Industry welcomes govt's VC review commitment

The federal government has used last night's budget to confirm its 2004 election commitment to reviewing the venture capital industry in Australia.

The review will examine the effectiveness of current government initiatives in supporting VC investment, particularly the impact of recent reforms and tax laws, and will assess the contribution of the VC industry to the Australian economy.

"The review is welcomed by industry," said Australian Venture Capital Association (AVCAL) chief executive Andrew Green. "We hope that finally this will deliver the much awaited promise of giving us the ability to invest in unlisted companies irrespective of their geography, stage or sector -- in the same way as overseas investors can invest in any listed company irrespective of its geography, stage or sector."

Green said that three aspects of the current Venture Capital Limited Partnerships (VCLP) structure were uncompetitive. Firstly, investments can only be made in companies that are domiciled in Australia, with 75 per cent of the company's employees, income and assets located here. Secondly, investments cannot be made in all sectors of the economy, such as the financial sector. And investments cannot be made in companies that have assets worth more than AUD$250 million.

"It's like having a beautiful race car and not being able to race it because you can't put it on the road," said Green.

Melbourne-based firm GBS Venture Partners this week closed a new $145 million life science fund, which did not use the VCLP structure.

GBS managing director Brigitte Smith said current VCLP legislation did not allow investment in New Zealand, which is part of the company's mandate, was not tax effective for overseas investors, and was "too cumbersome for our style of investing".

Smith said she was encouraged by the federal government's review of the legislation. She said that when GBS raised its next fund in three to four years, problems with the VCLP legislation would be resolved.

Federal industry minister Ian Macfarlane said David Miles, Brian Watson and Garry Potts have been appointed to undertake the review.

"We are hopeful that the committee announced by Ian Macfarlane will deliver the goods," said AVCAL's Green. "As a nation, we shouldn't underestimate our ability to attract capital. Australia is certainly up the pecking order at the moment."

However, Green warned that in 10 years, Australia's ability to attract capital may fall behind countries such as China if we do not use the current window of opportunity. "It's about time as a nation, that we accept that capital follows the market," he said.