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AVCAL Focus on SIV 2 June 2015
Austrade: Significant and Premium Investor Visa Programmes Investor Visa Unit Investment Division May 2015
Australia Unlimited
What are the Significant and Premium Investor Visas?
• The Significant Investor Visa (SIV): ‒ requires a minimum investment of A$5 million into complying
investments – an application for permanent residency may be made after holding the
investment and provisional visa for four years – primary visa holder must be resident in Australia for 40 days every year
over the four years
• The Premium Investor Visa (PIV) is a new visa stream which: – requires a minimum investment of A$15 million into complying
investments – an application for permanent residency may be made after holding the
investment and provisional visa for 12 months – primary visa holder has no residency requirement
2
Australia Unlimited
Austrade’s role – developing the SIV/PIV Complying Investment Framework (CIF)
• Extensive consultation with interested stakeholders, including:
– public consideration of complying investment design options; and, – two rounds of public written submissions – approximately 170
submissions received
• Austrade considered advice from hundreds of stakeholders and experts to determine scope and quantums on Venture Capital and Growth Private Equity Funds (VCPE) and funds investing in Emerging Companies
• Austrade has an ongoing role in assessing CIF design to ensure the programme achieves its objectives over time
3
Australia Unlimited
Why enhance the SIV programme?
Minister Robb’s media release:
• the previous SIV framework had set the bar too low, with investment largely directed into passive investments such as government bonds and residential real estate schemes – areas that already attract large capital flows.
• Direct investment in residential real estate has never been a complying investment for SIV and this will not change.
– Indirect investment in residential real estate through managed funds will now be restricted.
– Importantly, a SIV holder can still independently invest in residential real estate so long as it complies with foreign investment rules, but this would not count as a complying investment to qualify for a visa.
4
Australia Unlimited
Key points – Significant Investor Visa (SIV)
• From 1 July 2015, SIV applicants will be required to invest at least $5 million in complying investments, which must now include:
– At least $500,000 in eligible Australian venture capital or growth private equity fund(s) investing in start-up and small private companies;
– At least $1.5 million in eligible managed fund(s) or Listed Investment Companies (LICs); and,
– A ‘balancing investment of up to $3 million in managed fund(s) or LICs that invest in a combination of eligible assets
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Key points – Premium Investor Visa (PIV)
• The PIV will be a new visa stream focussing on attracting a small number of highly talented and entrepreneurial individuals to Australia who can translate those skills and talents into other areas which deliver a long-term economic benefit
• Requires:
– a minimum of $15 million to invest:
– an application for permanent residency may be made after holding the investment and provisional visa for 12 months
– primary visa holder has no residency requirement
• Available by invitation of the Australian Government only
• Will be rolled out over the coming year
6
VCPE
SIV & PIV Complying Investment Framework (CIF) to commence 1 July 2015 1. Elements that apply to all investments for SIV & PIV
• SIV and PIV will be distinct visa products with the CI framework articulated separately.
• Existing requirements for who may make the investment will remain the same as will the requirement that funds be unencumbered and lawfully acquired.
• Investors will also still be required to reinvest funds within 30 days of withdrawing them from a complying investment or cancelling the investment in order for the investment to continue to be complying.
• Direct investment into residential real estate is excluded and indirect exposure through investment vehicles is to be restricted to less than 10% of a vehicle’s net assets.
• Exclude ‘loan back’ arrangements where the investment is used as collateral by applicants.
2. Significant Investor Visa (SIV)
• Investments must be provided by an Australian Financial Services (AFS) licensed manager(s) domiciled in Australia.
• Fund managers must be independent of the applicant and their spouse. • Investments are permitted through a ‘Fund of Fund’ (FoF) or an Investor
Directed Portfolio Service (IDPS) into complying managed fund(s) only. • Applicant monies may be held in cash for up to 30 days in a FoF or IDPS
at the time of first investment by the applicant and during any switching period.
