James Riley
May 21, 2015

SIV: A China tech opportunity

SIV: A China tech opportunity

Andrew Robb: Driving dollars from SIV program to higher-risk investment in tech

Of all the Budget measures aimed at helping the local startup and innovation sector, the low-profile changes to the Significant Investor Visa program hold the promise of the delivering the most positive long term impact.

The revised rules ear-mark a significant portion of SIV funds to Venture Capital funds and startup innovators. This alone is very good news for the tech-enabled startup sector, which still struggles to find the right funding at the right time in this country.

The additional investment dollars should deliver more opportunity to our entrepreneurs, and give them a reasonable alternative to simply following the well-worn path to the US in search of backers.

The changes do more than deliver money. In the longer term they will provide massive opportunities for the home grown Australian technology and innovation sectors to engage and integrate with sectoral interests in China.

And that is incredibly exciting. In mid-2013, I was calling this scheme a potential game-changer for the Australian technology – that the promise of mainly Chinese investment in the local sector be the overdue start to long-term, China-Australia industry integration.

It has taken some time to eventuate. The SIV program (and its more recent Premium Investor Visa stablemate) took time to callibrate early issues, and for Government to get a better grip on harnessing its real value to the nation.

A Significant Investor Visa provides an expedited pathway to Permanent residency in Australia. In return for $5 million in complying investments in Australia over four years, the PR applicant has reduced residency requirements, and lower language benchmarks to meet.

Until now, the $5 million investments could be simply dropped into ultra-safe government bonds. The changes introduced on budget night direct the SIV money into pockets of the economy where it can make a positive impact.

Make no mistake. The Abbott Government has done good work with this policy. This is not to say that further tweaking might not be needed – and perhaps the consideration of complimentary policy – but at face-value, the SIV revisions are overwhelmingly positive.

It makes sense that Andrew Robb’s portfolio has taken carriage of this policy. Ultimately the SIV and PIV programs are trade and investment issues. Sure, it’s Immigration, but these visas are an instrument of industry development.

Basis Point Managing Director David Chin, who provides market intelligence on SIV issues, says the re-jigged program is far better than the one it has replaced, and will deliver greater direct value to Australia.

The increased cost to potential SIV migrants is in the high-risk profile of the complying investment requirements. But with just $500,000 – or 10 per cent of the required $5 million minimum investment – required to be placed with a VC fund, or directly with a startup, this cost is unlikely to impact demand.

China, of course, is central to this program. Of the more than 800 Significant Investor Visas so far granted, more than 90 per cent are mainland Chinese recipients.

“Over time, China will be a major player in the global VC space. This program will give Australian VCs an early start in building links (to Chinese VC counterparts),” David Chin said. “China is very focused on building its VC sector and very focused on startups.”

“The fact is that the SIV program will draw some Chinese VC firms to the Australia market. Over time it will foster much closer links between the VC sectors from both countries.”

This is good news for Australian startups. In raw dollar terms, the numbers are significant. In the two years since the program was started, 802 visas have been issued, for a total investment of more than $4 billion.

If those visas had been processed under the new rules, a minimum $400 million would have found its way into startup-facing VC funds. The run-rate of visa approvals is now significantly higher (there are a further 800 applicants that have been invited to formally apply) and 800 to 1,000 visas being issued annually is a reasonable expectation.

That’s a $4 billion to $5 billion annual pipeline as far as the eye can see. That equates to an initial $400 million to $500 million in additional VC funding in Australia for StartupLand and its innovation brethren.

These are big numbers. So big that they make Opposition Leader Bill Shorten’s promised $500 million Smart Investment Fund look slightly anaemic. And it doesn’t require taxpayers to put their hands in their pockets (or for public servants to try to pick technology winners.)

Trade Minister Andrew Robb has already said the scheme may later be expanded so that 30 percent of SIV funds are earmarked for VC investments in future. It makes sense to start with a more modest number. Even at 10 per cent, a huge windfall is about to surge into Australian VC and startups.

This is where things get interesting. The volume of available money will almost certainly attract Chinese VC companies into this market – just as it will attract Australian financial companies into the China market to pull funds together.

The Chinese VC interests drawn to the Australian market will be investing these funds into Australian startups. It is not unreasonable to assume that investments will be made with one eye on the China market.

The cross-fertilisation of Chinese and Australian capital, innovation and expertise is the Game Changer. It holds the great hope of catalysing an integration over time of the two countries’ tech sectors. This is good for Australia.

Outside of our love of Chinese-made consumer electronics, Australia barely has a relationship with the China tech sector. China remains a bit of a blank for our industry. The startup sector itself has a fairly wanton ignorance of China and an active disinclination to engage.

The prospect of $400 million in additional funding coming from Chinese interests might change that view. The prospects of investment partners with market in connections into China may also help.

Basis Point’s David Chin says the Chinese Government turned its focus to its domestic startup sector, and has invested substantially in building out its VC capability. China’s influence setting global technology standards in the IT sector is ballooning.

The newly re-fashioned SIV is smart policy, he says, because it directs the valuable SIV investment dollars to where they can provide most benefit.

It also provides the local startup sector, as well as Australia’s home-grown IT sector, with an opportunity to get on board, and to build important linkages into the future.

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