[THE INVESTOR] Over the last two years, the startup ecosystem for Australian companies has seen explosive growth. We see several key factors as responsible for this growth: a) government investment, focus and platforms, b) listed venture capital on the ASX c) reinvestment of capital from successful exits d) a network of accelerators and incubators and e) explosion of co-working spaces.
Adding to these factors is that Australians are innovative by nature. We have been responsible for some of the world’s great inventions. Wi-Fi, black box flight recorders, spray on skin, pacemakers, Google Maps, cochlear implants, long-wear contact lenses and so much more.
However, when Wholesale Investor launched in late 2008, the environment for startups and early stage companies was very different. The investor community was fragmented. There were a few angel investment groups and a few VC’s, some of which were reliant on government funding to continue making investments, and a market which was focused on the next exploration mining company, and not innovative technology and life science companies.
Then in 2015, when Malcolm Turnbull became Prime Minister, one of the first words to come out of his mouth was “innovation.” For an economy which has been so reliant on resources, this was a milestone of change. All of a sudden, it became cool and exciting to be associated with Innovation and startups. This message translated through the state government, local councils and Austrade, which has offices globally.
The Australian entrepreneur is innovative, ambitious, driven and resilient. We are willing to present our business to anyone who will listen, we will travel far and wide to see what opportunities may be created. Unfortunately, this hasn’t been supported as well as it could have been. The reality is, entrepreneurs simply need a door slightly open and a platform for their voice to be heard. With this leg-up, entrepreneurs will pursue the opportunities.
Key government initiatives have assisted the growth in innovation. Whilst none of these initiatives are new, the tax initiative for private investors, along with the increase in ability for ESVCLP Funds to raise up to $200 million, has made a substantial difference.
Below are some of the incentives that the Australian government offered, and may provide a look into how the public sector can promote venture companies and investment.
1) R&D tax incentives – 45 percent of funds spent on research and development is reimbursed to the company. For early stage companies, this rebate is a great boost to the capital available to companies in the R&D phase. The important aspect is that it means the companies would have had to have sold their commercial viability to investors, to raise the capital required to invest in the R&D in the first place.
2) Tax breaks for ESVCP Funds and their investors - 10% offset against your income tax for funds invested; no capital gains if you sell out between 1 to 10 years; ability to raise up to $200 million.
3) Accelerating Commercialization Program -- For companies which are able to show their ability to raise capital, but not quite the full amount required. This program provides for up to $1 million in investment for approved companies.
In the next article, we’ll look at the opportunities created via the Australian Stock Exchange with companies utilizing listed venture capital and the reinvestment of capital from successful entrepreneurs.
By Steve Torso, co-founder and managing director of Wholesale Investor.
Editor’s note: Wholesale Investor was founded in 2008, and since then has become Australia’s largest capital-raising platform, showcasing private, pre-IPO and ASX Listed companies to over 16,800 high net worth and professional investors.