• Complying Investments comprise mandatory investments in 2a and 2b, and balancing investments in 2c.
• Investments in 2a and 2b may be for higher amounts than the mandated minimums and up to the full amount of 2c (the balancing investment quanta) if desired.
3. Premium Investor Visa (PIV)
Note: Austrade nomination an invitation-only model, with State and Territory (S&T) governments able to make referrals to Austrade. Austrade to assess and nominate on approved criteria based on entrepreneurial skill or talent and ongoing benefit to Australia and character/integrity check. • Scope of eligible investments is an Australian managed fund(s) or direct
investment in: o Australian securities exchange listed assets. o Australian government or semi-government bonds or notes. o Corporate bonds or notes issued by an Australian exchange listed
entity (or wholly owned subsidiary of the Australian listed entity) or investment grade rated Australian corporate bonds or notes rated by an AFS licenced debt rating agency.
o Australian proprietary limited companies. o Real property in Australia excluding residential property. o Deferred annuities issued by Australian registered life companies. o S&T government approved philanthropic donation.
• To be an eligible fund, in addition to the requirements set out in box 1, a further requirement is that cash is to be no more than 20% of a fund’s net assets and derivatives are to be used for risk management purposes only.
• PIV investors may elect to make a portion or the entirety of their investment by way of a philanthropic donation (endorsed by a S&T government).
2c. SIV: Balancing Investment Funds invested in: • Companies, A-REITs, infrastructure trusts including their ordinary
equity, preferred equity, convertible bonds or corporate issued floating rate notes listed on an Australian securities exchange.
• Corporate bonds or notes issued by an Australian exchange listed entity (or wholly owned subsidiary of the Australian listed entity) or investment grade rated Australian corporate bonds or notes rated by an AFS licensed debt rating agency.
• Deferred annuities issued by Australian registered life companies but cannot commence paybacks during the provisional visa period.
• Real Property in Australia (subject to 10% limit on residential real estate).
• A complying fund must have the following:
− Cash*** is to be no more than 20% of a fund’s net assets. − Derivatives are to be used for risk management purposes only.
• Managed funds** (open or close-end) or Listed Investment Companies (LICs) are eligible.
• Fund Managers are to have and maintain a minimum $100m in firm-wide FUM to offer a complying fund(s) to applicants. ##
Prepared by: Austrade | Status | Date: 15 May 2015
2a. SIV: Venture Capital and Growth Private Equity Funds (VCPE) Note: Investments into VCPE funds may be for investment terms that are greater than the provisional visa period. Compliance will consist of a three part test: proof that applicant monies are taken upfront in a specified vehicle; proof that the applicant has entered into a commitment with a VCPE fund(s) within 12 months from the grant of the provisional visa; and proof that investments in a VCPE fund(s) have commenced within four years from the grant of the provisional visa. • Mandatory investment of at least $500,000 at time of investment in an
AusIndustry registered fund(s) (either ESVCLP or VCLP)*. • Applicant monies for the full amount of the commitment are to be
taken upfront to satisfy issuing a provisional visa and deposited either in a Cash Management Trust (CMT) held in escrow, or an Australian bank account as security for a bank guarantee in favour of a VCPE, to meet capital calls by the VCPE over the investment horizon.
• Applicants will need to enter into a commitment with a VCPE within 12 months from the date they were issued a provisional visa.
• Proceeds from the realisation of investments by the VCPE fund(s) before the provisional visa ends are to be reinvested in complying funds from 2a, 2b or 2c.
2b. SIV: Funds investing in Emerging Companies • Mandatory investment of at least $1.5 million at time of investment in
an eligible fund(s). • A complying fund must have the following:
− Investment in securities of companies that have a market capitalisation (mkt cap) of less than $500m at the time of first purchase by the fund. Investments are to be ASX listed or Australian unlisted companies, but unlisted are to be no more than 20% of the fund’s net assets. Up to 20% of the fund’s net assets may be in other Australian exchange listed companies.
