ESVCLP: “Elegant and farsighted” but is it effective?

The capital required for a venture capital fund to become a registered early stage venture capital limited partnership (ESVCLP) should be reduced from $10 million to $5 million in order to improve early stage funding in Australia, according to Artesian Venture Partners COO Tim Heasley.

He says while the ESVCLP program might be an “elegant and farsighted solution” to get more early-stage startups funded, it’s not helping as much as it could.

Artesian Venture Partners is the fund manager for the BlueChilli and iLab incubator programs. Last week BlueChilli became the latest fund to be registered as an ESVCLP by the Department of Industry. iLab was also named a conditionally registered ESVCLP, a step towards full recognition.

Full recognition ensures any return from those investments is tax free. The ESVCLP aims to stimulate Australia’s early stage venture capital sector, by providing incentives to invest, but Heasley says the fact that just 10 funds have been registered under the scheme since 2007 is a sign that it could be doing better.

“It’s a small number because of the $10 million minimum, “he says.

“While that’s not a large amount by any stretch, for early venture capital, which is a relatively new VC asset class in Australia, it’s quite a sum of money to have to raise.

“And until you’ve got the $10 million raised, you can’t start investing. If you could start at $5 million, you’d be starting a lot earlier, and a lot more startups would be getting funding.”

Before last year’s change of government there was bipartisan support for such a change. However, Heasley says it has since dropped off the government’s radar. StartupSmart contacted Minister of Industry Ian Macfarlane’s office but had not received a response at the time of publication.

While Heasley is critical of the minimum amount of capital that needs to be raised, overall he says the ESVCLP provides a valuable service to Australia’s startup ecosystem.

“(The) ESVCLP program provides critical support and encouragement for investors to participate in helping establish a thriving early stage venture capital ecosystem in Australia,” he says.

“These funds invest at a critical seed and angel stage of emerging high growth companies which will, in time, ensure a greater number of successful home-grown technology companies to match the early successes of the likes of Atlassian and Bigcommerce.

“It’s a very elegant and farsighted solution to encourage people to invest at this stage, giving really valuable tax rewards, but they’re back-ended so the rewards only come if the funds are successful.

“Some countries like the UK and Singapore give angel investors a dedication at the time they invest, but I think that can encourage some of the wrong behaviour.”

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