The federal government is set to release a revamped Significant Investor Visa (SIV) program today, forcing foreign investors who want to acquire citizenship to set aside $2.5 million for investing in start-up and emerging companies.
The new program wants to divert the billions of dollars raised from the scheme away from ultra-safe investments such as government bonds and commercial properties to more risky areas such as start-up sector, which is cash-starved.
In the future, foreign investors need to invest at least half a million, or 10 per cent of their total investment, in eligible Australian venture capital or growth private equity funds. Investors also need to set aside at least $1.5 million for investing in ASX-listed small companies.
Investment and Trade Minister Andrew Robb, who is driving the overhaul of the program says “Australian permanent residency is a great privilege -- and the Government believes this warrants more dynamic investment in areas of the economy that will drive innovation and makes a difference.”
The government decision has divided the investment community. Venture capital sector and start-up companies welcome the move as a much needed boost to the emerging sector. On the other hand, property funds and some fund managers are critical of the government’s decision.
Canberra has granted 802 SIV visas so far and over $4 billion has been invested into fund, property and bond markets. And 53.6 per cent of total investment has been invested into managed funds, 39.5 per cent into government bonds and the remaining 6.9 per cent into companies.
The Australian Private Equity and Venture Capital Association welcomes the new policy.
“What the government doing is recognising the role that venture capital and private equity plays in our economy is significant. This policy reflects common sense and this is a very smart way for us to assist the SME sector in repositioning itself for the future,” said Yasser El-Ansary, chief executive of the association.
The government has watered down its earlier draft provision on how much foreign investors need to put into venture capital fund. Under the old draft proposal, foreign investors need to set aside at least 20 per cent of their money for VC fund.
However, the new policy says investors only need to invest 10 per cent of their money in VC fund. This will be increased to $1 million or 20 per cent for new applications within two years depend on the market reactions.
The Australian understands there has been pushback from property sector and some fund managers who are expected to lose some of their businesses as a result of the new change.
Dr Ben Hurst, founder of Hoc Doc, a medical start-up says “Australia needs more smart capital to invest in local tech talent, not more capital. The problem entrepreneurs face is a lack of professional investment vehicles that help young promising companies scale effectively and reach their potentials.”
“I am not sure leveraging citizenship rules in order to inject foreign capital into the Aussie tech market is the right answer,” he said.
Tana Xuren, managing director of Lodestone Capital Group, a Melbourne-based financial advisory firm, told The Australian the new policy would likely to have a “deterrent effect” on her Chinese clients, who make up more than 90 per cent of all SIV applicants.
“Many SIV clients are in their 50s. They have made their money from manufacturing and real estate; they are risk averse. For some of them, putting money into venture capital is the same as paying fees for the Australian government," she said, “They don’t expect to get their money back.”
She said her business partners had to stay up all night since the government flagged its intention to overhaul the visa program, so they could lodge their clients’ visa application under the old scheme.
Ms Xuren said some of her clients were having second thoughts about applying to Australia since Canberra announced its intention to change the policy. “One client told me, I have a ten-year visa for Europe and 20-year visa for Canada. Why do need an Australian visa if I have to pay so much.’”
The government’s new Premium Investor Visa has a much higher investment threshold of $15 million and aims to attract high-calibre global entrepreneurs. Steve Wozniak, a co-founder of Apple has recently secured Australian residency.