Early Stage Venture Capital Limited Partnerships (ESVCLP)

At a glance

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Provides fund managers and investors with tax benefits, including a tax exemption on an investor’s share of a fund’s income and gains.

Who can apply:

At a minimum, you must:

  • be a limited partnership or an incorporated limited partnership
  • be established in Australia or in a country with which Australia has a double tax agreement
  • have a partnership agreement that ensures the partnership will exist for between five and 15 years.

Other eligibility requirements apply.

Deadline to apply:

You can apply at any time using the online application form.

Contact information:

13 28 46

business.gov.au/contact

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Overview

The Early Stage Venture Capital Limited Partnership (ESVCLP) program aims to stimulate the early stage venture capital sector in Australia by:

  • helping fund managers attract pooled capital so they can raise new venture capital funds of between $10 million and $200 million to invest in innovative early stage businesses
  • offering tax benefits to fund managers and investors
  • connecting investors with early stage businesses
  • helping Australian businesses grow by receiving financial support and guidance from expert advisers.

Fund managers can apply to Innovation and Science Australia to register a partnership as an ESVCLP. The Department of Industry, Innovation and Science and the Australian Taxation Office (ATO) jointly administer the program on behalf of the Australian Government.

If you are a potential venture capital investor, read Looking to invest in Australia's venture capital market. If you are an investor seeking access to a portfolio of early stage companies, see the ESVCLP list.

If you are a business looking for funding, read Seeking venture capital investment.

How it works

An ESVCLP must be a new partnership rather than a restructured existing partnership. Applicants must apply to Innovation and Science Australia's Innovation Investment Committee (the Committee) for registration under the Venture Capital Act 2002 (VCA).

The Committee will register a partnership as an ESVCLP if it meets certain eligibility criteria.

If registered, an ESVCLP can then make early stage venture capital investments in companies or unit trusts that are at the pre-seed, seed, startup or early expanding stage of development and also meet other criteria. The ESVCLP must hold the investments for a minimum of 12 months.

An ESVCLP must meet ongoing registration and reporting requirements under the VCA to maintain its registration.

Tax benefits

ESVCLP tax benefits differ for investors and fund managers.

Investors (Australian and foreign limited partners)

  • Investors benefit from an ESVCLP's flow-through tax status. The partnership itself is not taxed and the income and gains flow through to investors, avoiding double taxation.
  • Investors in an ESVCLP are exempt from tax on their share of the income and gains from disposing of eligible venture capital investments.
  • ESVCLPs are no longer required to divest an eligible venture capital investment when the investee's value exceeds $250 million. A tax concession is allowed based on the ESVCLP's proportional interest at the time the $250 million value is exceeded.
  • Limited partners receive a non-refundable carry forward tax offset of up to 10% of the value of their eligible contributions.

The tax benefits for investors depend on a number of factors. More detailed information on these tax benefits is included in the ESVCLP Customer Information Guide.

For tax concession enquiries, contact the ATO on 13 28 66. If you are overseas, phone +61 8 8208 1847.

Investors should also seek their own professional taxation advice.

Fund managers

General partners (often also the fund managers) can claim their carried interest in the ESVCLP on the capital account, rather than on the revenue account. The extent of this benefit depends on a number of factors. More detailed information on this tax benefit is included in the ESVCLP Customer Information Guide.

For tax concession enquiries, contact the ATO on 13 28 66. If you are overseas, phone +61 8 8208 1847.

Fund managers seeking to register a partnership should seek professional tax advice.

Eligibility criteria

You can apply to register as an ESVCLP if:

  • you are a new venture capital fund
  • you are a limited partnership or an incorporated limited partnership
  • you are established in Australia or a country that has a double tax agreement with Australia
  • you have a general partner (often also the fund manager) who is a resident of either Australia or a country that has a double tax agreement with Australia
  • you have between $10 million and $200 million in committed capital, although a partnership that does not satisfy this requirement may be eligible for conditional registration
  • none of your investors contributes more than 30% of the committed capital unless they are a bank, life insurance entity, widely held super fund or widely-held foreign venture capital fund of funds. The Committee can also approve an investor with more than 30% committed capital in some circumstances.

In addition, you must have a qualifying partnership agreement that:

  • remains in existence for between five and 15 years
  • requires partners to contribute capital when required
  • prohibits adding new partners except as provided for in the agreement
  • prohibits increasing committed capital except as provided for in the agreement
  • confers on the general partner the right to require partners to contribute their committed capital to the partnership
  • includes a plan outlining the partnership's intended investment activities, which focuses on making eligible venture capital investments in early stage venture capital businesses.

Your partnership must also have access to the skills and resources needed to implement its approved investment plan.

All information should be read in conjunction with the relevant legislation: the VCA, the Income Tax Assessment Act 1997 and the Income Tax Assessment Act 1936, all of which can be found at the Federal Register of Legislation.

