AU$800m invested into Aussie startups by VC partnerships in 2016-17

The 2016-17 annual report from Innovation and Science Australia has revealed AU$800 million was invested by Venture Capital Limited Partnerships into local businesses and startups.

Innovation and Science Australia (ISA), has revealed that AU$800 million was invested into local businesses by Venture Capital Limited Partnerships (VCLPs) during the 2016-17 financial year, with the total number invested to-date tipping AU$5.1 billion.

According to the Innovation and Science Australia--Report for 2016-17, as at June 30, 2017 there were 69 registered VCLPs and of that total, 19 VCLPs had registered during the 2016-17 period.

Committed capital, the amount investors have agreed to contribute to a partnership, increased by AU$600 million to AU$6.9 billion in 2016-17, which ISA said was the highest level of committed capital in VCLPs ever achieved.

The VCLP and the Early Stage Venture Capital Limited Partnership (ESVCLP) programs are designed to stimulate the Australian venture capital sector by attracting both domestic and foreign capital into Australian VC markets.

The ESVCLPs program provides tax concessions for both Australian and foreign residents that invest into funds registered under the program, explains the annual report [PDF] from the independent body charged with researching, planning, and advising the government on all science, research, and innovation matters.

Since inception, AU$437.6 million has been invested by ESVCLPs in Australian businesses, with AU$194 million invested during the 2016-17 period.

64 ESVCLPs were registered as of June 30, 2017, with 28 registered during the reported period. The amount of committed capital in ESVCLP partnerships was AU$1.4 billion in 2016-17.

Through these programs VCLPs and ESVCLPs -- which are VC funds structured as limited partnerships -- are registered under the Venture Capital Act 2002 and they are required to operate in accordance with the relevant Income Tax Assessment legislation, as well.

The VCLP and ESVCLP programs were initially announced as part of the federal government's AU$1.1 billion National Innovation and Science Agenda, which was delivered in December 2015.

From July 1, 2016, another initiative of the Innovation and Science Agenda to enhance tax arrangements under the ESVCLP program came into effect.

The changes included providing an additional tax incentive for limited partners in new ESVCLPs, relaxing restrictions on ESVCLP investments and fund size, and clarifying the legal framework for venture capital investment in Australia.

The tax incentives for early-stage startup investment includes a 20 percent non-refundable tax offset for qualifying investments, which is capped annually at AU$200,000 per investor per year.

Additionally, there is a 10-year exemption from capital gains tax for qualifying investments held for at least one year.

Investors who did not meet the requirements of the sophisticated investor test under the Corporations Act 2001 were limited to investing amounts of AU$50,000 and below in an income year, which meant the legislation was somewhat restrictive as it excluded companies that have finance activities as their predominant activities.

As a result, the government proposed amendments to the legislation in October that aimed at incentivising investors to support early-stage fintech startups with "high-growth potential".

In total, ISA oversees six innovation programs, which also includes the R&D Tax Incentive program, the Cooperative Research Centres program, the Biomedical Translation Fund, the Entrepreneurs' Programme, and the Business Research Innovation Initiative, as well as a handful of programs it was charged with prior to the launch of the Innovation Agenda.

The Entrepreneurs' Programme is aimed at improving business competitiveness and productivity by using a network of around 130 advisers and facilitators from industry.

The program provides access to advice as well as connection and networking opportunities for entrepreneurs to grow their business and capitalise on opportunities. Support for the program may also include funding through matched grants.

During 2016-17, the Entrepreneurs' Programme provided 7,600 services across four elements: Accelerating commercialisation, business management, innovation connections, and incubator support.

Meanwhile, the Business Research Innovation Initiative (BRII), which was handed AU$24 million under the government as an exemplar pillar of the Innovation Agenda to transform government procurement, is a grant program that aims to drive innovation within small to medium-sized enterprises (SMEs) and government.

Grants are offered to encourage SMEs to develop solutions to public policy and service delivery challenges nominated by Australian government agencies, with the best proposals for each challenge receiving grants of up to AU$100,000 to test the feasibility of their ideas over three months. After this time they may then apply for up to AU$1 million to develop a prototype or proof of concept over a period up to 18 months.

The BRII officially launched in August 2016 with around 180 applicants applying for a feasibility study grant the following November. 20 SMEs were awarded grants in March 2017 and all 20 grant recipients completed feasibility studies and submitted applications for proof of concept grants the following June.

The report from ISA is its first since being formally established when legislation came into force in October 2016 after undergoing both a rebranding and a shift in responsibility.

"Australia is in an intense innovation race with other developed and developing countries. For us to not only maintain our position but to improve it, we need to deepen, and draw down on, our strengths as knowledge producers and our self-belief as innovators," ISA chair Bill Ferris wrote in the report's foreword.

"ISA's vision for Australia in 2030 is for our nation to be counted within the top tier of innovation nations, known and respected for its excellence in science, research, and commercialisation."

In addition to Ferris, former program director for the University of Melbourne's Carlton Connect initiative Dr Charles Day; Australia's Chief Scientist Dr Alan Finkel; Maile Carnegie, ANZ group executive digital banking and former CEO of Google Australia & New Zealand; Scott Farquhar, co-founder and CEO of Australian startup darling Atlassian; Daniel Petre from AirTree capital ventures; environmental statistician Professor Bronwyn Harch; Dr Bronte Adams from consultancy firm Dandolopartners; and Master of Ormond College at the University of Melbourne Dr Rufus Black have a seat at the board's table.

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