GOOD NEWS for innovative early stage businesses, especially those in the digital technology space. Someone in Australia has figured out a way to better fund you, buying equity.

VentureCrowd is Australia’s first online equity based crowdfunding platform and it opened for business on February 20 with more than 200 registered investors and 36 start-up businesses onboard.

The key difference with the VentureCrowd platform in dealing with Australia’s peculiar regulatory financial environment, compared with other early efforts in this space, is that it allows wholesale and so-called ‘sophisticated’ investors to take equity positions in innovative high growth-potential start-ups that have effectively been pre-qualified. Because of existing Federal laws, that are currently under review, retail investors are still excluded from the buying in.

The start-ups positioned on the VentureCrowd platform are pre-screened by what Artesian Venture Partners managing partner Jeremy Colless believes are “the best” Australian accelerators, incubators, angel groups and university programs.

“Because the cost of a start-up is dramatically reduced – tech start-ups especially – the barrier of entry is lower,” Mr Colless said of the investment appeal. “So it is different from the traditional VC (venture capital) model. 

“And now the funnel (for processing investment opportunities with start-ups) is enormously bigger. That’s why we get partners, like the incubators and universities, to do the analysis.”

VentureCrowd has been developed by Artesian Venture Partners, one of Australia’s leading early stage venture capital firms, and VentureCrowd lets start-ups pitch and secure funding online from a crowd of investors in exchange for equity in the business.

In contrast to existing crowdfunding platforms such as Kickstarter and Indiegogo, which allow people to support causes, or gain access to a new product at a discounted price, VentureCrowd offers business ownership and the potential equity upside of the start-up. 
According to Mr Colless, there are a very large number of sophisticated investors in Australia who have not previously invested in the start-up space. At this stage, he said, VentureCrowd was focusing on Australian wholesale investors and start-ups.
“The wholesale investor market in Australia is large with 207,000 wealthy individuals in Australia sitting on $US625 billion ($684 billion) worth of assets,” Mr Colless said. “Until now there have been major barriers to entry for investors in start-ups. An investor either had to have a large amount of money and time available to screen and review each potential start-up investment personally, or had to commit as much as $250,000 to a venture capital fund to qualify as a limited partner.”
VentureCrowd provides investors with a selection of start-ups from a pipeline of potential opportunities, pre-screened by its partners which includes more than 20 accelerators, incubators, angel groups and university programs. Wholesale investors can invest as little as $1,000 in a start-up.

VentureCrowd encourages investors to build a diversified portfolio of over 15 start-ups, over time, to mitigate the risky nature of the asset class.
“While traditional asset classes have been slowly recovering from the global financial crisis, the Australian start-up ecosystem has been enjoying remarkable growth,” Mr Colless said.

“The last three years have seen the arrival of an array of startup accelerators and incubators including Startmate and BlueChilli (Sydney), AngelCube (Melbourne), Slingshot (Newcastle), UOW iAccelerate (Wollongong) and iLab (Brisbane).
“Corporate incubator programs including Telstra’s muru-D and OptusSingtel innov8, and new venture capital firms such as Blackbird Ventures, Blue Sky Ventures and Square Peg Capital have contributed significantly to the growth of the start-up environment here in Australia.

“There have also been successful and sizeable technology listings on the ASX by OzForex and Freelancer. In 2014, other successful Australian start-ups such as Atlassian and Bigcommerce may see $1 billion plus listings in the US,” Mr Colless said.
“What VentureCrowd will do is provide new avenues of funding for start-ups, enable a new generation of investors to take an equity interest in early stage ventures that could potentially be the next OzForex, Freelancer, Atlassian or Bigcommerce.
“With the recent passing of the JOBS Act in the US and closer to home, (Federal Communications Minister) Malcolm Turnbull’s support for revised crowdfunding legislation, there is a decided shift in attitudes to online equity crowdfunding as an investment proposition.”
Speaking about the launch of the VentureCrowd platform, Steven Maarbani, a director of the Venture Capital team at PwC, said, “There is no doubt that equity based crowd funding is growing globally and that this is the beginning of a significant change in the way finance is delivered more broadly.
“Early stage finance is undergoing a significant evolution globally. The gap in supply of early stage capital is gradually being filled by equity based crowd funding platforms that are able to provide a more efficient and cost effective way for SMEs to obtain growth capital than traditional methods.
“Equity crowdfunding platforms are opening up the early stage securities asset class to a new group of investor, characterised principally by a desire to have greater control over their investment decisions and the flexibility to make small investments in a wide range of early stage companies. It is likely that SMSFs will be interested in the investment opportunities presented by online platforms.”
The Australian Government is currently in consultation on the issue of equity based crowdfunding. In October 2013, the Federal Government issued a discussion paper titled Crowd Sourced Equity Funding which considers legislative amendment in Australia.

