The new financial year saw the launch of the federal government’s legislation to support and incentivise investment in Early Stage Investment Companies (ESIC) across Australia.
The details in such releases are daunting for the experts, let alone those running an ESIC or interested in making a Seed or Series A investment, with many looking for guidance around how to make the most of this new government offering.
To tackle the layers of legislation, and provide some simpler explanations, a collaboration between Moore Stephens, Swanson Reed, VentureCast and the Private Company Platform was launched last week with an information evening that saw investors and entrepreneurs share the room.
Informative and challenging presentations from tax, R&D and investment experts highlighted the opportunities for investment that the ESIC legislation supports. At its core the legislations intention is to assist the many fledgling startups across Australia become a more viable investment opportunity. Western Australia proves a great example of where this increased viability is a must, with the state still full of investors very reluctant to dip their toe into the unknown world of Seed or Series A investments.
While it sounds great on face value, the unfortunate reality of the flaws in this new legislation became strikingly apparent as the evening progressed.
Many questions from the floor highlighted issues that seemed almost trivial.
- There is no consideration for retail investors keen to support early stage ventures.
- There are very tight financial caps on ESIC’s earning potential, drastically limiting the size of investors tax offsets.
- There was absolutely no clear process to confirm a company is officially an ESIC, effectively making it more of a risk to invest than it was before.
Jeff Broun, of The Private Company Platform, had a novel approach to increase the flow of funding for all ESIC’s saying, “The federal government should move to amend the Corporations Act, allowing Pty Ltd companies to have 500 non-employee shareholders rather than the current outdated 50. Compared to overseas, where most progressive economies enable private companies to have thousands of shareholders, we, for no real reason, limit investor participation to 50!”
It became apparent quite quickly that clarity in the process is a must when it comes to the fast paced world ESIC’s live in. Decisions are made on the fly and investment is required at a rapid rate. If we truly want to support this sector then simplicity in the means to do so is essential.
Fortunately, collaborations between larger services organisations are increasing. They are being built to present businesses with a place to turn to confirm if they are an eligible ESIC. While they can assist investors with the due diligence required to quickly and effectively support this exciting growth sector.
Radical thinking is not required to develop a solution that works. We can look to our neighbours, or the other side of the globe, and see systems that have successfully integrated a means to support the dynamic world of ESIC’s. New Zealand are leaders in the equity crowd funding movement, we can pop across, have a coffee and talk it through, learning from others instead of making mistakes on our own.
Initiative from the corporate world in Australia to help ESIC’s and investors is a huge step towards seeing new legislation implemented effectively. If our government plans to act on its intention to partner with industry or allies to further develop our country, then the new ESIC legislation presents a great place to start.
About Josh Horneman
Josh is one of the founders of VentureCast. He is a Coach and Mentor passionate about the startup sector and focused on helping individuals and business find success. His current side-project is producing the Western Australian feature film The Naked Wanderer.