− Up to 10% of the fund’s net assets may be invested in foreign exchanged listed companies (e.g. New Zealand) with a mkt cap of less than $500m at the time of first purchase by the fund.
− Up to 30% of the fund’s net assets can be in previously held assets who’s companies have grown their mkt cap above $500m.
− Must maintain a minimum of 20 investee companies from three months post the fund’s inception date.
− No further purchase can be made to any individual asset that exceeds 10% of the fund’s net assets.
− Cash*** is to be no more than 20% of a fund’s net assets. − Derivatives are to be used for risk management purposes only.
• Managed funds** (open or close-end) or Listed Investment Companies (LICs) are eligible.
• Fund Managers are to have and maintain a minimum $100m in firm-wide funds under management (FUM) to offer a complying fund(s) to applicants. ##
* The mandated quanta for future applications is expected to be increased within two years as the market responds.
** Includes Australian friendly society insurance bonds as currently included in the definition of a managed fund in the Migration Act.
*** Cash held by Australian authorised deposit taking institutions (including certificates of deposit, bank bills and other cash-like instruments).
## Managers with less than $100m firm-wide FUM may offer products through a responsible entity (RE) that meets this criteria. Note that managers of VCPE funds are not required to meet the $100m firm-wide FUM criteria.
Balancing Investment
Emerging Companies
Disclaimer: This is for information only and is not advice. Any person relying on this information does so entirely at their own risk and Austrade urges any user to seek professional advice before making any decision. Austrade denies liability for any loss arising from reliance on information obtained from this site
Australia Unlimited
Innovation Australia
• The Innovation Australia board are responsible for registering:
– Early Stage Venture Capital Limited Partnerships (ESVCLP); and,
– Venture Capital Limited Partnerships (VCLP)
• Applications for ESVCLP/VCLP registration must be made on the approved form (available from AusIndustry) and can be lodged at any time
• Applicants are encouraged to first discuss their application with AusIndustry and draft applications can be submitted for comment
8
VC and Expansion-stage PE in Australia Sydney, 2 June 2015 Dr. Kar Mei Tang Head of Policy & Research
2
Australian VC at a glance
Funds under management: $2.2b
Active managers: 26
Active portfolio companies: 269
Investment in FY2014: $516m
3
•Typically 2-5 team size •Inv: $0.1-10m, sector specialists •Seed, early stage, expansion stage •Fund size: $10-200m
Examples: Blackbird Blue Sky Ventures Brandon Capital GBS Ventures One Ventures Southern Cross Venture Partners Talu Ventures Terra Rossa
As of 30 June 2014.
Australian Expansion PE at a glance
Funds under management: $11b
Active managers: 41
Active portfolio companies: 379
Investment in FY2014: $562m
4 As of 30 June 2014.
•Typically 5-15 team size •Inv: $5-50m , EV: $10-100m •Invest across sectors but may have specialist strategies e.g. turnaround •Expansion stage •Fund size: $100-500m Examples: Accretion Anacacia Blue Sky PE CHAMP Ventures Hawkesbridge Next Capital Wolseley
The PE model
Fundraise
Invest
Value-add
Exit
5
Fundraise
Cash take-down
Management fee (1.5-2%)
The fund lifecycle
6
Investors (LIMITED PARTNERS)
PE/VC Firm (GENERAL PARTNERS)
Fund I
Company 1
Company 2
Cash/stock distribution
Carried interest (20% of all profits after achieving hurdle rate e.g. 8%)
Inve
stm
ents
Dive
stm
ents
Commitment
GP commitment (1-3%)
The “J-curve”
7
(150)
(100)
(50)
0
50
100
150
1 2 3 4 5 6 7 8 9 10
Cash
flow
AU
Dm
Year
Carried interestManagement feesDistributions to LPDrawdowns for investmentCumulative cashflows
Exit horizon=“Distributions”
Investment period = “Capital calls”
Cumulative cashflows ($)
No management fees GP ‘catch-up’ phase
Who’s investing in local VC & Growth PE funds?