If legislative changes were passed in Parliament, it would open up online equity crowdfunding to a larger proportion of Australians.
Until the current legislation changes, VentureCrowd is open to wholesale investors only and each potential investor must submit to a strict screening process in order to be eligible to invest via the VentureCrowd platform.
“While equity crowdfunding sites can provide investors with low cost, frictionless access to an emerging alternative asset class, it is important to acknowledge key risks in investing in start-ups,” Mr Colless said. “More than 50 percent of start-ups fail, and the distribution of outcomes is asymmetrical. Approximately 90 percent of the returns in a diversified portfolio will come from 10 percent of the start-ups.

“As a result, investors interested in accessing this emerging alternative asset class should look for a platform that encourages investors to build diversified portfolios of start-ups rather than the far riskier strategy of attempting to pick a small number of winners.

“I think we can show a responsible was of investing in this space – and we can help keep out the charletains.”
Some of the first startups on the VentureCrowd platform include:

TokenOne – A sophisticated security technology which allows users to log into secure sites with just a single unique TokenOne PIN

Whispa Music – An online music collaboration tool that allows musicians from around the world to write music together.

Simply Raw – A startup specialising in raw snack bars suitable for coeliac, vegan, and other dietary requirements. Currently stocked in over 200 locations nationwide.

www.venturecrowd.com.au

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POSTED MAY 2014.

GETTING ORGANISED now for tax time will give small business owners peace of mind and confidence later, recommends Intuit Inc. Asia Pacific vice president and managing director Brad Paterson.

Through advice gathered by Intuit, the maker of QuickBooks Online, Mr Paterson has released eight tips to help business owners cope with the lead up to the June 30 financial year deadline – and create some deduction opportunities.

“Most small to medium-sized organisations have the discipline of quarterly business activity statement compliance,” Mr Paterson said.

“But many businesses still face the significant task of annual reporting. Whatever the reporting regime, the end of the financial year signals a vast array of deduction opportunities as well as potential threats to cash flow.”

Mr Paterson said a great start was to make an early appointment with an accountant.

Christian Schoener, director of accounting, tax and business consulting at the Sydney-based CGSA Group, said getting in early gives you time to review business results before the rush of June 30.

“If you’re using cloud accounting software, your transactions will always be up to date,” Mr Schoener said. “Then you and your accountant can estimate your likely tax position and come up with strategies that make sense for your business, and give you time to implement them.

“The Federal Budget announcement on May 13 could also affect small and medium businesses, so keep an eye out for this and talk to your accountant to help optimise your tax position.”

Mr Paterson said through its market experience, Intuit has developed eight top tips to help remove the stress of the upcoming deadline – but suggested businesses should always consult with a qualified accountant or the Australian Taxation Office for specific questions.

1. Be certain to get super deductions.

Even though superannuation does not have to be paid until July 28, paying employee and personal contributions by June 30 will allow time for processing delays and getting valuable deductions this year.

According to the ATO, superannuation is only deductible when paid. That means that it must be cleared through your bank account, received and recorded by the employee’s superannuation fund prior to that date. Be prepared and pay early.

2. Pay expenses in advance.

If your cash flow allows it, consider paying recurring expenses in advance. Things like insurances, interest, rent, conference fees, subscriptions, travel costs can mean an immediate deduction.

Note that the expense may not be eligible if it covers more than 12 months.

3. Claim deductions now for future expenses.

You may be entitled to claim an immediate deduction for expenses you are committed to, goods or services that have been received or work performed – even if won’t happen before year end. This includes salaries and wages, staff bonuses and directors’ fees.

4. Spend up – but only if you need to.

If you need to replace low-cost equipment or purchase new tools, computers or other equipment soon, consider purchasing them before June 30 to get the full tax benefit now.  

Note that you may only receive a $300 benefit for every $1,000 spent. (The company tax rate is 30 percent). Always check the ATO website for the latest updates.

5. Write off bad debts.

To deduct bad debts, the ATO requires you to write it off while it still exists, prior to June 30.  Review your accounts receivable with your accountant or bookkeeper to determine whether a deduction qualifies before the deadline. 

6. Check your assets and inventory.

Consider writing down or writing off obsolete stock. Then think about revaluing the remaining stock using one of three methods: cost price, market selling value or replacement value. Choose the method that produces the lowest stock value; if the value of closing stock is less than the value of your opening stock, you may receive a deduction. When the reverse occurs, you may generate income.  

7. Repay any borrowings.

If you, a family member or an associate have borrowed money from your business, you should ensure that the company charges the appropriate interest and consider making the minimum required repayments before the end of the financial year.

