Tax benefits and support to stimulate the early stage venture capital sector
Early Stage Venture Capital Limited Partnerships (ESVCLP)
You can apply at any time using the online application form.
What do you get?
Partnership registration to get tax benefits for both fund managers and investors.
Who is this for?
Fund managers seeking to raise venture capital funds of between $10 million and $200 million.
Overview
The Early Stage Venture Capital Limited Partnership (ESVCLP) program aims to stimulate the early stage venture capital sector in Australia. The program:
- helps fund managers attract pooled capital, so they can raise new venture capital funds of between $10 million and $200 million to invest in innovative early stage businesses
- offers tax benefits to fund managers and investors
- connects investors with early stage businesses
- helps Australian businesses grow by receiving financial support and guidance from expert advisers
Fund managers can apply to Innovation and Science Australia to register a partnership as an ESVCLP.
The Department of Industry, Science, Energy and Resources and the Australian Taxation Office (ATO) jointly administer the program on behalf of the Australian Government.
How it works
An ESVCLP must be a new partnership rather than a restructured existing partnership.
Applicants must apply to Innovation and Science Australia's Innovation Investment Committee (the Committee) for registration under the Venture Capital Act 2002 (VCA).
The Committee will register a partnership as an ESVCLP if it meets certain eligibility criteria.
If registered, an ESVCLP can then make early stage venture capital investments in companies or unit trusts that are at the following stages of development:
- pre-seed
- seed
- startup
- early expansion
The investments must also meet other criteria and be held for a minimum of 12 months.
An ESVCLP must meet ongoing registration and reporting requirements under the VCA to maintain its registration.
Once registered both investors and fund managers can claim tax benefits. ESVCLP tax benefits differ for investors and fund managers.
The Foreign Investment Location Test applies when an Australian based ESVCLP invests in a company located outside of Australia.
Investors benefit from an ESVCLP's flow-through tax status. The partnership itself is not taxed and the income and gains flow through to investors. This avoids double taxation.
Investors in an ESVCLP are exempt from tax on their share of:
- income and gains from eligible early stage venture capital investments
- income and gains from disposing of eligible venture capital investments
ESVCLPs no longer have to divest an eligible venture capital investment when the investee's value exceeds $250 million. The ATO will allow a tax concession based on the ESVCLP's proportional interest when it does exceed that value.
Limited partners receive a non-refundable carry forward tax offset of up to 10% of the value of their eligible contributions.
The tax benefits for investors depend on a number of factors. We have included more detailed information on these tax benefits in the ESVCLP Customer Information Guide.
For tax concession enquiries, contact the ATO on:
- 13 28 66 in Australia
- 61 8 8208 1847 if you are overseas
Investors should also seek their own professional taxation advice.
General partners (often also the fund managers) can claim their carried interest in the ESVCLP on the capital account, rather than on the revenue account.
The extent of this benefit depends on a number of factors. We have included more detailed information on this tax benefit in the ESVCLP Customer Information Guide.
Fund managers seeking to register a partnership should seek professional tax advice.
For tax concession enquiries, contact the ATO on:
- 13 28 66 in Australia
- 61 8 8208 1847 if you are overseas
Eligibility
What are the eligibility criteria?
You can apply to register if you are:
- a new venture capital fund
- a limited partnership or an incorporated limited partnership
- established in Australia or a country that has a double tax agreement with Australia
You must have:
- a general partner (often also the fund manager) who is a resident of either Australia or a country that has a double tax agreement with Australia
- between $10 million and $200 million in committed capital (although a partnership that doesn't satisfy this requirement may be eligible for conditional registration)
To contribute more than 30% of the committed capital, an investor must be a:
- bank
- life insurance entity
- widely held super fund
- widely held foreign venture capital fund of funds
All other investors are not able to contribute more than 30% of the committed capital, without the approval of the Committee. A partnership can make an application to the Committee for an exemption via the online application form.
In addition, you must have a qualifying partnership agreement that:
- ensures the partnership remains in existence for between 5 and 15 years
- requires partners to contribute capital when required
- prohibits adding new partners except as provided for in the agreement
- prohibits increasing committed capital except as provided for in the agreement
- confers on the general partner the right to require partners to contribute their committed capital to the partnership
The partnership agreement must also include a plan that:
- sets out the partnership's intended investment activities
- shows that the investment activities focus on making eligible venture capital investments in early stage venture capital businesses
Your partnership must also have access to the skills and resources needed to implement its approved investment plan.
