linked enterprise, as defined in article 3(3) of Annex I of Regulation (EU) No. 651/2014 (GBER), with another company other than a financial intermediary or the independent private investor providing risk finance under the measure, unless the new company meets the requirements for classification as an SME.

q) The accumulation of an equity or quasi-equity investment made through financial instruments financed by the ESIF with other incentives under the Portugal 2020 Partnership Agreement must comply with the accumulation rules laid down in Community laws, namely in the GBER.

r) Compliance with the total minimum private financing in the Beneficiary Companies invested in must be ensured, in particular:
          i. 10% of risk finance allocated to companies that have not yet made their first commercial sale in any market;
          ii. 40% of risk finance allocated to companies that have been operating in any market for less than seven years since their first commercial sale;
          iii. 60% of the risk finance allocated to investments in companies:
a) with an initial risk finance investment which, based on a business plan prepared with a view to entering a new product or geographical market, exceeds 50% of the average annual turnover of the preceding five years, and
                b) for investments in eligible companies after a period of seven years has elapsed following their first commercial sale.

Investment Policy

a) The 200M Fund shall make equity and quasi-equity investments in SMEs that have projects with an innovative product or process in Co-investment with other entities;

b) Operations by the 200M Fund must be carried out together with another equity or quasi-equity investment to be made by operators, referred to as Co-investors, that should be one of the types of entities stipulated in article 1 of the Legal Framework for Venture Capital, Social Entrepreneurship and Specialized Investment, approved under Law No. 18/2015, of 4 March, namely venture capital companies, management companies of venture capital funds, venture capital funds, including “EuVECA”, venture capital investors, social entrepreneurship companies, social entrepreneurship funds, including “EuSEF”, specialized alternative investment companies, specialized alternative investment funds, or other entities or natural persons that can invest in the share capital of companies in Portugal and have already carried out similar operations to those provided for in said legal framework;

c) The contribution from the 200M Fund, for each investment operation, may not exceed the total amount invested by the Co-investors (in the case of projects that will be implemented in the Lisbon region, the contribution of the 200M Fund cannot exceed 40% of the total amount of the investment operation), with a minimum of €500k and a maximum of €5M. Due to the high volume of investment of applications received for the Lisbon Region, the submition of applications related to investment projects located in this Region is suspended. This decision can be reversed if the investment amount related to this Region is increased;

d) Investments in companies certified as SMEs (as defined by Recommendation 2003/361/EC, of 6 May) in Co-investment and risk sharing with venture capital investors, which may take the form of ordinary capital and/or any other form provided for in the Commercial Companies Code, to be established between the Investors and SMEs;

e) The investment by the 200M Fund shall be made under the same terms and conditions as the Co-investors;

f) SMEs shall implement investment projects that receive aid from the 200M Fund in the Northern, Central and Alentejo Regions of Portugal as well as in Lisbon and the Algarve. The investment projects shall be financed by the Operational Programme with jurisdiction in the region in which the project is to be implemented and in accordance with the respective appropriations;

g) The financial contribution of the Co-investors and the 200M Fund shall comprise, at least, 70% equity or quasi-equity instruments;

h) Should the Co-investors already hold a stake in the Beneficiary Companies, the Investment Operation must include new Investors who will invest at least 20% of the total round; – requirement suspended until 31.12.2020

i) Investment Operations must mandatorily be associated with the implementation of projects. Operations for financial restructuring or consolidation shall not be accepted;

j) Investment Operations related to exports to third countries or Member States, namely aid directly associated to quantities exported, the establishment and operation of distribution networks or other current costs related to export activities, or investments in fixed assets abroad shall also not be accepted;

k) Preference shall be given to Investment Operations in the Life Sciences, Biotech, Information Technologies and Tourism sectors, as well as Industry 4.0 activities and those that fall within the Portuguese National Strategy for Smart Specialisation and the Regional Strategies for Smart Specialisation of the region to which the Investment Operation relates;

l) Investment operations in the following activities (Portuguese Classification of Economic Activities – CAE, revised by Decree-Law No. 381/2007, of 14 November) shall not be eligible:

• Financial services and insurance – classes 64 to 66;
• Defense – sub-classes 25402, 30400 and 842200;
• Lotteries and other betting games – class 92

Due to specific European restrictions on state aid, the following Investment Operations in Beneficiary Companies shall also be excluded:

        i. In the fishery and aquaculture sector, pursuant to Regulation (EU) No. 1379/2013, of 11 December, which establishes the common organization of the markets in fishery and aquaculture products, amends Council Regulations (EU) No. 1184/2006 and (EU) No. 1224/2009 and repeals Council Regulation (EU) No. 104/2000;
        ii. In the primary agricultural production sector, pursuant to Regulation (EU) No. 651/2014, of 16 June;
        iii. Companies that perform intra-group activities, the main activities of which fall under classes 70.10 “Activities of head offices” or 70.22 “Business and other management consultancy activities” of NACE Rev. 2;
        iv. In the processing and marketing of agricultural products provided for in Annex I to the Treaty and forestry products, per the Partnership Agreement within the scope of the distinction between the Cohesion Policy funds and the EAFRD and EMFF, for business investment projects implemented on farms (when raw material is sources primarily from the farm itself), or implemented by Producer Organizations, or with a total investment in an amount equal to or less than 4 million euros;

m) Investments in projects that lead to restrictions in the rights and freedoms of individuals or which violate human rights shall also be excluded, as well as those that are deemed socially or environmentally unacceptable;

n) Regarding equity and quasi-equity investments in eligible companies:

• Replacement capital operations shall be eligible provided such are combined with new capital that represents, at least, 75% of each round of investment in the SME;
• No more than 30% of the total amount of the Investment Operation (financial contribution of the Co-investors together with the amount invested by the 200M Fund) shall be used for liquidity management purposes.

o) The total amount of the investment with Co-financing from the ESIF may not exceed 15 million euros per eligible company;

p) Investments to be made using financial instruments may not have been physically completed or fully implemented at the time the financing decision is taken;

q) Aid contingent upon the use of domestic products over imported products shall not be eligible;

r) Eligible investments in SMEs shall be made by 31 December 2020. This date may be extended following authorisation from each of the Fund’s public participating entities, together with each of the Operational Programmes via the relevant ESIF;

s) Investments shall be based on business plans that establish the ex-ante feasibility thereof. Said business plans must also include clear and realistic exit strategies;

Call Option

a) The 200M Fund shall afford Co-investors a call option, which may be exercised in the first four years from the date the investment is made:

• If the call option is exercised by the end of the 2nd year, an IRR of 4% must be ensured for the investment made by the Fund;
• If the call option is exercised between the 3rd and 4th year, an IRR of 6% must be ensured for the investment made by the Fund; or
• If the Investment Operation is made in the Life Sciences sector indicated in subparagraph (h) above, the call option may be exercised until the end of the 4th year, ensuring a 4% IRR to the Fund, or between the beginning of the 5th and end of the 6th year, in which case an IRR of 6% must be ensured.

• The aforementioned IRR shall be calculated as follows:

b) Subject to prior approval from the Investment Committee, and in consultation with the Fund Manager, the call option provided for in the preceding paragraph may be transferred by the Co-investors to third parties that meet the eligibility requirements stipulated in article 6 of 200M Fund Co-investment Fund’s Management By Laws.