How to apply

If you would like to apply for registration as an ESVCLP, complete and submit the online application form, including the following documents:

  • a certificate of registration as a limited partnership or an incorporated limited partnership issued by the relevant state or territory government authority
  • a certificate of registration if the general partner is a venture capital management partnership
  • an investment plan, included in the signed partnership deed. The Committee needs to be satisfied that the investment plan is appropriate and focuses on early stage venture capital investments
  • a signed limited partnership deed (including the investment plan). If applying for conditional registration, you will need to include a signed basic partnership deed with your partnership deed, if the latter is not signed. The partnership deed must include the following clauses (use the wording below):
    1. require partners to contribute their committed capital as and when required under the agreement
    2. prohibit the addition of new partners to the partnership except as provided for in the agreement
    3. prohibit increases in the partnership's committed capital except as provided for in the agreement
    4. confer on a general partner the right to require partners to contribute their committed capital to the partnership, and
    5. the partnership must remain in existence for a period not less than five years and not more than 15 years from formation of the partnership (this is the date the partnership was registered as a limited partnership or incorporated limited partnership).
  • details of all individual investors and their committed capital. The Committee may request documentary evidence of committed capital
  • the partnership's information memorandum or any public offer documents
  • CVs and time commitments of the key people active in your partnership. The Committee needs to be satisfied that the partnership has access to the skills and resources necessary to implement its investment plan.

The Committee may request further information, documents or evidence relating to the application for registration.

Conditional registration

The Committee may grant conditional registration to a partnership that does not meet all the requirements under the VCA, such as not having at least $10 million in committed capital.

The partnership must satisfy the Committee that it is likely to meet all the registration requirements within 24 months of conditional registration.

Conditional registration lapses if the partnership is not registered within 24 months.

A conditionally registered ESVCLP may in certain circumstances make investments. However, it must be fully registered before any tax exemption applies to those investments.

A conditionally registered ESVCLP must not, when advertising, misrepresent the ESVCLP as being registered. Any reference to 'registered' should clarify that the registration is conditional.Funds may wish to use the following statement: 'The ESVCLP is conditionally registered as an Early Stage Venture Capital Limited Partnership and further conditions will need to be met before being registered as an ESVCLP'.

Further information about conditional registration is available in the ESVCLP Customer Information Guide.

Appropriate investment plan

The investment plan is an important element of your application, since the Committee will only approve the plan if it considers it appropriate. The Committee will take into account the proposed investments, including the investee businesses:

  • stages of development
  • cash flow levels
  • levels of technology
  • proportion of intellectual property to total assets
  • levels of risk and return
  • amount of tangible assets and collateral against which borrowings may be secured.

The Committee will also consider other matters under s13-20 of the VCA.

As a general rule, a business will be viewed as 'early stage' if:

  • it was incorporated seven or fewer years ago
  • its average revenue over the past two years is less than $3 million.

Please note that this general rule serves as a guide only and there may be cases where it is appropriate for an ESVCLP to have an investment plan that does not meet these criteria.

An ESVCLP has the chance to explain why it should be allowed to go outside this general rule, if it intends to do so. The Committee will monitor feedback regarding the general rule, including its impact. Failing to be 'early stage' is one reason an investment plan may be judged inappropriate for ESVCLP registration.

An ESVCLP may apply at any time to amend its approved investment plan.

When an application will be decided

The Committee has 60 days from receiving a complete registration application to decide whether to grant or refuse the application (which it can extend by a further 60 days). If the application is incomplete it will not be considered. The 60-day timeframe does not start until all information and documents are received.

Applicants will be advised of the decision.

Generally, the Committee will grant registration if your partnership meets the eligibility criteria.

For assistance with the application form, contact us or email venturecapital@industry.gov.au.

Other applications

Applications can be made to Innovation and Science Australia to make decisions about ESVCLPs other than registration decisions.

These decisions include:

  • allowing a partner of a partnership's committed capital to exceed the 30% limit
  • extending the time for repayment of a permitted loan
  • extending the time for the partnership to meet the registration requirements before making a revocation decision
  • shortening the time period during which an investee business must satisfy the Australian location test
  • determining that a requirement of the Australian location test does not apply to an investee business
  • making a determination about whether the investee business's primary activity is not an ineligible activity
  • approving an updated investment plan
  • revoking an ESVCLP's registration

Some of these applications must be in the form approved by Innovation and Science Australia. For some a form has not yet been approved and for others no approved form is required.

An application for a partner of an ESVCLP to have committed capital that exceeds 30% of the ESVCLP's total committed capital must be in writing, include a declaration (see below) and be signed by the relevant partner or their authorised representative.

A statement of reason from the general partner supporting the application must be included. The application must be on appropriate letterhead and may be provided electronically as a scanned copy of the signed original.

In considering this application, the Committee will have regard to the policy intent of the ESVCLP. Further information, can be found in Information Paper No.2 - Exercise of discretion section 9.4(1) of the Venture Capital Act 2002.

