Investing an additional few hundred million dollars a year in the Australian venture capital space would be transformational.
It would make a material difference in terms of expanding the ecosystem of start-up and expanding Australian companies. Australia is known to produce world-leading technologies through its research, but has often struggled to commercialise them at home for lack of development funding, leaving the profits to be made by big companies offshore.
Extra funds flowing into the small-cap sector — where it doesn’t take a lot of additional investor demand to push up share prices in this less liquid segment of the Australian stockmarket — would also have a big impact in terms of lowering its cost of capital and thereby inducing new capital raisings.
That’s money that would be then channelled into new, productive projects that the listed small-cap sector tends to focus on: medical product and pharmaceutical research, small explorers in resources and energy, small listed companies involved in developing agribusiness or tourism ventures.
These are key considerations as we move to enhance the existing Significant Investor Visa (SIV) program and also introduce a new Premium Investor Visa (PIV) product, which will offer a more expeditious, 12-month pathway to permanent residency for a minimum $15 million investment in complying investments. The SIV offers a four-year pathway for a minimum $5m investment in a range of complying investment categories.
Planned changes would hopefully see a new supply of capital aimed at higher risk, higher potential return segments of our economy. This would enable Australian entrepreneurs to more readily find the capital to grow at home, rather than have to relocate to places like Silicon Valley.
Under the SIV program about $2 billion has been invested in Australia since late 2012, about half of this has come in 2014, as investors take a more welcoming view of Australia since the change of government. Much of the money invested so far under the SIV has been parked in relatively low-risk assets — government bonds, or managed funds invested in bonds, bank deposits, large and mature listed companies, or commercial and industrial property funds.
A shortcoming of the existing SIV scheme is it simply attracts more investment into areas of the economy that already attract capital in abundance, without the need to offer the valuable prize of permanent residency in Australia.
Letting SIV investments flow into large-capitalisation (large-cap) equities such as the big miners or the big banks and utilities, or the commercial or industrial real estate investment trust sector, or even mature infrastructure assets like ports and electricity networks, does not bring much incrementally to the table. The $2bn attracted by the SIV to date is less than 0.1 per cent of our overall $2.5 trillion stock of foreign investment. It makes virtually no difference to the cost of capital when spread across the sectors mentioned.
Therefore, in reviewing the criteria around eligible investments for the Investment Visa program, our plan is to ask SIV applicants to put more ‘‘skin in the game’’ for Australia. We aim to channel investment into areas that may offer great potential but find it hard to attract investment dollars today.
Now the venture capital sector needs patient capital. So as part of these changes, in some cases we may seek to unlink the length of time investments are locked up for from the period required to qualify from permanent residency under the visa.
Through these changes we aim to continue to attract wealthy migrants to Australia under the Investment Visa program. Once here many of these families will put down roots and make strong contributions to Australia in many ways, as generations have done before them. If at the same time, we can help ensure Australia’s best and brightest find funds at home to build the next great start-up, that would be a wonderful thing.
- Trade Minister's Office: (02) 6277 7420
- DFAT Media Liaison: (02) 6261 1555