SMEs could benefit from PE and VC funding

Around 30,000 more local businesses could get financial support from Australian private equity and venture capital funds, according to the submission lodged today to the Financial System Inquiry by the Australian Private Equity & Venture Capital Association Limited (AVCAL). 

“Private equity funds are currently invested in fewer than 350 businesses in Australia - which means they presently have funding capacity to back less than 2% of the total investable pool of up to 30,000 businesses,” said AVCAL’s Chief Executive, Yasser El-Ansary. 

“For Australian businesses that don’t have access to debt financing from banks, venture capital and private equity funds can help to provide capital and skills to expand business operations and deliver growth in productive output and employment,” El-Ansary said. 

The need to expand the availability of capital to support more Australian businesses in need of growth equity funding is one of the major components of AVCAL’s submission to the Financial System Inquiry. 

The other key reform option included in the submission is: assessing the potential impact of a loan funding scheme for small innovative businesses, modelled on the tertiary education ‘HECS loan’ scheme policy. 

Other areas highlighted in the submission include the need to re-calibrate existing policy settings within the superannuation system to address the imbalance between investments in short-term high liquidity asset classes (such as equities), versus long-term less liquid asset classes (such as private equity and venture capital). 

“Our superannuation savings pool is a vitally important part of the foundation of our financial system now,” said El-Ansary. “But there is a very clear opportunity to remove roadblocks that deter some superannuation funds from backing private equity and venture capital firms to invest in Australian businesses,” he added. 

AVCAL has also proposed to consider implementation of taxation reforms to encourage longer-term investment in assets through changes to the current capital gains tax rules to provide for more generous tax discounts based on five, ten or 15 year holding periods