The other types of application listed above must be in writing, on appropriate letterhead, include a declaration (see below) and be signed by the general partner or their authorised representative. The application may be provided electronically as a scanned copy of the signed original.

The declaration:

I declare that:

  • I am authorised to make the application in this letter and to sign and submit this declaration on behalf of the applicant.
  • The information contained in this letter, together with any statement attached and any further information or documentation subsequently provided to the Commonwealth in relation to this application is or will be - to the best of my knowledge - correct and complete. I also understand that the provision of false or misleading information or the making of a false or misleading statement to the Commonwealth is a serious offence.

Obligations when registered

The fund manager must self-assess activities to ensure the partnership only invests in eligible investments and complies with the legislation by meeting ongoing registration and reporting requirements. This includes complying with the approved investment plan. The Committee may revoke registration if a partnership contravenes the legislation.

The fund manager must submit quarterly and annual activity reports. The Department of Innovation, Industry and Science and the ATO will monitor the partnership to assess compliance.

Eligible investments

Before investing, the fund manager must ensure that the investment meets certain criteria. The investment must (among other requirements):

  • be in accordance with the legislation
  • comply with the ESVCLP's approved investment plan
  • represent no more than 30% of the ESVCLP's committed capital
  • be in an Australian business*
  • be in the form of new shares or units, or options to acquire shares or units or convertible notes with equity characteristics
  • be at-risk
  • be in a business that:
    • is in its early stage of development
    • has total assets valued at less than $50 million
    • has at least 50% of its employees and at least 50% of its assets in Australia
    • has a registered auditor, if the entity value is more than $12.5 million
    • does not have property development, land ownership, finance, insurance, construction or infrastructure, or make investments to receive interest, rents, dividends, royalties or lease payments as its predominant activity
    • is unlisted.

* There is provision for an ESVCLP to invest up to 20% of its committed capital in businesses that do not meet the Australian location test.

The Committee may revoke registration for partnerships that repeatedly hold ineligible investments.

For more detailed information on the eligibility criteria, please refer to the ESVCLP Customer Information Guide.

A SAFE (simple agreement for future equity) note is a convertible security that allows the investor to buy shares in a future equity round. To be an eligible venture capital investment, a SAFE note must have the characteristics of a convertible note and not be a debt interest.

Registration requirements

Registration can be revoked for failing to fix a breach of any of the registration requirements within a stipulated period:

  • A limited partner (or associates) cannot provide more than 30% of a partnership's committed capital without the Committee's prior approval. Widely held super funds, widely held foreign venture capital fund of funds, banks and life insurance entities are exempt.
  • An ESVCLP must act and invest in accordance with the approved investment plan.
  • An ESVCLP cannot hold a debt interest that is not a permitted loan.
  • An ESVCLP must be a partnership that satisfies the eligibility requirements of the VCA.
  • An ESVCLP must have committed capital of between $10 million and $200 million.

Reporting requirements

Failing to submit returns or provide requested information can lead to the Committee revoking registration. An ESVCLP must submit:

  • quarterly returns within one month of the end of each quarter, which include:
    • committed capital
    • drawn down capital
    • invested capital
    • investments
    • disposals
  • annual returns within three months of the end of the financial year, which include:
    • details of limited partners, their committed capital and any changes
    • details of investments held (at cost and book value) and disposals made
    • details of changes made to the partnership agreement during the year
  • annual reports within three months of the end of the financial year on the partnership's implementation of its approved investment plan, including any investments and disposals made during the year.

ESVCLPs must also maintain appropriate records to demonstrate legislative compliance. For example, an ESVCLP must be able to show that each investment it holds is an eligible venture capital investment and that it was made in accordance with the partnership's approved investment plan.

The Department of Industry, Innovation and Science may check that an ESVCLP complies with the law after it is registered. Similarly, the ATO may check that an ESVCLP complies with the legislation it administers.

Customer stories

Many successful Australian businesses began as startups or early stage firms with limited funds. Their access to venture capital and people with commercialisation skills helped them turn their ideas, research or innovation into commercial success. Venture capital funds have also been able to grow and prosper as a result of government venture capital initiatives.

To see how Australian businesses and venture capital funds have benefited, read our Customer stories.

Venture capital statistics

Find out about our venture capital statistics.

The Australian Private Equity and Venture Capital Association Limited (AVCAL) also publishes statistics and research on the Australian venture capital industry.

Registered ESVCLPs

  • List of Early Stage Venture Capital Limited Partnerships and Australian Venture Capital Fund of Funds

Key documents

  • Customer information guide
  • Forms approved by Innovation and Science Australia
  • Information Paper No.1 - Interpretation of 'Associate'
  • Information Paper No. 2 - Exercise of discretion under section 9-4 (1) of the Venture Capital Act 2002
  • ISA Information Paper - Extension of application timeframe  
  • Expectation and compliance statement

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