In Startup Smart

One of Australia’s largest and most prominent startup accelerators BlueChilli has become the first accelerator to gain Early Stage Investment Company (ESIC) eligibility through a private ruling from the Australian Taxation Office (ATO).

This means all startups coming through the accelerator will be eligible for ESIC status and will be able to receive the status provided they also raise over $50,000. Investors in ESIC startups receive an immediate deduction equal to 20% of their investment and are also exempt from capital gains tax, provided they sell their shares within 10 years.

Startups that go through other accelerators can also apply and gain ESIC status as per the ATO’s 100 point system, however, with this private ruling, startups that go through BlueChilli’s program will automatically be granted 50 of the 100 necessary points. There are also a number of other way the 100 points can be obtained, which are outlined on the ATO’s website.

Sebastien Eckersley-Maslin, chief executive of the Sydney-based accelerator, told StartupSmart the change will have significant benefits for both BlueChilli and its startups, and potential investors with their eyes on new ventures.

“For our startups, this will make it easier for them to raise capital in the angel round, which is one of the most difficult time periods for an early-stage startup,” he says.

“These changes are aimed at sophisticated investors who have a number of opportunities to invest in other things, which might already be tax deductible. So this makes it easier and gives them a level of comfort when investing in startups.”

Eckersley-Maslin proudly claims BlueChilli is the first and, as far as he’s aware, only accelerator to gain ESIC eligibility in Australia.

StartupSmart contacted the ATO to ask if any other Australian startup accelerators have been afforded the same ESIC eligibility status, however, the ATO was unable to provide comment on this particular question.

Eckersley-Maslin says gaining the status took more than 12 months of planning and working with the ATO.

The start of the journey can be traced back further than 12 months, however, with the idea of incentives for early-stage investors dating back to BlueChilli’s PolicyHack event in 2015, before the government’s ‘Ideas Boom’ of 2016.

One of the recommendations of PolicyHack was for “income and capital gains tax incentives for early-stage investment”, based loosely on the UK’s Seed Enterprise Investment Scheme. This ended up becoming one of the key initiatives introduced in the federal government’s innovation agenda, and has been available to apply for since July 1, 2016.

“As soon as it became available, we applied for the status. We asked the ATO what was required, and they came back to us and asked us to help them define what an accelerator was,” Eckersley-Maslin laughs.

While the process was long, it wasn’t arduous, says Eckersley-Maslin, with the ATO requiring a lot of information about the accelerator’s governance and controls. But, he says, it’s a big deal for the startups in the BlueChilli system.

“Any startup through BlueChilli is now automatically eligible for 50 points towards ESIC eligibility. All they need for the other 50 points is minimum $50,000 in investment, which isn’t hard,” he says.

“ESIC has been around for a couple of years and startups could apply on a principles-based test, but investors ran the risk that startups got the principles wrong and would find out later the company was ineligible, and have to pay the tax deduction back.”

“This system has no ambiguity. If the startup comes through BlueChilli and it raises $50,000, it’s done. It gives investors a lot of assurances.”

And while Eckersley-Maslin thinks the ESIC opportunity is an “excellent initiative”, he’d like to see things taken a few steps further by the government, namely around a removal of investment thresholds and restrictions.

“I’d like to see some of the thresholds increased and restrictions removed, such as the $200,000 cap to the tax offset. We want as much investment as possible, so restrictions like these should be removed or relaxed,” he says.

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The post BlueChilli becomes first ESIC-eligible accelerator in Australia to improve access to funding for early-stage startups appeared first on SmartCompany.

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