Significant Investor Visas: Hope remains three months after reforms

Despite some initial fears, Australian investors say it’s far too early to be worried that changes to the Significant Investor Visa program have driven international investors away rather than refocused funds on innovation and startups.

The changes, which aimed to ensure affluent migrants invest in riskier, younger companies rather than in real estate and the like, came into effect at the start of July.

As part of receiving a visa through the scheme, applicants must now invest at least $500,000 into venture capital, and a further $1.5 million in emerging companies through a managed fund or listed investment company.

This is now a large chunk of the overall $5 million that must be invested over four years as part of the SIV.

It’s a matter of time

The government made the changes with the aim of rerouting capital from “passive investments” into “innovative Australian business”, but a recent Financial Times article claims that demand for these Australian investor visas has “slowed to a trickle”.

The article says that only seven SIV applications have been submitted since the revised rules were introduced in July, with the new changes deterring potential applicants.

But Starfish Ventures co-founder John Dyson says it’s “definitely too early to tell” if the changes will be effective in supporting Australian startups.

“It’s hard to know. From speaking to numerous stakeholders, it’s going to take a while for the volume to ratchet up,” Dyson says.

“There’s a big backlog under the old investment regime so it’ll take a while to work through and for the new regime to be explained and promoted to stakeholders in China.

“As always there’s going to be challenges. There’s lots of uncertainty, and that’s as much around people getting used to the new regime.”

Although the changes may not increase the number of SIV applicants, they will ensure more money is invested in Australian startups, Blue Sky Funds investment director Elaine Stead says.

“I don’t think we know if they have been effective or ineffective yet,” Stead says.

“This capital will now be directed into investments that will have a much greater impact on productivity and economic growth.”

Rampersand co-founder Jim Cassidy agrees, saying venture capital is always a long process.

“The scheme has only been in effect for less than three months so it’s a little early to tell, especially considering the mechanics in venture capital investments are not as simple or quick as buying bonds or shares from an open market,” Cassidy says.

“For the first few months there will undoubtedly be some hesitation around the scheme as investors get their heads around the new regulations. However, this scheme has the potential to be incredibly successful.”

Hopes remain high

Hopes are still high among the Australian investor community that these changes will positively impact the venture capital market.

“We definitely see it as a positive development for the industry,” Dyson says. “We’re just trying to work hard and see if it’s an opportunity.”

Stead says the changes are very likely to increase the amount of VC in Australia in some form.

“I think they will absolutely increase the total pool of venture capital, which can only improve investment in innovation,” she says.

“By showing international investors we are world-class not just in innovation but in competing globally in generating returns for investors, we will continue to attract more international capital.”

Impact investor Geoff Gourley says the changes could also change the way Aussie founders look at investments.

“In some part I believe the changes will encourage Australian startups to work with organisations that can link them to international investors,” Gourley says.

“The Australian startup ecosystem needs to think global. We need to get on the international stage and make some noise, be big and make ourselves heard.”

The SIV changes could eventually benefit the entire Australian startup community, Cassidy says.

“It will kick-start a really positive cycle where entrepreneurs have more access to capital in Australia and choose to stay here to build and grow their business,” he says.

“As these startups expand, the whole industry will attract even more capital as investors see strong returns are possible.”

Scoping the appetite

Victoria’s government is running a trade mission to China to gauge the appetite for these visas. Dyson will be going on the mission, and says it’s all about meeting with potential investors.

“It’s about building sustainable relationships,” he says. “If this is going to be a reliable source of capital that’ll be really valuable for the innovation ecosystem in Australia we have to go out and build relationships.”

But BlueChilli CEO Sebastien Eckersley-Maslin says there are a number of other issues that need to be resolved in order for the SIV changes to be successful.

“The problem with the SIV is that it is only solving one part of the supply and demand equation, and doesn’t address the key infrastructure requirements to support a sustainable ecosystem,” Eckersley-Maslin says.

“An estimated $400 million is going to be deployed in to early-stage venture funds yet Australia lacks a comprehensive support mechanism to supply this demand with suitable volume of products – aka startups.”

“This quality imbalance means that it will be relatively easy for bad startups to get funding, leading to poor returns in the VC funds.”

He says it’s important to focus on internal issues within the investor scene in Australia as well as looking to the international market.

“The SIV changes need to be balanced with investment in the infrastructure, supporting accelerators and incubators to provide quality startups, and encouraging ‘smart money’ in the ecosystem through tax incentives for angel investors at seed and angel rounds,” he says.

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