A QUEENSLAND venture capital company is seeking to mobilise small investor funds into cash-starved, early stage innovation businesses with the promise of government-backed, fully exempted taxes on the resulting dividends and capital gains.

The company is looking to partner with small investors whose finances are typically managed by their accountants, solicitors or business advisers.

“This is not for the institutional investors, such as the superannuation funds,” a spokesman said.

“It’s for the smaller players, who, as a rule, get small returns on their investments, which are then subject to taxation.”

Elcano Capital, whose chairman, Graham Hart, was formerly Bank of Queensland chief executive officer, is one of only a handful of Australian companies and the first in Queensland to be registered with Innovation Australia to receive taxation exemption under the Australian Venture Capital Act 2002.

He said this enabled the participants to operate as a venture capital management partnership under the Act and to provide an investment fund that would be exempt from  tax on profits under the “early stage venture capital limited partnership
program”.

Mr Hart said the program was restricted to investing in companies that did not have property development, land ownership, finance or construction as their primary activity.

“Nor can they be listed on the stock exchange at the time of investment and their assets must not exceed $50 million,” he said.

“Early stage investment is recognised as the most critical for innovation, yet it receives the lowest levels of institutional investment, just 4.3 per cent of all private equity support.

“To make matters worse, Australia ranks poorly in its perceived support of innovation on a country-by-country basis.”
Mr Hart said while there were risks associated with businesses in their early stages, there were also enormous returns to be realised, especially in capital gains.

“You only have to look at ventures like Crocodile Dundee, that struggled for funding, but eventually returned royalties of more than 800 per cent and the investment didn’t even have an equity component or a capital gain prospect,” he said.

As the general partner in the fund, Elcano derives its income from fees charged to the investors for administering the fund, and, as such, Mr Hart said it had a performance-based incentive to produce sound investments for its partners, who also could nominate and investigate companies for investment purposes.

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