Venture capital has been shown to be an effective mechanism for commercialising technologies and turning research into new products, services and processes. However, commercialising innovation is very high risk.
When early-stage companies have access to capital and to people skilled and experienced in the commercialisation process, the chances of success are greatly enhanced.
Early Stage Venture Capital Limited Partnerships (ESVCLPs) and the Venture Capital Limited Partnerships (VCLPs) work with private venture capital fund managers to provide capital and professional knowledge to innovative companies.
The Australian Government has a suite of venture capital programmes such as the:
- Early Stage Venture Capital Limited Partnerships – Fund managers planning to raise an early stage venture capital fund of at least $10 million can apply to the Board to register the partnership as an ESVCLP. For more details on this programme, see below.
- Venture Capital Limited Partnerships – Fund managers planning to raise a venture capital fund of at least $10 million can apply to the Board to register the partnership as a VCLP. For more details on this programme, see below.
If you are seeking venture capital for your business venture capital fund managers can be contacted directly.
Early Stage Venture Capital Limited Partnerships
Fund managers seeking to raise a new venture capital fund of at least $10 million and not more than $200 million to invest in Australian businesses may be able to register the partnership as an ESVCLP.
An ESVCLP must make early stage venture capital investments in companies or unit trusts. The ESVCLP must hold the investment for a minimum of 12 months.
The taxation benefits for registered ESVCLPs are:
- flow-through taxation treatment;
- exemption to investors (limited partners) from capital gains tax on their share of profits made by the partnership;
- the fund manager can claim their carried interest in the partnership on the capital account, rather than revenue; and
- Limited partners receive a non-refundable carry forward tax offset of up to 10 per cent of their eligible contributions.
To find out more and to apply, go to:
Venture Capital Limited Partnerships
Fund managers seeking to raise a new venture capital fund of at least $10 million for investing in Australian businesses (with assets of up to $250 million) may be able to register the partnership as a VCLP.
A VCLP can invest in unlisted Australian businesses by acquiring shares, options or units. A VCLP may also invest in companies or unit trusts that will delist within 12 months. The VCLP must hold the investment for a minimum of 12 months.
The taxation benefits for registered VCLPs are:
- flow-through taxation treatment;
- an exemption to the investors (limited partners) from capital gains tax on their share of profits made by the partnership; and
- the fund manager of the VCLP can claim their carried interest in the partnership on capital account, rather than revenue.
To find out more and to apply, go to:
Seeking Venture Capital
You may be able to access capital from either private sources or from government funding.
It is important to be well prepared before seeking venture capital.
The fund manager may want you to:
- explain the benefits of your idea/technology
- have a robust business proposal
- provide a customer/competitor analysis
- define the intellectual property.
You will need to consider:
- the amount of capital required
- what you will achieve
- what it will take to realise an exit from the venture.
Many people look for funding. Fund managers will want to know why your proposal is particularly deserving of support. The fund manager may undertake due diligence on you, your organisation or the technology.
Before contacting the fund manager, you should know who they are and what investments they have previously made.
The following lists are venture capital funds that can be contacted directly:
To find out more about venture capital available from private investors go to AVCAL . AVCAL is the Australian industry association for venture capital.
AVCAL, venture capital funds, angel groups and other industry stakeholders provide open source documents for entrepreneurs and others in the startup community.
New arrangements for venture capital investment
The Early Stage Venture Capital Limited Partnership (ESVCLP) and Venture Capital Limited Partnership (VCLP) programmes will change on 1 July 2016. The changes are designed to encourage greater venture capital investment activity.
- provide an additional tax incentive for limited partners in new ESVCLPs;
- relax restrictions on ESVCLP investments and fund size; and
- clarify the legal framework for venture capital investment in Australia.
The amendments apply from 1 July 2016.
Changes for new ESVCLPs only
- Provide a non-refundable tax offset of 10 per cent of the value of new capital invested during the income year. The tax offset is available only for qualifying contributions made to ESVCLPs that become unconditionally registered as an ESVCLP on or after 7 December 2015.
Changes for new and existing ESVCLPs
- Increase the maximum fund size from $100 million to $200 million;
- Remove the requirement that an ESVCLP divest of an investment once the investee’s value exceeds $250 million and allow a tax concession based on the ESVCLP’s proportional interest at the time the $250 million value is exceeded; and
- Modify the existing rules to ensure that a limited partner in an ESVCLP can be a trust.
Changes for new and existing ESVCLPs and VCLPs
- Allow investee entities to acquire new, complementary businesses (‘bolt-ons’), subject to appropriate integrity measures;
- Allow ESVCLPs and VCLPs to invest in a holding company which has existing interests in multiple subsidiaries, as long as the investment and those subsidiaries satisfy the ESVCLP/VCLP investment requirements;
- Modify the tax law to make it easier for ESVCLPs and VCLPs to access more funding from managed investment trusts , subject to appropriate integrity measures;
- Remove the restrictions for foreign venture capital fund of funds that prevent them from holding more than 30 per cent of capital, provided the fund is widely held and the ultimate investors are eligible foreign investors;
- Introduce a new mechanism by which Innovation Australia can provide binding advice in relation to the definition of ineligible activities and other eligibility metrics; and
- Remove the requirement for entities whose total assets are valued below $12.5 million to have an auditor provide an annual statement of total assets (unless otherwise required to do so under the Corporations Act 2001) and instead allow the statement of total assets to be signed off by the company director or fund manager.
For further information on the ESVCLP and VCLP programmes please contact AusIndustry on 13 28 46 or email VentureCapital@industry.gov.au
For tax concession enquiries, contact the Australian Tax Office on 13 28 66. If you are overseas, you can phone +61 8 8208 1847.
Changes to Significant Investor Visa
The Government has announced changes to the Significant Investor Visa (SIV).
As part of the changes, SIV applicants will be required to invest at least $500,000 in eligible Australian venture capital or growth private equity fund(s) investing in startup and small private companies.
Further details on the SIV are available by searching Significant and Premium Investor Visa Programmes on the Austrade website .
Tax Incentives for Early Stage Investors
As part of the National Innovation and Science Agenda (NISA), the Australian Government is encouraging innovation, entrepreneurship and risk-taking. The tax incentives for early stage investors are designed to connect early stage innovation companies (ESICs) with investors who have funds and business experience.
For an investor to be entitled to the tax incentives, the company must qualify as an early stage innovation company immediately after the new shares are issued to the investor. If the company no longer meets the ESIC requirements after this test time, this won't affect the investor's entitlement to the early stage investor tax incentives.