Corporate Structure
- Lellco Pty Ltd (ACN: 650 414 556) AFSL:544979) – The administration company for SMVCFs and AFSL holder ;
- Purpose Driven Capital Pty Ltd (ACN:663 684 893) – General Partner of the VCMP;
- Lellco Mgmt LP (IP00002) – VC Mgmt Partnership;
- Sustainable Enterprise Fund LP (IP4652753).
Government Tax Incentive Scheme Comparison
| Direct SME Investment | Angel Investment Tax Incentive Scheme | Standard Venture Capital Funds | Self-Managed VC Funds | |
|---|---|---|---|---|
| Minimum Investment | No Minimum | No Minimum | $2 million | $100,000 |
| Investment Selection | Investor selected | Investor selected | Manager | Collaborative selection |
| Investment management | Investor | Investor | Manager | Collaborative management |
| Investment range | Unlimited | Very limited | Within broad range | Within broad range |
| Investee types | Venture (speculative) & Enterprise (lower risk) | Venture (speculative) | Venture (speculative) | Venture (speculative) & Enterprise (lower risk) |
| Min & max investment hold period | N/A | 12 months – 10 years | 12 months – 15 years | 12 months – 15 years |
| Max Investee Entry value | N/A | Not prescribed but ESIC test sets a very low valuation | $50m | $50m |
| Investment Divestment | Nil | Nil | Tax benefits cease at $250m value | Capital tax benefits cease at $250m value |
| Income Tax | Yes | Payable | Exempt | Exempt |
| Capital Gains Tax | Yes | Exempt | Exempt | Exempt |
| Tax Offset | Nil | 20% of invested capital capped at $200,000 p.a. | 10% of invested capital, uncapped | 10% of invested capital, uncapped |
| Capital Loss | Yes | Disregarded | Exempt | Capital Loss Strategy |
For a more detailed comparison see Full Comparison.
Management Fees
We apply a 2% per annum management fee on all funds invested for the first five years and isolate this full amount at the time of investment. We may utilise those fees as necessary but must ensure we have sufficient funds to provide the full management services during that five-year period.
After the first five years of investment our management fee decreases to 1% per annum, but is only applied against the returns of an investment. Where there are insufficient returns on investment to cover management fees we will allow investors an opportunity to cover those management fees by other means. Where management fees remain outstanding, we retain discretion to remove an investment from the portfolio.
Investment Exits
It is through a combination of time and investor alignment that our VC-As-A-Service model has more exit options. Time because we encourage use of the full life of the fund, 15 years, to maximise exit options and outcomes.
Failure Exits
Because of our VC-As-A-Service model benefits we have more flexibility in how to manage exits. In the case of investee failure, it is worth noting the tax exemption provided by the Government works both ways, exempt for income but also exempt for losses, as such it is in the investor’s interest to hold an investment prior to failure (to claim the losses).
Within the constraints of the legislation, particularly regarding investment valuations, we will seek to move a failing investment into investor hands prior to failure.
Follow-on Investment
We recognise the importance and need for follow-on investment for well performing investees.
We believe it is most important that the investee is active in the decision making around their follow-on investment needs, but our recommendations will be:
- The aligned investor/s would have first option to invest;
- The Investment Panel members would be made aware of the investment opportunity;
- All fund investors would be made aware of the investment opportunity;
- Investors in other Purpose funds would be made aware of investment opportunity; then
- Network members would be made aware of the investment opportunity.
Investor & Investee Balances for Fund Registrations
An appropriately structured and incorporated fund can be conditionally registered as an ESVCLP with no investment. It can then seek investors and even make investments while conditionally registered, but any returns on those investments will not be entitled to tax exemption until the fund is unconditionally registered.
To be unconditionally registered the fund must not allow any single investor to provide more than 30% of investment[1] and must have at least $10M of investment (i.e. minimum 4 investors), it must then not allow any investment to be greater than 30% of the total fund value.
Purpose Driven Capital’s management has a firm grasp of all the limitations and operational requirements of ESVCLPs, having previously operated both an ESVCLP and VCLP. Managing investor and investee balances within each fund will be an ongoing issue for Purpose Driven Capital and for which our distribution relationships, including with the APRO.Network, will be vital.
[1] Some exceptions apply.