investing in innovation
TRANSCRIPT
Investing in
innovation How the new (and old) tax initiatives
impact investor returns
Eli BernsteinMay 2016
DisclaimerNo Financial Advice
Crowded Space Pty Ltd (ACN 168 180 738) is not a Registered Investment Advisor, Broker/Dealer, Financial Analyst, Financial Bank, Securities Broker or Financial Planner. The Information on the Site is provided for information purposes only. The Information is not intended to be and does not constitute financial advice or any other advice, is general in nature and not specific to you. Before using the Company’s information to make an investment decision, you should seek the advice of a qualified and registered securities professional and undertake your own due diligence. None of the information contained therein is intended as investment advice, as an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any security, Company, or fund. The Company is not responsible for any investment decision made by you. You are responsible for your own investment research and investment decisions.
• Entities acquiring new shares in ESICs• 20% tax offset capped at $200K• Retail investors eligible but capped at
$50K• No capitals gains (or losses) in years 1-
10• Effective: 1 July 2016
Innovation Tax Incentives
Early Stage Innovation Companies (ESIC)
ESIC
Early Stage Test
ABN <3 years
Expenses <$1M
Income <$200K
Unlisted
Innovation Test
Principles based
High growth potential
Scalable
Broad market application
Competitive advantage
100 Points
Commercialization grant recipient [75]
R&D grant recipient [50-75]
Patents [25-50]
>$50K third-party investment [50]
Eligible accelerator programme [50]
AND
OR
• To qualify, Both Early Stage Test and Innovation Test to be satisfied
• Innovation Test may be either principles based or points test
• Principles based test requires a ruling from the commissioner.
• 100 points test is objective and safe from clawback
• Example: points test met if NewCo raises $50K and participates in an eligible accelerator programme.
Investment
R&D
Export marketing
Other expenses
Exit
Capital gains
Investment
Innovation Tax offset
R&D
R&D Tax Offset
Export marketing
EMDG Grant
Other expenses
Exit
Capital gains
100 -60 1M-20
100
-20 -202
100 20 -47-60
698
27 23 -43 1.5M 0 1420
1. Net gains on $100 investment and 10x growth without leverage
2. Net gains on $100 investment and 10x growth with incentives
RETURNS
CONCLUSION: The correct structure can increase your returns
Assumptions: 1. Spending is: 60:20:20 (R&D/EM/Other)2. All rebates used for further spending3. Valuation at exit: 10x of spending4. Time at exit: Years 2-10
Investment
R&D
Export marketing
Other expenses
Exit
Capital gains
Investment
Innovation Tax Rebate
R&D
R&D Tax Rebate
Export marketing
EMDG Grant
Other expenses
Exit
Capital gains
100 -60 50-20
100
-20 22.5
100 20 -47-60
-27.5
27 23 -43 75 0 -5
1. Net losses on $100 investment with 50% loss without leverage
2. Net losses on $100 investment with 50% loss with incentives
RETURNS
CONCLUSION: The correct structure can mitigate your losses
Assumptions: 1. Spending is: 60:20:20 (R&D/EM/Other)2. All rebates used for further spending3. Valuation at exit: 0.5x of spending4. Time at exit: Years 2-10
Eli Bernstein+61 403 777986
John Jeremiah+61 428 [email protected]
innovation strategy
& venture creation
www.crowdedspace.com.au