Preparing for the Chinese venture capital boom

After a slow start, investment dollars arriving in Australia through the Significant Investor Visa (SIV) program have started to flow more consistently and the phenomenon holds some promise for the local start-up sector.

With the program still in a nascent stage, it might be a bit too early to gauge its impact on the local innovation scene. However, it's an opportunity that warrants a closer look. 

The first ten of the so-called sub-class 188 visas have now been granted, some nine months after the scheme started in mid-November last year. These visas holders will have brought with them a minimum $50 million.

The pipeline of investments has continued to grow steadily, with more than 305 formal applications - or more than $1.5 billion in potential investments - having been lodged with the Department of Immigration.

A new source of capital

The SIV program, which targets high net worth individuals seeking permanent residency rights in Australia, is seen as a potentially abundant source of capital to local technology start-ups.

Although little detail has emerged from the department about the investment preferences of the people applying for visas, a number of VCs and financial institutions are known to be putting together managed funds by pooling SIV applicant’s funds.

The SIV program allows potential investors in Australia who have a minimum of $5 million to park in this country to qualify for sub-class 188 Business Innovation and Investment (Temporary) Visas. These have a lower language proficiency and residency requirements, and can be converted to a permanent visa known as a sub-class 888.

No prizes for guessing where these high net worth individuals come from. Of the more than 550 that had submitted an expression of interest to government, more than 90 per cent come from China.

With almost all expressions of interest converting to a formal invitation from government to apply to the scheme, that’s a $2.75 billion pipeline. And this new visa program was only started nine months.

At face value, the SIV visas scheme has the potential to become a game-changer in the start-up sector in Australia. It represents new money, if the industry can make itself attractive to new investment.

A Chinese disconnect 

Once the managed funds that are currently raising funds through the scheme come online, significant new Chinese money will start to land in the tech start-up sector in the form of venture capital by the end of the year.

The real concern is that the Australian tech sector really has no current relationship with China. We don’t know Chinese investors very well. We don’t know the China market. We don’t know how to do business there.

This must change. The game-changer for the Australian innovation in the medium term will be China. And we need to be engaging at every level to take advantage of that opportunity.

This is not just about the capital. It is about China as a market. And about China using Australia as an innovation and development market for products and services that are being honed for global consumption. This opportunity is real.

The Business Innovation and Investment visas scheme is important, and fortunately has the bipartisan support of the major parties. The Coalition has been on record voicing it support for the Significant Investor Visas.

The Opposition's only concerns were related to the slow initial processing times for visas applicants, and ensuring processes were in place to make sure the money coming to Australia had been obtained lawfully and that  the scheme was not being exploited for money-laundering purposes.

A spokesman for the Immigration Department told Technology Spectator that because the scheme is new, systems and processes had been designed and then shaken out. The program was a priority for the department, and most visas applications were expected to be processed in a six to nine month timeframe.

Most of the 305 applications that had so far been lodged with the department had been with it for about four months, the spokesman said.

Which means by the first quarter next year about $1.5 billion in SIV investment dollars will be in Australia. We know that most of the applications seek to reside in either NSW or Victoria, with just a handful from the other states.

It is too early to get the full picture of where these visa applicants will put their money. We have to wait for more detailed numbers from the department as a bigger pool of visas are granted.

The fundamental ambitions of this scheme are solid. Indeed, the scheme seems a no-brainer and its launch merely brings us in line with global competitors like Canada, the UK or New Zealand, which each have similar schemes.