Shocking lack of angel investor data


James Riley
Editorial Director

The federal government has released the first statistics on the effectiveness of its $100 million angel investor tax incentives scheme introduced nearly 18 months ago.

Advocacy group StartupAus has raised concerns over the lack of transparency around the scheme, which it says risks ruining what should be a “game-changing” program.

The tax incentives for sophisticated investors in early-stage innovation companies were a key facet in the government’s $1 billion National Innovation and Science Agenda, unveiled at the end of 2015.

Alex McCauley: Concerns over the lack of transparency around angel investment incentives

The tax breaks – a 20 per cent tax offset on investment capped at $200,000 per investor and a 10-year capital gains tax exemption for investment held for a year – became law in July last year.

The early-stage investor incentives have broad bipartisan support, and are considered among the most generous in the world.

According to a government factsheet released to mark the two-year anniversary of the NISA, about $280 million is estimated to have been invested by angels into these early stage companies in the 2016-17 financial year.

This is the only data on the angel tax incentives that government has released in the near-18 months they have been in effect

It is still yet to reveal more detail information on the number of companies invested in, the number of investors, nor the total expected cost of the scheme based on take-up.

When the NISA was originally announced, the government initially forecast that the tax incentives would cost a total of $106 million to 2020, but hasn’t released any information since on how this is tracking.

The Treasury department said on Wednesday that it was too early to quantify the scheme, as the tax reporting season was still in mid-flight.

“As the tax incentive came into operation on 1 July 2016 there is limited data available in respect of the program as it has just completed its first year of operation and not all tax returns have been lodged for that income year. It is not the practice of the ATO (or Treasury) to release incomplete data,” a Treasury spokesman told InnovationAus.com.

The large number of investments taking advantage of these tax breaks would likely make the program more expensive.

The Australian angel investor tax incentives were closely based on the UK government’s Seed Enterprise Investment Scheme, which launched in 2012.

The British government providers a wide range of statistics on the scheme quarterly, including the number of companies raising funds for the first time, the number of companies raising funds in total, the number of subscriptions and the amount raised through the scheme.

This lack of transparency risks ruining what should be a “game-changing” scheme, StartupAUS chief executive Alex McCauley said.

“This is a fantastic program modeled on a really successful British scheme, but to make sure we’ve got the settings right we absolutely must be measuring its impact,” Mr McCauley told InnovationAus.com.

“The UK government has been really open with its data on their equivalent scheme.”

“This is a young program and to make sure it’s working the government needs to be working closely with industry to fine-tune it. If we don’t have good data on its impact it risks becoming an expensive ‘nice idea’ rather than the game-changer it could be.”

The StartupAUS Crossroads 2017 report, released last week, also lamented the “paucity of data” on the early-stage startup investor incentives. While the ATO is collecting data on the scheme, StartupAUS said it has been unable to access this.

“It is notoriously difficult to collect data on investments at this early stage, making assessing the impact of such schemes highly unreliable. Australia’s fragmented angel investor ecosystem makes this challenge even greater,” the report said.

“Of course, the ATO is collecting large quantities of data under the scheme, but the data has not been made public and we were unable to obtain access to it for this report.”

But according to “limited quantitative data”, angel investment in local startups has actually fallen since the angel investor incentives were introduced in July last year.

Pitchbook data showed that it has fallen by nearly 50 per cent year-on-year, with deal size falling by 21 per cent in the same time.

The StartupAus report points out that this could be a “natural consequence” of the sharp growth in venture capital available in Australia over the same time, with $1 billion in venture capital being raised in the last year.

“The data is so scant and access is so limited that it’s pretty hard to draw conclusions. We need more data on the angel side,” Mr McCauley said.

“The early-stage investor program was one of the signature pieces of the NISA but there’s been no attempt so far to measure it. We need to understand the impact of policies that are costing hundreds of millions of dollars.”

The corresponding scheme in the UK has been hugely successful, with its published data showing that in 2015-16 2,225 companies received investment through the scheme, with 170 million pounds ($300 million) being invested in total.

Of those companies, 1,680 companies raised funds for the first time under the SEIS scheme.

Since the scheme was introduced in 2012, more than 6,500 companies have benefited from the incentives, with 608 million pounds ($1.1 billion) invested in total.

The dearth in data from the government since it was introduced nearly 18 months ago, it’s hard to tell whether the scheme has been as effective in Australia, and how much it is actually costing the Australian taxpayers.

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