Venture Capital in Australia

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1 Venture Capital in Australia

2 Venture Capital in Australia Australia offers attractive investment opportunities and significant early-stage investment support. Innovation is a key driver of economic performance. Venture capital has been shown to be an effective mechanism for commercialising innovative technologies and turning research into new products, services and processes. However, commercialising innovation is very high risk. When innovative early-stage companies have access to adequate capital and to people skilled and experienced in the commercialisation process, the chances of success are greatly enhanced. The Australian Government has a suite of programs to assist companies through this high-risk period, often referred to as the valley of death or the equity gap. Venture capital programs such as the Innovation Investment Fund and Early Stage Venture Capital Limited Partnerships work with private venture capital fund managers to provide capital and professional expertise to innovative companies. Such programs help establish the capabilities required for a vibrant venture capital industry in Australia and leverage off the Australian Government s large investment in public sector research to ensure that benefits from these activities flow to the Australian community.

3 Innovation Investment Fund The support from AusIndustry put us on our feet and allowed us to grow the business with confidence. dr alan robertson chief executive offıcer, pharmaxis The Innovation Investment Fund (IIF) commenced in 1998, and since then the 16 licensed funds have raised over $640 million to accelerate commercialisation in Australia. case study Pharmaxis IIF fund managers have made in excess of 100 investments of smart money that is, capital plus access to commercialisation skills and international networks. Investments have supported a broad range of industry sectors including manufacturing, clean technology, software and services, and life sciences. Together with the Pre-Seed Fund and the Innovation Investment Follow-on Fund, which supported a portfolio of investee companies during the global financial crisis, the Australian Government has actively contributed to the establishment of an early-stage venture capital ecosystem. With only 20 per cent of capital drawn under IIF Round 3, the investment potential for these funds represents venture capital opportunities at a time when entrepreneurs need it most. The Innovation Investment Fund round 1 round 2 round 3 total Commonwealth $ million Private committed Total Commonwealth $ million Private returns Total IIF Program data as at 30 June 2012 Pharmaceutical company Pharmaxis Ltd is looking to take on Europe and US markets after its innovative Australian drug, Bronchitol, was granted Australian Therapeutic Goods Administration (TGA) approval to treat people with cystic fibrosis. This global outlook has come a long way from the small start-up company that first received seed venture capital investment in 1999 from GBS Venture Partners, a fund manager supported under the Australian Government s IIF program. As a result of the IIF program, GBS is now Australia s biggest venture capital investor in life sciences. We could not raise enough capital for a whole venture capital fund, despite interest, before the IIF program. It created a lot of leverage in our venture business and helped us to get started it has been a great success. Brigitte Smith, co-founder and Managing Director, GBS Venture Partners.

4 Venture Capital Limited Partnerships Venture Capital Limited Partnerships have proven to be an excellent vehicle to attract alternate asset class investors to venture capital. roger price executive chairman, windlab systems The Australian Government has several tax concession programs for the venture capital sector including the Venture Capital Limited Partnerships (VCLP) and the Early Stage Venture Capital Limited Partnerships (ESVCLP) programs. case study Windlab Since the program was established in 2002, registered VCLPs have invested $1.9 billion in 175 businesses. The ESVCLP program was established in 2007 and is aimed at further encouraging investment in early-stage companies. The ESVCLP is recognised as a world-class investment structure, and all partners are exempt from tax on any share of the income derived by the partnership. The ESVCLP program replaced the Pooled Development Funds (PDF) program. Over $800 million has been invested in 722 Australian companies under the PDF program. VCLP investments by Investee Company size as at 30 june 2012 Greater than $100 million and less than $250 million in assets 26% VCLP investments by Sector as at 30 june 2012 Manufacturing and Transport 18% Energy and Mining 5% Less than $100 million in assets 74% Services 45% Windlab is a global wind energy development company established in It is now a leader in developing atmospheric modelling systems used around the world to locate and develop wind energy sites. In 2007, Windlab received a $5 million investment led by Innovation Capital, an Australian venture capitalist supported under the Australian Government s VCLP program. VCLP give investors a tax effective vehicle for a high-risk, high-return investment asset class. Windlab is now a truly multi-national wind developer with a large and diverse portfolio of sites at all stages of development across Australasia, North America and South Africa. Biotech 16% IT and Communication 16%

5 1983 The Espie Report identified the absence of venture capital and the widespread lack of technology-based start-up management expertise Management and Investment Companies Scheme IR&D Act (1986) Pooled Development Funds with tax incentives for small business investments IIF Round 1 Five funds with $130 million of Australian Pre-Seed Fund Four funds with $72.7 million of Australian IIF Round 2 Four funds with $91 million of Australian Tech Wreck The Renewable Energy Equity Fund established Venture Capital Act Venture Capital Limited Partnerships for capital gains tax exemption and flow through income Incorporated Limited Partnerships Commonwealth and State Legislation World s Best Venture Capital Structure The Australian Venture Capital Review Early Stage Venture Capital Limited Partnerships to pool investors capital for early stage ventures Seven licensed Round 3 IIF Funds with $150 million of private capital Innovation Investment Follow-on Fund Eleven funds with $64 million of Australian Global Financial Crisis IIF Round 3 Ten funds with $200 million of Australian Government capital continuing australia s commercialisation commitment

6 Venture Capital in Australia AusIndustry provides a range of incentives that assist businesses to grow. The focus of our staff is about understanding business, understanding business needs and understanding how the range of incentives across Government can actually support those businesses. chris butler head of division, ausindustry The Australian Government s venture capital programs are complemented by a range of business programs. These include the Research and Development Tax Incentive, the Australian Government s largest business innovation support program, and Commercialisation Australia which provides a range of funding products and access to highlyskilled business builders to guide companies through the various stages of commercialisation. About AusIndustry AusIndustry is a specialist program delivery division within the Department of Industry, Innovation, Science, Research and Tertiary Education innovation.gov.au. ausindustry.gov.au hotline@ausindustry.gov.au CS