Blink, and you would have missed it, but this week’s federal budget budget did mention startups a few times, on the periphery, which prompted various parts of the community to chip in, including a ‘Startup Year’ proposal in Labor’s budget reply…
Atlas Advisors Australia, an investment manager, is urging the federal government to prioritise the use of migrant investment to effectively fill funding gaps in Australian seed venture capital.
In particular, changes to the Complying Investment Framework (CIF) for the Business Innovation Investment Program (BIIP) will directly have a significant impact on many startups’ desperate for seed-stage venture capital investment.
Atlas is a leading funds manager and investment advisory business which operates between China and Australia, offering an array of wealth management solutions and financial services. Currently, they have operations in Sydney, Melbourne, Hong Kong and Shanghai.
Guy Hedley, Atlas’ Executive Chairman, said delays in processing BIIP applications were ‘frustrating’ and heavy-hitting seed-stage venture capital.
“This is stymying the flow of funding for seed stage venture capital and emerging companies which Australia’s economy needs to create future jobs and revamp industry technological capabilities,” Mr Hedley said.
Primary visas have been significantly declining, even before the pandemic occurred. In 2015, 879 applications were processed. By contract 191 were processed in the year from July 2019 to July 2020 with the previous year recording 191 processed applications.
Mr Hedley believes by speeding up BIIP applications, more than $100 million could be unlocked for capital-starved startups.
“Many seed-stage startups are facing a funding shortage because of the impact of COVID-19 on the riskiest stage of venture capital,” he said.
“Fast-tracking approval for BIIP applications could help innovative Australian companies in areas such as life sciences and agribusiness to survive and thrive beyond this period of uncertainty.”
Atlas suggests the Federal Government could redirect funds for programs such as the Significant Investor away from merging listed companies, bonds and property towards venture capital. They argue this would make much better use of migrant investment.
Practically, Atlas believes the Government could achieve this by increasing venture capital allocation to 20% from the current rate of 10%, along with extending the mandatory investment period from four to five years. Mr Hedley concluded by remarking increased venture capital would ultimately lead to more jobs and other economic benefits.
The situation is even more acute in WA, where only 0.3% of total funds invested into WA-based companies goes to the early-stage innovation and tech sector (FY2020).
And that per centage is falling. In FY2019, the number was 0.6%.
VCLP and ESVCLP
Meanwhile, Stoic Venture Capital Partner Geoff Waring welcomed the Australian Government’s proposed review of the tax treatment of venture capital funds as a key measure to help lift the nation’s economy and global competitiveness amidst COVID-19.
The venture capital industry in Australia is supported by the Venture Capital Limited Partnership (VCLP) and Early-Stage Venture Capital Limited Partnership (ESVCLP) tax incentive schemes.
“We look forward to consulting with the Australian Government to identify how we can enhance Australia’s incentives for investment in venture capital,” Dr Waring said.
“That includes providing supportive tax and investment incentives for migrant investors who contribute significantly to Australia’s venture capital industry.”
However, Dr Waring said the number one priority was improving incentives and global competitiveness for investment in venture capital to support the growth of genuine seed-stage startups.
The Australian Investment Council’s latest annual investment activity yearbook 2020 shows angel and seed-stage venture capital has declined significantly since 2017…
Labor proposes Startup Year
In Labor’s budget reply this week, Leader of the Opposition Anthony Albanese proposed the ‘Startup Year initiative’, a program helping up to 2,000 of the nation’s most promising entrepreneurs commercialise their ideas and university research.
Under the proposal, students would have access to loans of up to $11,300 through the HELP system to cover costs while participating in an accredited accelerator program.
The Australian Small Business and Family Enterprise Ombudsman (and former Small Business Minister) Bruce Billson says the initiative is an interesting proposal and is looking forward to learning more about it.