Venture capital calls on Abbott to commit $350 million to support start-up investment

The group representing Australia’s venture capital and private equity industry has urged the federal government to commit to a new $350 million investment in venture capital funding this year through the Innovation Investment Fund (IIF).

The Australian Private Equity & Venture Capital Association made the call in a submission to the government ahead of the May budget, which is likely to feature spending cuts as the government seeks to bring the budget back to surplus.

“This year’s federal budget will provide the government with its first comprehensive opportunity to rebuild Australia’s reputation as having a stable policy environment in which to engage in business, and to position our economy as a ‘knowledge nation’ this is capable of delivering world-class ideas and innovations,” AVCAL chief executive Yasser El-Ansary says in a letter accompanying the submission.

AVCAL says the IIF was an initiative aimed at developing Australia’s pool of venture capital fund managers and to develop high-growth companies to become globally competitive.

“However, to date the goal of developing a self-sustaining VC industry has not yet been achieved, contributing to the migration of Australian entrepreneurs to overseas markets where funding is more readily available, and a more supportive policy environment exists,” the submission says.

It says a range of factors, including the global financial crisis, the withdrawal of superannuation funds from investing in venture capital and the intermittent and insufficient allocation of funds from the IIF have led to a “stop-start” approach to financing start-ups.

While calling for the $350 million funding commitment, AVCAL also recommends the government establish a long-term innovation and investment program and recycle all profit, capital and interest accruing to the government from IIF investments into further investment.

AVCAL has also called for reforms to tax setting for research and development rebates so that rebate credits are returned quarterly and reform of the tax treatment of employee share schemes.

“A move to quarterly R&D tax credits would alleviate some of the cash flow constraints that these companies face. The businesses that would gain the most out of this change are small, research-intensive enterprises with annual turnover under $20 million,” it says.

AVCAL says current arrangements around employee share schemes, which see share options taxed as income before gains are realised, “offer a far less attractive environment in which start-ups can operate and retain highly skilled employees”, adding that talented people continue to leave Australia’s tech hubs for Silicon Valley.

“Reform of the (employee share scheme) regulatory requirements for start-ups would be a vital step in arresting and reversing this trend, and setting the necessary conditions for innovation to thrive,” it says.