Sapien Ventures, a pan Asia Pacific, technology venture capital firm, is calling on the Federal Government to urgently reconsider plans to alter Australia’s Significant Investor Visa (SIV) program. The Albanese Government has signalled intentions to review the program, with the Home Affairs Minister Clare O’Neal saying it “isn’t adding value to the country.”
Nothing could be further from the truth. It is the view of investors, founders, entrepreneurs and the broader tech community that this view is missing some fundamental facts and strategic vision for the Australian economy. The SIV program, first introduced in 2012, allows skilled migrants to have their visa applications fast-tracked if they invest $5m in Australia.
Why the SIV program deserves a second look
Data from the Department of Home Affairs reveals the Significant Investor Visa program has been successful in bringing in nearly 3000 approved investor migrants and approximately A$15 billion in foreign direct inbound capital since its inception more than a decade ago.
According to a study by Credit Suisse Australia, the average Significant Investor Visa investor contributes an additional A$5 in flow-on GDP activities in Australia for every $1 of Significant Investor Visa capital invested. This could equate to approximately A$75bn of further indirect GDP contributions to Australia or A$90 billion in total GDP contributions in just over 10 years.
More importantly, the Significant Investor Visa Program has had a mandatory minimum allocation of 10% of Significant Investor Visa capital to eligible Australian VC/PE funds since July 2015, with that threshold increased to 20% since July 2021. These funds must also deploy 80% or more of the said capital into Australian-domiciled innovation companies which must satisfy two out of three tests on Australian-based assets, staff and revenue.
What the program means for talent retention
According to Sapien’s modelling based on a wide range of industry data, some A$800 million is estimated to have been channelled into the Australian innovation economy via SIV-compliant VC/PE funds, by June 2023. Without that A$800 million in funding, many more Australian innovation entrepreneurs will have had to leave Australia to source the capital internationally, causing further brain-drains and reducing Australia’s global competitiveness.
When an organization is venture-funded, its first mission is usually to create local jobs by hiring staff, and the successful ones go on to create further value via ongoing company profits, tax revenue, research and development (R&D) expenditure and export sales. Certain technology platform companies can create a network-effect of further GDP activities.
For example Sapien portfolio firm Airtasker went on to create 2.4 million ad-hoc jobs for hundreds of thousands of Aussies; whilst another portfolio firm Global Study Partners went on to help recruit over 10,000 international students a year into Australia, thus contributing to A$300-400m in direct tuition revenue for hundreds of Aussie universities and colleges and over A$1bn in indirect GDP value annually, through lifestyle expenditure by these students.
All of these portfolio companies received SIV VC/PE funding. Sapien also believes that more can be done to increase venture capital funding to retain local talent and further attract international talents toward Aussie shores. For example, the mandatory SIV VC/PE allocation of minimum 20% can be increased to 50% over time, and publicly announced as such.
This would help to retain Australian innovation talent and reduce the need for promising startups to seek funding overseas. Also, Sapien Ventures also suggests that the SIV VC/PE component should no longer be eligible for tax-free incentives on investment profits. Instead, the govt should modify the SIV regulations to allow investment profits to be CGT-taxable.
This is unlikely to deter SIV applications but could get an incremental tax revenue of $100m for every A$400m in VC/PE investment profits. It’s crucial that we retain our brilliant minds.
Right now, we’re losing them to other countries. In venture-capital-dollars-per-capita terms, Australia currently ranks 15th globally at US$145 per capita, according to a widely-cited Crunchbase News Report from 02-Nov-2021. Singapore, in contrast, with a population barely larger than Sydney’s, ranks first in the world with US$1398 per capita. Singapore also has 2x more VC funding in absolute terms (at US$8.25b) compared to Australia’s US$3.76b.
The SIV program has been an important buffer in bridging the gap in VC funding in Australia. But more needs to be done to retain our innovative and entrepreneurial talent domestically. If the program was not available, we would argue that many firms that support and empower entire sectors of the economy would not have made the impacts that they have made.
That’s a loss of job creation, GDP activity, tax revenue, export sales, global competitiveness of Australian industries, as well as the livelihoods of many segments of society who can ill afford to do without the services or offerings of these systemically important companies.
What are the other recommendations?
Additional recommendations by Sapien Ventures:
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That the government awards a “fast-tracking or prioritisation of applications” to SIV investors that are willing to invest more than the minimum allocation to VC/PE (such as 50%, 75% or 100%). Sapien believes a scheme like this could lead to increased application numbers at the priority end.
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That the policy be tweaked to allow whole-of-fund level structured derivatives and hedging for VC/PE funds, so investors can benefit from some form of capital protection at the fund-level.
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That the SIV program is more widely promoted across new emerging high-growth regional economies (such as India, Vietnam, Malaysia and Indonesia).
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For the Balancing Component to include a new category: government sponsored public-private innovation bonds (including for example digital or renewable energy infrastructure bonds), which can be asset-backed and therefore safer, while also actively and directly creating local jobs in the innovation economy.
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The establishment of an SIV industry advisory committee to advise the Government on best ways to:
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Promote and enhance the SIV program over time
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Prevent or minimise fraud
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Provide counsel and guidance on how better to regulate the industry and ensuring ongoing adherence to meeting the SIV Policy’s key objectives and Australia’s core national interests.
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We urge the Aussie govt to take action to enhance the SIV program so that Australia can one day reach the levels of innovation funding and global competitiveness like Israel or Singapore.
Victor Jiang is the founder and Managing Director at Sapien Ventures.