8 Source: AVCAL
Australia, 30%
New Zealand,
4%
Singapore, 1%
UK, 2%
US, 35%
Europe ex-UK,
18%
Other, 11%
Growth PE funds raised FY10-14
AU, 79%
China, 16%
HK & SG, 1%
Other, 4%
1VC Funds Raised FY10-14
The PE model
Fundraise
Invest
Value-add
Exit
9
Invest
Majority of PE deals are in growth/expansion segment
10
No. of PE investments EV of PE investments (AUDm)
Source: AVCAL
0
10
20
30
40
EV < 50 EV 50-250 EV >250
FY10
FY11
FY12
FY13
FY14
0
2
4
6
8
10
EV < 50 EV 50-250 EV >250
PE/VC vs ASX sector exposures
11 Sources: State Street Global Advisers, S&P Dow Jones Indices, Cambridge Associates.
as of 30 September 2014
*http://www.superreview.com.au/news/funds-management/six-companies-make-up-half-the-risk-on-sharemarket
45%
16%
6% 7% 12%
6% 5%
15%
1%
12% 15%
29%
10%
17%
0%
10%
20%
30%
40%
50%
Financials Materials IT &Telecom
Industrials Consumer Energy Healthcare
Sector breakdown of ASX 300 and PE & VC funds
S&P ASX 300 Australian PE & VC
Australian VC investments by key sectors
-
40
80
120
$-
$100,000
$200,000
$300,000
$400,000
$500,000
ICT Life sciences Energy & environment
No.
of c
ompa
nies
AUD'
000
FY05-09 AUD'000 invested FY10-14 AUD'000 invested
FY05-09 #. of co.s FY10-14 #. of co.s
12 Source: AVCAL
VC deal size increasing
13
0
25
50
#1 #2 #3 #4 #5 #6 #7 #8 #9 #10
Inve
stm
ent s
ize,
$m
Top ten deals per year
Ten largest VC investments, FY2012-2014 (AUDm)
FY2012
FY2013
FY2014
$267m
The PE model
14
Fundraise
Invest
Value-add
Exit
Value-add
How does PE add value?
15
Operational improvements
Improve corporate governance & reporting
Improve ESG practices
Staff development
Improve work safety
Group purchasing
Management team improvements
Focused strategy & milestones
Align incentives to performance
Fill skills gaps
Bridge succession planning gap
Sounding board for management
Access to key contacts/networks
Expertise/PE Business Advisory committee
Capital efficiency
Capital expenditure
Strategic acquisitions, expansion
Put excess cash to productive use
Working capital management
More efficient funding
Op. revenue
A$m (LHS)
EBITDA A$m (RHS)
Value Added A$m (RHS)
0
40
80
120
0
100
200
300
T-1 T T+1 T+2 T+3 T+4 T+5
Impact on investee businesses
16
0
300
600
900
1,200
1,500
1,800
T-1 T T+1 T+2 T+3 T+4 T+5Years after buyout
Ave. FTEs employed
Financial performance Employment
Source: Deloitte Access Economics
The PE model
Fundraise
Invest
Value-add
Exit
17
Exit
Trade sale 42%
IPO 7%
Sale of quoted equity
6%
Write-off
15%
Repayment of
preference
shares/ loans
8%
Secondary sales
10% Sale to manage
ment 6%
Other means
6% Trade sale 40%
Public offering
20%
Write-off
25%
Sale to manage
ment 8% Other
means 7%
VC and PE exit methods
18
NO. OF VC EXITS (FY10-14) NO. OF PE EXITS (FY06-13)
22
16
13 11
13 13 12
5 4 4
1-Year 3-Year 5-Year 10-Year 15-Year
% (a
nnua
lised
)
Australian PE & VC Index S&P/ASX 300 IndexS&P/ASX Small Ordinaries Index
PE/VC performance
19 Sources: Cambridge Associates, AVCAL analysis. The PE and VC index is net of fees, expenses and carried interest.
Australian PE/VC vs ASX 300 and Small Ords net returns as of 31 Dec 2014
Looking ahead…
20
0
5,000
10,000
15,000
20,000
$10m-$200m $200m-$1b $1b-$3b
No.
