High-income earners have poured billions into early-stage venture capital funds lured by the promise of CGT-free high returns. And they just got more generous.
Many investors hope they will be prescient – or lucky – enough to back an early stage start-up that becomes the next Canva, the graphic design juggernaut founded in Perth in 2013 that’s now valued at about $43 billion.
Early-Stage Venture Capital Limited Partnerships (ESVCLPs) offer that moonshot opportunity for Australians with enough money to qualify as wholesale investors.
To encourage investment and in recognition of the economic benefits of building a home-grown tech sector, ESVCLPs give investors very significant tax concessions: no income tax, zero capital gains tax and a 10 per cent upfront tax credit.
The Labor government expanded these perks even further in the May budget, saying it wants to encourage innovation.
So why doesn’t every investor who qualifies jump into ESVCLPs and add to the $36 billion that has already been poured into them in their near two decades of existence?
Joshua Derrington, the chief investment officer at Alvia Asset Partners, an investment manager for family offices and high-net-worth individuals, says they suit specific investors – those who are well-diversified, very long-term and who can tolerate losing all their investment.
For many investors, buying a simple tech index tracking fund can be a better alternative because it doesn’t involve locking up your capital for years and can deliver comparable (or even better) after-tax returns with far lower concentration risk, says Alex Thompson, a financial planner with HNW adviser Viola Private Wealth.