The federal government has made a huge change to its Significant Investor Visa program today which mandates at least 10% of the $5 million investment requirement will be allocated to venture capital or private equity funds.
Startups and SMEs will be the big winners from the announcement by minister for trade and investment, Andrew Robb who outlined changes to Australia’s investor visas which are a way for wealthy foreigners to secure permanent residency.
“Australian permanent residency is a great privilege – and the Government believes this warrants more dynamic investment in areas of the economy that will drive innovation and make a real difference,” Robb said.
Between November 2012 and March 2015, 751 visas investor visas were granted which means over three years if $500,000 from each granted visa was allocated to a venture capital fund there would be $375.5 million to invest.
Put another way, if 200 visas are granted under the new regime there will be an extra $100 million in venture capital and private equity.
The revamped program will come into play from July 1 and at least $500,000 from each investor will be allocated to investments in emerging companies. There’s also a plan to work towards a higher minimum threshold of $1 million over the next two years, depending on how the market responds.
At least $1.5 million of the $5 million pool will need to be invested in eligible managed funds or listed investment companies that invest in emerging companies listed on the Australian stock market. Up to $3 million can be spread across managed funds, bonds, notes or indirectly into property.
“Direct investment in residential real estate has never been a complying investment for SIV and this will not change. Indirect investment in residential real estate through managed funds will now be restricted. Importantly, a SIV holder can still independently invest in residential real estate so long as it complies with foreign investment rules, but this would not count as a complying investment to qualify for a visa,” Robb said.
The changes mean SIV applicants will be able to invest across the whole risk spectrum, from early stage ventures right through to more established businesses, government bonds and commercial property. The Australian Private Equity and Venture Capital Association (AVCAL) was also elated by the news.
“These changes have the potential to fundamentally transform the landscape for investment capital available for thousands of startups and tens of thousands of SME businesses,” AVCAL CEO Yasser El-Ansary said.
“For some time, AVCAL has advocated for these changes to the SIV program in order to help better align the flow of capital from high net worth individuals offshore into those parts of our economy that can really drive our nation’s innovative potential.”
According to recent AVCAL stats, last financial year $A120 million was raised by venture capital funds in Australia, with over half of that amount sourced from high net worth individuals. During the same period, both domestic and foreign venture funds invested a total of $A516 million into 93 businesses.
“In the hands of experienced fund managers, there is no question that a deeper pool of capital will lead to more high growth potential businesses being backed here in Australia. Over time, that will mean we can start to arrest the slow but steady ‘brain drain’ of our best entrepreneurs moving abroad simply to gain access to capital from a larger market,” El-Ansary said.
Reforms to the visa program were flagged by Prime Minister Tony Abbott last October as part of the Government’s Industry Innovation and Competitiveness Agenda which outlined a number of key industries the government would focus on to promote economic growth.
Cashed-up entrepreneurs will also be targeted under the government’s new Premium Investment Visa which launches on July 1. Talented entrepreneurs and innovators with a minimum $15 million to invest are eligible for the invitation-only visa. Potential candidates will be nominated by Austrade.
The premium programme will be rolled out over the next year, focusing on luring in few talented individuals to Australia who are deemed able to deliver a long term economic benefit to the country.