{"id":31973,"date":"2023-10-20T14:26:31","date_gmt":"2023-10-20T14:26:31","guid":{"rendered":"http:\/\/startupsmart.test\/2023\/10\/20\/government-urged-to-act-now-to-avert-looming-investor-strike-startupsmart\/"},"modified":"2023-10-20T14:26:31","modified_gmt":"2023-10-20T14:26:31","slug":"government-urged-to-act-now-to-avert-looming-investor-strike-startupsmart","status":"publish","type":"post","link":"https:\/\/www.startupsmart.com.au\/uncategorized\/government-urged-to-act-now-to-avert-looming-investor-strike-startupsmart\/","title":{"rendered":"Government urged to act now to avert looming \u201cinvestor strike\u201d – StartupSmart"},"content":{"rendered":"
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Startup founders should brace for an \u201cinvestor strike\u201d in the next six months before the innovation statement taxation changes come into effect, with this transition period creating uncertainty and distortion in the market, AVCAL CEO Yasser El-Ansary says.<\/p>\n

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The federal government\u2019s $1 billion set of policies<\/a> including a 10% tax offset for capital invested in Early Stage Venture Capital Limited Partnerships (ESVCLP) and the size of eligible partnerships increasing from $100 million to $200 million.<\/p>\n

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But these changes won\u2019t come into effect until July 1st<\/sup>, and El-Ansary says this will lead to an \u201cinvestor strike\u201d in the first half of 2016.<\/p>\n

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\u201cIt\u2019s quite possible that some investors will hold off putting money into startups for the next few months until July,\u201d El-Ansary tells StartupSmart.<\/i><\/p>\n

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\u201cIf there\u2019s a significant benefit to be gained by investing after July this year rather than now, you can understand why some people might want to do that.\u201d<\/p>\n

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The government should introduce some sort of transitionary policy to avoid this, he says.<\/p>\n

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\u201cWe\u2019re in discussions with the government right now about how the risk of an investor strike can be avoided,\u201d El-Ansary says.<\/p>\n

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\u201cIt\u2019s not unusual for changes to tax laws to come with transitional arrangements which help to smooth out any bumps in moving from one set of rules to another, and I think that\u2019s exactly what the government needs to do as part of implementing these changes.\u201d<\/p>\n

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Having a sudden change will create \u201codd behaviour\u201d in the Australian investor scene, OneVentures CEO<\/a> Dr Michelle Deaker says.<\/p>\n

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\u201cThere are companies that need the money now, not at the end of the year,\u201d Deaker tells StartupSmart.<\/i><\/p>\n

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\u201cThis is why having policies that will cover the transitionary period makes good sense.\u201d<\/p>\n

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Uncertainty for VC funds<\/b><\/p>\n


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There are also concerns in the investor community that a lack of full details regarding the changes will create uncertainty for VC funds, El-Ansary says.<\/p>\n

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\u201cWe have to avoid an outcome which leads to a fund which finds itself in that situation from being unwound and then re-established after July this year simply to fall within the new tax rules,\u201d he says.<\/p>\n

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The 10% offset will apply to \u201cnew\u201d ESVCLPs, but it\u2019s still not clear whether this will apply to funds that are currently in the process of closing.<\/p>\n

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OneVentures is on the verge of closing its $100 million Innovation and Growth Fund II, but Deaker says it now might wait to see how the taxation changes will impact it and if there\u2019s an opportunity to vastly increase its size.<\/p>\n

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\u201cThey made the announcement that will come into effect sometime in the future, and that\u2019s left people in a transitionary phase not knowing where they stand,\u201d Deaker says.<\/p>\n

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\u201cI\u2019d like to see if there\u2019s an opportunity to increase the fund.\u201d<\/p>\n

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The concerns for OneVentures relate to how the government defines a \u201cnew fund\u201d in the proposed legislation and whether the new cap of $200 million on ESVCLPs will apply to funds that are nearly closed as well as newly created funds.<\/p>\n

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If the tax breaks do apply to OneVentures\u2019 fund, Deaker says it could bring in a further $20 or $30 million and possibly even attract large superannuation funds.<\/p>\n

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\u201cIf we got an indication from government that they were going to have some flexibility and it wasn\u2019t just going to be for new funds registering after July we would hold off closing and could bring in additional investors,\u201d she says.<\/p>\n

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\u201cThe government wants to encourage more money in the sector so it would be wise for them to say that funds still raising capital in this transitionary phase should be eligible for new legislation when it comes in.<\/p>\n

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\u201cThey should allow the 10% rebate to apply to any future-drawn funds to level the market playing field. We\u2019d live to see whether we could extend this fund and if the offset would help our ability to do that.\u201d<\/p>\n

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Deaker says this flexibility would ultimately benefit the Australian startup sector and economy in general.<\/p>\n

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\u201cFor every dollar we raise and put into a company we end up placing another three times that amount directly or with new investors,\u201d she says.<\/p>\n

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\u201cFrom an economic perspective for Australia, every dollar has such a great positive and magnifying effect for the Australian economy. It makes sense for the government to try to be inclusive.\u201d<\/p>\n

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El-Ansary says that many other funds in Australia are facing the exact same problem as OneVentures.<\/p>\n

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\u201cI know the issue OneVentures is trying to manage will be the same as others,\u201d he says. \u201cIt\u2019s a challenging one.\u201d<\/p>\n

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Distorting the market<\/b><\/p>\n


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Having this \u201cinvestor strike\u201d in the lead-up to the big changes in July could also distort the market even once the new taxation system is in full effect, Deaker says.<\/p>\n

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\u201cWe\u2019re also worried it will create market distortion, with people not committing to funds until the new legislation comes through,\u201d she says.<\/p>\n

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This needs to be addressed by the government, El-Ansary says.<\/p>\n

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\u201cWe need to ensure we calibrate things in a way that avoids any market-distorting outcomes which will have downstream implications for high-growth Australian businesses looking for new investment capital,\u201d he says.<\/p>\n

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Despite these concerns, Deaker and El-Ansary both say the statement marked a \u201cmajor step forward\u201d for Australia.<\/p>\n

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\u201cWe needed to make some of these changes two or three years ago but the positive thing is that we are getting on with it now,\u201d El-Ansary says.<\/p>\n

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Follow StartupSmart on <\/i>Facebook<\/i><\/a>, <\/i>Twitter<\/i><\/a>, and <\/i>LinkedIn<\/i><\/a>. <\/i><\/p>\n","protected":false},"excerpt":{"rendered":"

\u00a0 Startup founders should brace for an \u201cinvestor strike\u201d in the next six months before the innovation statement taxation changes<\/p>\n","protected":false},"author":2,"featured_media":62683,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts\/31973"}],"collection":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/comments?post=31973"}],"version-history":[{"count":0,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts\/31973\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/media\/62683"}],"wp:attachment":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/media?parent=31973"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/categories?post=31973"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/tags?post=31973"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}