of i
nves
tabl
e co
mpa
nies
Total Revenue p.a.
Other
Utilities
Telecommunication Services
Materials
Information Technology
Industrials
Healthcare
Financials
Energy
Consumer Staples
Consumer Discretionary
Pool of investable co.s
21 Sources: S&P Capital IQ, Deloitte Access Economics, AVCAl. Based on Total Revenues as of the end of the most recent reporting year as of 1 Mar 2014. For all Australian-headquartered businesses with Total Revenues between $10m to $3b. Excludes companies in the following sectors: Oil & Gas, Metals & Mining, Forest Products, Real Estate & Construction, Primary Food Products, Tobacco and Banks.
>20,000 co.s
>4,000 co.s >2,500 co.s
Total Revenues: $4.5tr
PE GPs currently only invested in 300+ companies
that generate est .$63b revenues p.a.
=> Still tapping only 1% of the investable pool
Building Better Businesses
22
Venture Capital A Practitioner’s perspective Sydney, 2 June 2015 Brigitte Smith Managing Director GBS Venture Partners
Hatchtech: head lice
Euthymics: Depression
Spinifex: pain
Neuromonics: tinnitus
Uptake : emphysema
Sunshine Heart: heart failure
Kalobios: Cancer, Infection, inflammation
Coda: wound healing
Endo-Luminal: AAA
Elastagen: dermatology
Air Xpanders: mastectomy
Portfolio Patient
Mimetica: Acne
Ivantis: Glaucoma
Celladon: heart failure
NIA: Health Insurance
GBS Ventures’ Australian Deal Flow
WA ASX Biotech Ventures Lions Eye Institute Perth Hospital Physician Private Inventor Silicon Valley Bank Sir Charles Gardiner Hospital Telethon Institute for Child Health Research University of Western Australia Western Australian Institute for Medical Research
VIC Alfred Hospital ASX Austin Hospital Australian Regenerative Medicine Inst. Australian Stem Cell Centre Baker IDI Medical Research Institute Barwon Biomedical Bendigo SX Bernard O'Brien Microsurgery Inst. Bionic Eye Institute Brandon Capital Burnet Institute Cancer CRC Centre for Eye Research Australia Deakin University GBS Director Howard Florey Neuroscience Institute
SA Adelaide University ASX CSIRO Food Flagship Flinders University Hansen Institute Private Inventor Royal Adelaide Hospital TTCF University of Adelaide
Qld ASX Australian Centre for Bioengineering and Nanotechnology Healthcare Ventures Institute for Molecular Biology James Cook University Mater Medical Research Institute Private Inventor QBF Queensland Institute of Medical Research Symbiosis University of Queensland University of Queensland/ IMB Uniquest
NSW ANSTO/CVC ASX Australian Technology Park Centenary Institute CHAMP Ventures CM Capital CSIRO Garvan Institute Griffith University Gryphon Capital Innovation Capital Institute for Eye Research Inteq Newcastle University NICTA Portfolio referral Private Inventor Royal North Shore Hospital Royal Prince Alfred Hospital Pharma Spin Out St George Hospital St Vincent's Hospital St Vincent's Institute Starfish Ventures Uniseed University of NSW University of Sydney University of Wollongong University of Tech Sydney UTS Westmead Vision CRC Woolcock Institute of Medical Research Westmead Millennium Institute
ACT ANU ANU Connect John Curtain School of Medical Research CSIRO
VIC IP Attorney Ludwig Institute MiniFab Monash University Murdoch Children's Res Inst. Nucleus Network Prince Henry's Institute Private Inventor RMIT Royal Melbourne Hospital Biotech Spin Out Starfish Ventures St Vincent's Institute Swinburne University TTCF University of Melbourne WEHI
