Analysis: Some relief for startup angels

The announcement of a $1.1 billion ‘ideas boom’ innovation package yesterday was well timed for Western Australia’s startup sector, representatives from which had gathered at the Perth Town Hall for the annual West Tech conference and OzAPP Awards.

Reception for the federal government package was mainly positive, although there was a sense of relief associated with the news, given that much of that promised has been on the wish list for some time.

On a recent visit to Perth, Peter Bradd from StartupAUS spoke about the need to implement something like the UK’s Seed Enterprise Investment Scheme, under which angel investors receive a tax break for investing in startups. (‘Startups need support to take the next step’, Business News, August 14 2015).

The government’s package has recognised the value in such a move, with new legislation expected to take effect from July 2016. Under the new regime, Australian angel investors will receive a 20 per cent income tax rebate on investments up to $1,000,000 into unlisted startup businesses. They will also receive a capital gains tax exemption from these investments for 10 years, as long as the investment is held for more than three years.

“This is welcome news and I love the initiative,” Yuuwa Capital VC fund manager Matt Macfarlane told the conference.

“But because it’s not going to be implemented until next year, this could kill some current deals.”

Other startups around the conference agreed. One told Business News the delay in implementation meant they would now go another route, probably looking for an Accelerating Commercialisation grant until the new tax break kicked in.

Presumably the government needs to work this new idea into its budget for the coming year, and so wanted to announce it now (as the first major new strategy of the Turnbull government).

Another part of the innovation statement was to make it easier for bankrupt businesspeople to get back into business. They can now do so after one year. This tries to encourage more businesspeople to take risks and have a go, or another go.

As Prime Minister Malcolm Turnbull said yesterday in announcing the policy, “we learn most from our failures”.

Or at least, we should.

Over time, these changes could make a real difference to the local tech startup sector. The effect of hundreds, perhaps thousands, of accountants telling their many well-heeled clients about the tax benefits of startup investing may herald a significant change in behaviour.

These new policies are not the be all and end all, but they are a welcome move in the right direction.