Failure to do so may result in the entire amount of the loan being treated as taxable income, causing you to be taxed personally at rates of up to 46.5 percent.

8. Pay on time; don’t overclaim.

Unpaid taxes and fraudulent claims are serious business. The ATO is actively looking to recover $17.7 billion, with 60 percent of that – some $10.6 billion – owed by small businesses. It’s critical to submit accurate returns and pay on time.

Remember that fines are calculated at a higher rate than a loan and interest on accumulating tax debt is not deductible.

THINK AHEAD TO NEXT YEAR

CGSA’s Mr Shoener said it was not too early to begin thinking about next year.

“If you expect your tax pay will be higher this year than next year, you may benefit from deferring income to next year and accelerating deductions into this year,” he said.

“Using credit cards to pay for tax-deductible expenditures will earn you the deduction this year, even if you don't pay for it until next year.”

Intuit’s Mr Paterson said the growing popularity of cloud-based services simplifies paying taxes for small business owners and accountants alike.

“Entrepreneurs and business owners have enough on their plate without the overhead of having to sort through incomprehensible tax and financial matters,” he said.

“Fortunately, year-end compliance is now much easier with the advent of cloud-based accounting software that’s been designed specifically for small and medium businesses.

“Throughout the year, transactions are seamlessly exported from bank and PayPal accounts, payroll is automatically calculated and integrated, all invoicing elements are captured, and debtors and creditors are a breeze to track.

“All of this means you know where you stand financially – not just at year end but at any time – saving you time when it comes to doing your taxes and giving you the ability spend more time on building your business.”

www.intuit.com

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MANY businesses undertaking research and development (R&D) are missing out on helpful 45 percent refundable tax offsets through simple errors in record keeping. 

According to MSI Taylor Accountants’ Matt White, recent ‘definitions’ changes to the Australian R&D Tax Incentive were ambiguous and left many small businesses failing to make R&D claims and, in other cases, not receiving their eligible cash refunds, even though they were regularly undertaking eligible activities and already had existing documentation practices that satisfy the requirements.

Mr White said the Australian R&D Tax incentive was “an easy to access entitlement program that helps businesses offset some of the costs of doing R&D”.

According to AusIndustry, the two core components of the R&D Tax Incentive, which replaced the former R&D Tax Concession, are: a 45 percent refundable tax offset, equivalent to a 150 percent deduction, to eligible entities with an aggregated turnover of less than $20 million a year; and a non-refundable 40 percent tax offset, equivalent to 133 percent deduction, to all other eligible entities.

“In essence, the program aims to help more Australian-based businesses do R&D and innovate,” Mr White said.

He said the 45 percent Refundable Tax Offset, which in many cases can be ‘cashed out’, should be a crucial consideration for small business cash flow planning.

“Yet many small companies are still missing out on their opportunity to make claims and receive cash refunds due to the perceived complexity and ambiguity surrounding eligibility and the application process,” Mr White said.

The new R&D laws became effective from July 1, 2011, and introduced a greater emphasis on record keeping. They also provided a new definition for eligible activities – as either Core R&D Activities or Supporting R&D Activities.

Mr White said under the definitions, Supporting Activities needed to be either ‘directly related’ or for the ‘dominant purpose’ of supporting the Core R&D Activities.

These new definitions were ambiguous, he said.

“Key concerns were around: How to identify if the activities they were undertaking where eligible? How burdensome is the application process? What are the documentation and ongoing record keeping requirements?” Mr White said.

“As a result and due to industry, adviser and participant feedback, AusIndustry – the government department responsible for administering the Australian R&D Tax Incentive program, together with the ATO – have released various industry sector guides to help applicants identify eligible activities and understand their compliance requirements,” Mr White said.

“Released throughout 2012 and 2013, AusIndustry have prepared guidance and case studies for the ICT, agrifood, biotechnology, manufacturing, energy, and built environment sectors,” Mr White said.

“AusIndustry have also introduced a series of focus and face-to-face workshops throughout each state and in 2014, will be trialling various e-learning modules in order to reduce the perceived ambiguity and confusion around the R&D program.”

Mr White warned that to now make an R&D Tax Claim – and to potentially receive a cash refund of monies spent – companies must register their R&D activities each income year in which the activities are undertaken.

“Importantly, companies that wish to make R&D Tax claims for eligible expenses incurred during the period ending 30 June 2013 must submit an R&D Application with AusIndustry by 30 April 2014,” he said.

Mr White said MSI Taylor is part of the MSI Global Alliance whose member firms have assisted 100s of small businesses through to ASX-listed companies across a broad range of industries in identifying and preparing R&D claims “as well as helping them understand their compliance requirements”.

http://www.ausindustry.gov.au/

http://www.msitaylor.com.au/

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