UQ Diamatina Institute of Cancer Royal Brisbane Hospital University of Queensland Wilson HTM
Australian and New Zealand Research Institutions are Globally Outstanding
Rank Institution Rank Institution 1 Harvard University United States 26 McGill University Canada 2 University of Cambridge United Kingdom 27 University of Washington United States 3 University of Oxford United Kingdom 28 University of Hong Kong Hong Kong 4 Stanford University United States 29 Duke University United States 5 Johns Hopkins University United States 30 ETH Zurich (Swiss Federal Institute of Technology) Switzerland 6 University of California, Berkeley (UCB) United States 31 University of Pennsylvania United States 7 Massachusetts Institute of Technology (MIT) United States 32 University of British Columbia Canada 8 The University of Tokyo Japan 33 Monash University Australia 9 Yale University United States 34 University of Michigan United States 10 University of California, Los Angeles (UCLA) United States 35 Princeton University United States 11 Imperial College London United Kingdom 36 California Institute of Technology (Caltech) United States 12 National University of Singapore (NUS) Singapore 37 The University of Queensland Australia 13 University of California, San Francisco United States 38 Ruprecht-Karls-Universität Heidelberg Germany 14 University of California, San Diego (UCSD) United States 39 Australian National University Australia 15 The University of Melbourne Australia 40 University of Chicago United States 16 University of Toronto Canada 41 Seoul National University Korea, South 17 UCL (University College London) United Kingdom 42 University of California, Davis United States 18 The University of Sydney Australia 43 The University of Manchester United Kingdom 19 Cornell University United States 44 Ludwig-Maximilians-Universität München Germany 20 Kyoto University Japan 45 Washington University in St. Louis United States 21 Columbia University United States 46 University of Wisconsin-Madison United States 22 Karolinska Institute Sweden 47 National Taiwan University (NTU) Taiwan 23 University of Edinburgh United Kingdom 48 The University of New South Wales Australia 24 Peking University China 49 Tsinghua University China 25 King�s College London (University of London) United Kingdom 50 The University of Auckland New Zealand
Global Biomedical Research Institutions Rankings
Source: QS World University Rankings 2011
Australian Clinical Pipeline Compared to European Countries
0 50 100 150 200 250
Finland
Norway
Ireland
Netherlands
Belgium
Spain
Austria
Israel
Italy
Sweden
France
Switzerland
Denmark
Germany
Australia
United Kingdom
Phase I Phase II Phase IIISource: EY Beyond Borders 2012, ANZCTR, GBS Analysis
Low VC Availability vs. Innovation
Source: AVCAL, ThomsonONE, EIU, WIPO Statistics Database Note: Investment figures are based on the location of the VC firm. Therefore, international VC investments in Australia are not taken into account in this chart. If international VC investments in Australia are also taken into consideration, Australian VC investments will increase from 0.23% to 0.43% of GDP in the specified time period)
%
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Venture Capital Investments (% of GDP ) Total patents granted (% GDP $US m)
The Australian Government actively promotes world class R&D...
