Ven­ture cap­i­tal part­ner­ships re­form by Sarah Bartholomeusz

Ven­ture Cap­i­tal Part­ner­ships are an in­stru­men­tal source of fund­ing, par­tic­u­larly for smaller start-ups with­out ac­cess to cap­i­tal mar­kets writes Sarah Bartholomeusz.

Business First - - CONTENTS -

V en­ture Cap­i­tal Part­ner­ships are in­vest­ment ve­hi­cles that pro­vide tax breaks for in­vest­ments in highly in­no­va­tive and fledg­ling start-ups, mak­ing them valu­able driv­ers of in­no­va­tion within Aus­tralia.

They are how­ever some­what lim­ited by reg­u­la­tory bar­ri­ers and el­i­gi­bil­ity re­quire­ments mak­ing it dif­fi­cult for in­vestors and man­agers to en­gage in a broader range of ac­tiv­i­ties.

Fol­low­ing last year’s Se­nate Economics Ref­er­ences Com­mit­tee, the Govern­ment re­leased an In­no­va­tion State­ment out­lin­ing sev­eral sig­nif­i­cant ini­tia­tives with a view to cre­at­ing a long term strate­gic frame­work to sup­port in­no­va­tion in Aus­tralia.

One of these ini­tia­tives in­cludes new ar­range­ments for Ven­ture Cap­i­tal Lim­ited Part­ner­ships (VCLP) with a spe­cial fo­cus on Early Stage Ven­ture Cap­i­tal Lim­ited Part­ner­ships (ESVCLP).

From 1 July 2016, new ESVCLPs will be en­ti­tled to a 10% non-re­fund­able tax offset on cap­i­tal in­vested dur­ing the fi­nan­cial year. The max­i­mum fund size will also be in­creased from $100 mil­lion to $200 mil­lion. Ad­di­tion­ally, ESVCLPs will not have to di­vest of an in­vest­ment once the in­vestee’s value ex­ceeds $250 mil­lion, in­stead al­low­ing for a pro­por­tional tax con­ces­sion once that value is ex­ceeded.

Fur­ther changes to both Ven­ture Cap­i­tal pro­grammes in­clude re­lax­ing el­i­gi­bil­ity and in­vest­ment re­quire­ments.

In­vestee en­ti­ties will now be able to ac­quire new busi­nesses as ‘boltons’ en­abling them to ex­pand their in­vest­ment ac­tiv­i­ties. ESCVLPs and VCLPs will also be al­lowed to in­vest in a hold­ing com­pany which has ex­ist­ing in­ter­ests in mul­ti­ple sub­sidiaries.

Reg­u­la­tory re­stric­tions will be re­moved to make it eas­ier for ESVCLPs and VCLPs to ac­cess fund­ing from man­aged in­vest­ment trusts. Ac­tiv­i­ties by man­aged in­vest­ment trusts will still be sub­ject to ap­pro- pri­ate in­tegrity mea­sures but it is hoped that the new pro­vi­sions will en­cour­age them to par­tic­i­pate in the ven­ture cap­i­tal mar­ket.

One of the bar­ri­ers iden­ti­fied by the Com­mit­tee were the ex­ist­ing re­stric­tions for for­eign ven­ture cap­i­tal funds that pre­vent them from hold­ing more than 30% cap­i­tal. The new leg­is­la­tion will re­move these re­stric­tions for el­i­gi­ble for­eign in­vestors mak­ing VCLPS in­ter­na­tion­ally com­pet­i­tive and at­tract­ing greater lev­els of ven­ture cap­i­tal in­vest­ment.

These new changes to the leg­is­la­tion are ex­pected to take ef­fect from the new fi­nan­cial year.

Sarah is the founder of You Le­gal. She has an ac­tive prac­tice in cor­po­rate and com­mer­cial law, giv­ing peace of mind to grow­ing busi­nesses at all stages of their life­cy­cle. She has over 10 years of ex­pe­ri­ence as a lawyer in­clud­ing pro­vid­ing com­plex, high level le­gal & cor­po­rate gov­er­nance sup­port to ASX listed com­pa­nies.

Sarah Bartholomeusz is the founder of You Le­gal.

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