IT’S not often you hear about an industry with too much money to spend.With almost $5 billion burning a hole in Australia’s venture capitalists pockets, it is surprising to discover the structural issues that have led to such a situation.
IT’S not often you hear about an industry with too much money to spend.
With almost $5 billion burning a hole in Australia’s venture capitalists pockets, it is surprising to discover the structural issues that have led to such a situation.
Basically, sectors of the technology investment market have grown rapidly while other parts, though just as essential, have not kept pace.
In this instance, the missing link appears to be the seed capitalists, not friends or family but experienced investors who can roll up their sleeves and help an inventor put a business plan in place and provide something the upstream venture capitalists can digest.
Such work is risky because you are working with the unknown.
But the rewards can be greater. The investment levels are much lower and the capital in such demand that a bigger equity stake is attainable.
If the investment succeeds, this can produce big profits.
Perhaps, therefore, it is not surprising to see the rush is on to fill this void.
Another structural issue, according to the Australian Venture Capital Association, is investment and tax rules.
On the invest side, the association believes our laws make it too hard to move capital in and out of the country or to repatriate profits offshore.
Partly this is tax, the fear that someone might make a profit and take it home.
More on this later.
The other element of tax is very internal, affects the entrepreneur rather than the investor and appears to be particularly pertinent in technology.
That is the tax treatment of equity offered in lieu of pay. Unlike the US, where thousands of people have become millionaires by sacrificing wages for share options, employees of Australian companies apparently have to pay tax on this “income”.
Not surprisingly, that is discouraging the practice.
It is also yet another reason why talented people are going overseas.
If you truly have an idea or invention which is a world beater, why wouldn’t you go where you make the most from it.
Chances are you’ll only get one in your lifetime and Australia should be doing everything to keep it here.
Encouraging investment
NOW back to tax and offshore investment.
It is not just the technology sector that is suffering from the malaise created by making the repatriation of profits difficult.
There is a fair argument that part of the reason our dollar is so low is because of the hurdles we place in front of foreign investment.
Whether it is political instability or simply bad tax legislation, such factors influence offshore investors’ decision making.
While we don’t suffer from the domestic strife our Indonesian neighbours have, our dollar keeps falling.
That makes sense if you think that the currency is being marked down because investors believe there are other issues at hand. Tax being one of them.
We need foreign investment. If we are worried investors won’t stay, what sort of signal are we sending to the marketplace?
Get tax right, at all levels, and we will never need to worry about capital flight, the foreigners will always want to park their excess funds here.
In theory, it’s no different than the property market.
Houses are priced largely according to their position, which in itself influences a number of factors, such as liquidity and potential for growth.
If a property comes with a host of incumberances, it will diminish its value to the investor.
Just as improvements in transportation and communication have opened up new suburbs to compete with the old, so too have economies become more easily comparable.
It seems the world is sending us a message.
Global capital is like the new property investor, less concerned about the snob value of the neighbours and more inclined to make sure the house is in order.
If tax is one of those things, and it appears to be so, then the past year of tax reform has failed to remedy a significant issue.
And Australia’s currency has remained in the listings – for sale.
With almost $5 billion burning a hole in Australia’s venture capitalists pockets, it is surprising to discover the structural issues that have led to such a situation.
Basically, sectors of the technology investment market have grown rapidly while other parts, though just as essential, have not kept pace.
In this instance, the missing link appears to be the seed capitalists, not friends or family but experienced investors who can roll up their sleeves and help an inventor put a business plan in place and provide something the upstream venture capitalists can digest.
Such work is risky because you are working with the unknown.
But the rewards can be greater. The investment levels are much lower and the capital in such demand that a bigger equity stake is attainable.
If the investment succeeds, this can produce big profits.
Perhaps, therefore, it is not surprising to see the rush is on to fill this void.
Another structural issue, according to the Australian Venture Capital Association, is investment and tax rules.
On the invest side, the association believes our laws make it too hard to move capital in and out of the country or to repatriate profits offshore.
Partly this is tax, the fear that someone might make a profit and take it home.
The other element of tax is very internal, affects the entrepreneur rather than the investor and appears to be particularly pertinent in technology.
That is the tax treatment of equity offered in lieu of pay. Unlike the US, where thousands of people have become millionaires by sacrificing wages for share options, employees of Australian companies apparently have to pay tax on this “income”.
Not surprisingly, that is discouraging the practice.
It is also yet another reason why talented people are going overseas.
If you truly have an idea or invention which is a world beater, why wouldn’t you go where you make the most from it.
Chances are you’ll only get one in your lifetime and Australia should be doing everything to keep it here.
Encouraging investment
NOW back to tax and offshore investment.
It is not just the technology sector that is suffering from the malaise created by making the repatriation of profits difficult.
There is a fair argument that part of the reason our dollar is so low is because of the hurdles we place in front of foreign investment.
Whether it is political instability or simply bad tax legislation, such factors influence offshore investors’ decision making.
While we don’t suffer from the domestic strife our Indonesian neighbours have, our dollar keeps falling.
That makes sense if you think that the currency is being marked down because investors believe there are other issues at hand. Tax being one of them.
We need foreign investment. If we are worried investors won’t stay, what sort of signal are we sending to the marketplace?
Get tax right, at all levels, and we will never need to worry about capital flight, the foreigners will always want to park their excess funds here.
In theory, it’s no different than the property market.
Houses are priced largely according to their position, which in itself influences a number of factors, such as liquidity and potential for growth.
If a property comes with a host of incumberances, it will diminish its value to the investor.
Just as improvements in transportation and communication have opened up new suburbs to compete with the old, so too have economies become more easily comparable.
It seems the world is sending us a message.
Global capital is like the new property investor, less concerned about the snob value of the neighbours and more inclined to make sure the house is in order.
If tax is one of those things, and it appears to be so, then the past year of tax reform has failed to remedy a significant issue.
And Australia’s currency has remained in the listings – for sale.