Companies that conduct R&D in Australia, can gain access to an R&D tax credit equivalent to a 150-133 per cent deduction: 45% refundable tax offset to eligible entities with an aggregated turnover
(revenue) of less than $20 million per annum If tax credit is reinvested in R&D over three years, aggregage >70% tax credit
e.g. $10m Australian
R&D project (AU company or subsidiary)
$2.0m cash tax credit
$4.5m cash tax
credit
$10m+ R&D project
value
$7.4m cash tax
credit
$0.9m cash tax credit
Source: AusIndustry 2011 Year 1 Year 2 Year 3 3 Year Total
AirXpanders AirXpanders is developing technology for tissue expansion after
reconstructive surgery, with the first product for breast reconstruction. The company is based in Mountain View, CA, but
first in woman studies were conducted in Perth, Australia
First, second and third in woman studies in Australia
CE Mark based on Australian data
Hired industry experienced CEO and built team
Brought in Vivo Ventures and Correlation Ventures
TGA approval and Australian reimbursement
ASX IPO in June 2015
Hydrexia Hydrexia is developing safer and more compact hydrogen storage
solutions for the global hydrogen market
Spin out from the University of Queensland
Venture capital funding to build company to industrial scale
International syndicate including Conduit
Ventures, a hydrogen specialist
Brought in SXVP and AirLiquide
Built management team
Threatmetrix Threatmetrix is a B-B software company creating a globally shared intelligence network of identities to enhance frictionless commerce and prevent fraudulent activity on the internet. The company has corporate
headquarters in San Jose, CA, and primary engineering facilities/executives in Sydney, Australia
Founded in 2005 in Sydney; Talu led Series A investment in 2008.
Hired Silicon Valley CEO and attracted Valley Independent Chairman
Subsequently attracted $50m of top tier US VC funding in 4 rounds:
USVP, Tenaya Ventures, August Capital, Adams Street Partners (>$200m valuation)
Market leader in e-Commerce and Credit Card sectors
Rapid growth in Financial Services and Media sectors
3500 customers, 15000 web sites, 40m transactions/day
6 global offices, 4 data centres, 65% y/y avg growth last 5 years
10
Hatchtech Hatchtech is developing a best in class medicine to kill headlice and
their eggs in one treatment. The company is based in Melbourne, Australia
Spin out from the University of Melbourne
Early clinical trials in Australia
Built team with industry experienced CEO
Supported efficient clinical trial strategy
Completed Phase 1, 2 and 3 trials in the US in children and adults
Additional studies to show that the treatment kills the eggs
Brought in OneVentures to finance late stage trials
AVCAL SIV Presentation 2 June 2015
1. ESVCLP & VCLP Programmes – Why and How of Registration – Compliance and Integrity
Australian Government Venture Capital Programmes
Two forms of Intervention
• Tax Concession Programmes
– Venture Capital Limited Partnerships (VCLP) – Early Stage Venture Capital Limited Partnerships (ESVCLP) – AFOFs (Australian Fund of Funds) – Pooled Development Funds (PDF)
• Co-Investment Programmes – Innovation Investment Fund (IIF) – Pre-Seed Fund (PSF) – Innovation Investment Follow-on Fund (IIFF) – Renewable Energy Venture Capital Fund (REVC) (managed by
another team in the Department – ARENA
Australian Government Venture Capital Programmes
Early Stage Venture Capital Limited Partnerships (ESVCLP)
• ESVCLPs are venture capital
funds structured as limited partnerships that make equity investments in early stage Australian companies.
• They provide an attractive
structure to venture capital fund managers that pool investor capital.
Australian Government Venture Capital Tax Concession Programmes
Benefits of Registration as an ESVCLP
• A venture capital fund registered as an ESVCLP receives flow-through tax treatment.
» When an eligible venture capital investment is disposed of, the revenue gains or profits may be exempt from income tax where certain conditions are met and there is no deduction for losses.
• Investors (limited partners) have no tax liability on income or capital gains they receive from the ESVCLP.
• The manager is entitled to claim their carried interest in the fund on capital account rather than revenue.
Australian Government Venture Capital Tax Concession Programmes
*The extent of the tax benefit depends upon a number of factors. Participants should seek professional tax advice.
Registration as an ESVCLP
• Innovation Australia will grant registration if it considers the application
satisfies the requirements of the VC Act.
• A fund that does not have at least $10 million committed capital may be granted conditional registration.
