BlueChilli becomes first ESIC-eligible accelerator in Australia to improve access to funding for early-stage startups
Tuesday, December 12, 2017/
One of Australia’s largest and most prominent startup accelerators BlueChilli has become the first accelerator to gain Early Stage Innovation Company eligibility through a private ruling from the Australian Taxation Office (ATO).
This means startups coming through the accelerator will be eligible for Early Stage Innovation Company status and will be able to receive the status provided they also raise over $50,000 from investors that are not associates of the company. Startups must also meet the ATO’s four early-stage test requirements outlined on its website. These include requirements relating to the registration and incorporation of the business and its expenses and income.
Investors in eligible startups receive an immediate tax offset or rebate equal to 20% of their investment, capped at $200,000 in each income year, and can access modified capital gains tax treatment for their shareholding.
Startups that go through other accelerators can also apply and gain the same 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 Early Stage Innovation Company eligibility in Australia via a private ruling from the ATO.
StartupSmart contacted the ATO to ask if any other Australian startup accelerators have been afforded the same 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 claims, 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 [Early Stage Innovation Company] 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 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.
*This article was updated on December 22, 2017, to add further detail about the eligibility requirements for startups to be classified as Early Stage Innovation Companies.