All information should be read in conjunction with the relevant legislation:
Applying
How do you apply?
If you would like to apply for registration as an ESVCLP, complete and submit the online application form.
You’ll need to include the following documents.
- A certificate of registration as a limited partnership or an incorporated limited partnership. This is issued by the relevant state or territory government authority.
- A certificate of registration if the general partner is a venture capital management partnership.
- An investment plan that is included in the signed partnership deed. The Committee needs to be satisfied that the investment plan is appropriate and focuses on early stage venture capital investments.
- A signed limited partnership deed which includes the investment plan and includes the clauses set out below.
- Details of all individual investors and their committed capital. The Committee may request documentary evidence of committed capital.
- The partnership's information memorandum or any public offer documents.
- CVs and time commitments of the key people active in your partnership. The Committee needs to be satisfied that the partnership has access to the skills and resources necessary to implement its investment plan.
The partnership deed must include the following clauses (use the wording below):
- Require partners to contribute their committed capital as and when required under the agreement.
- Prohibit the addition of new partners to the partnership except as provided for in the agreement.
- Prohibit increases in the partnership's committed capital except as provided for in the agreement.
- Confer on a general partner the right to require partners to contribute their committed capital to the partnership.
- The partnership must remain in existence for a period not less than 5 years and not more than 15 years from formation of the partnership (this is the date the partnership was registered as a limited partnership or incorporated limited partnership).
The Committee may request further information, documents or evidence relating to the application.
The Committee may grant conditional registration to a partnership that does not meet all the requirements under the VCA, such as not having at least $10 million in committed capital.
The partnership must satisfy the Committee that it is likely to meet all the registration requirements within 24 months of conditional registration.
If applying for conditional registration you will need to include a signed basic deed with your long-form partnership deed, if the latter is not signed.
Conditional registration lapses if the partnership is not registered within 24 months.
A conditionally registered ESVCLP may in certain circumstances make investments. However, it must be fully registered before any tax exemption applies to those investments.
You can’t advertise your ESVCLP as registered if it is conditionally registered. Any reference to 'registered' should clarify that the registration is conditional.
Funds may wish to use the following statement:
'The [insert partnership/fund name] is conditionally registered as an Early Stage Venture Capital Limited Partnership and further conditions will need to be met before being registered as an Early Stage Venture Capital Limited Partnership.'
Further information about conditional registration is available in the Customer Information Guide.
The investment plan is an important part of your application. The Committee will only approve a plan it considers appropriate. The Committee will take into account the proposed investments, including the investee businesses:
- stages of development
- cash flow levels
- levels of technology
- proportion of intellectual property to total assets
- levels of risk and return
- amount of tangible assets and collateral you can secure the borrowings against
Failing to be 'early stage' is one reason the Committee may judge an investment plan as being inappropriate for registration.
You may apply at any time to amend your approved investment plan.
Apply for ESVCLP registration now
If you’re confident you’re eligible, you can apply using our online application form below. Make sure you have:
- all documents, including signatures as required
- an appropriate investment plan
- read the Customer information guide
The Committee sits every 5 weeks, and will consider your application within 60 days, unless:
- your application is considered incomplete
- you’ve been asked to provide additional information
- the Committee or Delegate extends the decision timeframe a further 60 days (maximum of 120 days).
The department will advise the applicant of the Committee's decision.
Incomplete applications
We check that applications are complete as they are submitted. Examples of incomplete applications include:
- missing information or inconsistencies such as General Partner details or declarations of LP/ ILP certificates
- incorrectly executed partnership deeds, or;
- missing details of Limited Partners.
Occasionally an issue may arise during the assessment process to deem an application incomplete.
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Customer stories
Many successful Australian businesses began as start-up or early stage firms with limited funds. Their access to venture capital and people with commercialisation skills helped them turn their ideas, research or innovation into commercial success.
Venture capital funds have also been able to grow and prosper as a result of government venture capital initiatives.
Partnerships, statistics and other help for investors and investees
View a list of partnerships that have capital and are registered with Innovation and Science Australia.
Find out more about seeking venture capital investment
Learn more about investing in Australia's venture capital market
Find out about our venture capital statistics
See published statistics and research on the Australian venture capital industry
Guides, information papers and statement
Sample forms
Sample application for exemption under s94 of the Venture Capital Act 2002 Cth
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