This is the first in a series of pieces on investing in Australian Startups and Technology companies or Early Stage Innovation Companies under the new Innovation Tax Incentive legislation. At Techboard we have been actively exploring how we can support WA companies in raising money and enable investors to discover, research and invest in Australian companies. We thought it might be useful for us to share some of our thoughts and learnings through a number of pieces which might shed some light on what can be a complex area. Consistent with Techboard being a conduit between companies and company watchers we will be looking at the issue from both the perspective of companies seeking investors and prospective investors looking for their next investment.
Here at Techboard we are strong believers that Australian startups and technology companies are vital to the future of our nation. We also believe that Australian Investors have an important role to play in ensuring the success of the sector, and the future wealth of the nation and our kids future. But we don’t really want to be preaching when we can be enabling investors to discover, research and invest in Australian companies.
Apart from these higher interests and reasons there are three primary reasons for Australian investors to invest in Australian Startups and Technology Companies:
- Opportunity to generate a generous return from the next big thing (high returns are possible for patient investors).
- Speculating on listed Tech Stocks/IPOs for shorter term gains.
- Tax benefits… introduced with the innovation Tax Incentive (if you invest in eligible unlisted Early Stage Innovation Companies).
In recent years we have seen an increased interest by Australian investors investing both in unlisted and listed startups and tech companies. There have been many new funds and angel groups emerge. Accelerators and incubators have popped up across the country with the aim of fostering the growth of high potential growth companies, many of whom require investment to grow adding to the pool of potential investor-ready tech investments.
In the last two years we have seen a large number of tech companies head onto the ASX via Initial Public Offerings (IPO) or in the main part via Reverse Take Overs (RTO’s also called “backdoor listings”). This RTO trend has been driven out of Western Australia where a large number of very small mostly inactive listed companies (mostly in mining and exploration) have sought to repurpose themselves as something new which is capable of again raising capital on the ASX. This has been of great interest to a number of investors who have or acquire shares in the listed “shell” or who invest in the companies being acquired by the shell. This has been driven in part due to the potential value uplift that can come with a public listing along with the liquidity opportunity offered to investors in the acquired company.
We are likely to see a shift in the investment environment in Australia with a move of focus for some investors from listed tech companies to unlisted due to a proposed change in ASX listing rules which lift the bar on listing requirements. The proposed changes would prevent less mature tech companies from listing. I won’t get into whether this is a good thing or bad but if the changes go ahead we will see more companies seeking to raise more substantial investment rounds before they seek to list. This will undoubtedly lead to more pre IPO investment opportunities with early liquidity possibilities being sure to emerge.
This level of interest in investing in earlier stage unlisted companies is also likely to increase with recent tax law changes offering tax deductions for a portion of the investment and a 10 year capital gains tax holiday for eligible investments in what are called Early Stage Innovation Companies. What will interest Investors with a preference for listed or pre-listed stocks is that if they invest before the company lists they may be eligible for the tax relief if they hold the asset long enough. There have also been changes to the tax rules that affect venture capital fundraising making investments in such funds more tax advantageous.
In my next piece I will address the question “How can I invest in Australian startups and Technology companies?”
Techboard is partnering with BDO in running a free seminar for investors on 3 August 2016. For more information click HERE.