• To be granted conditional registration a fund must present sufficient evidence to satisfy Innovation Australia it is likely to raise at least $10 million within two years.
• Conditional registration lapses after two years.
Australian Government Venture Capital Tax Concession Programmes
ESVCLP Eligible Investments
• The Investee: • complies with the ESVCLP's
approved investment plan;
• does not represent more than 30 per cent of the ESVCLP's committed capital; and
• is an acquisition of new shares or units (limited provision to acquire pre-owned).
• has total assets of no more than $50 million at time of investment;
• is an Australian business in its early stage of development;
• does not have property development,
land ownership, finance or construction as its primary activity; and
• is not listed on the stock exchange.
• If, at the end of a financial year an investee has grown to have total assets >$250 million the ESVCLP must notify the Board and dispose of that investment within six months.
Australian Government Venture Capital Tax Concession Programmes
Venture Capital Limited Partnerships (VCLP)
• VCLPs are venture capital funds
structured as limited partnerships that make equity investments in relatively high-risk start-up and expanding Australian companies.
• VCLPs provide tax benefits that make these structures particularly attractive to investors, fund managers and start-up businesses.
Australian Government Venture Capital Tax Concession Programmes
Benefits of Registration as a VCLP
• Registration as a Venture Capital Limited Partnership entitles a fund to flow-through taxation treatment.
• When an eligible venture capital investment is disposed of, the revenue gains or profits may be exempt from income tax where certain conditions are met and there is no deduction for losses.
• Eligible foreign investors in the fund are exempt from capital gains tax on
their share of any profits made by the fund.
• Returns to domestic investors are taxed in their hands and a deduction for any losses may be allowable.
• The fund manager is entitled to claim their carried interest in the fund on capital account rather than revenue.
Australian Government Venture Capital Tax Concession Programmes
VCLP Eligible Investments
• Generally a Venture Capital Limited Partnership can invest in unlisted Australian businesses that are structured as either a company or a unit trust by acquiring shares, options, or companies or unit trusts that will delist within 12 months.
• The investment must be held for a minimum of 12 months.
• The investment must also be at-risk and the investee business must meet the following requirements:
• At the time of investment, has total assets of not more than $250 million
• at least 50% of employees and at least 50% of assets are Australian
• its predominant activity is not in property or land development, finance, insurance, construction or infrastructure, or making investments.
Australian Government Venture Capital Tax Concession Programmes
Registration as a ES/VCLP
• Innovation Australia approves registration under the Venture Capital Act 2002 (VCA); and the Income Tax Assessment Act 1936 and 1997 (ITAA36 or ITAA97). – Eligibility criteria [Divisions 9, 11 and 13 VCA] – Applying for registration [Division 11, VCA] – Granting registration [Division 9, 11 and 13 VCA]
• Conditional Registration [s13-5(1), (1A) VCA] • Full Registration [s13-1(1), (1A) VCA] • Maintaining registration [Division 9 VCA] • Reporting requirements [Division 15, s17-10] • Eligible investment [s118-F] • Revoking registration [Division 17 VCA]
Australian Government Venture Capital Tax Concession Programmes
Compliance, Assurance and Integrity
• At Registration: condition and full. • During: quarterly and annual reporting • Customer assurance and Programme integrity framework.
Australian Government Venture Capital Tax Concession Programmes
Australian Government Venture Capital Tax Concession Programmes
Sample of companies supported by the Commonwealth’s VC programmes
QUESTIONS?
• For Tax Concession and Co-Investment VC programmes: • Graydon Smith - 02 6213 6209 • [email protected]
• Australian Private Equity and Venture Capital Association Ltd:
• www.avcal.com.au
• Australian Association of Angel Investors: • www.aaai.net.au
• For VCLP & ESVCLP fact sheets:
• http://www.business.gov.au
Australian Government Venture Capital Tax Concession Programmes
