VCLP Reform Program and its impact on global venture capital investment in Australia

In 2002, Australian Federal Government adopted the Venture Capital Limited Partnership (VCLP) legislation and formalized the establishment of Venture Capital Limited Partnerships and Australian Fund of Funds (AFOFs). These investment vehicles are preferred flow-through mechanisms that offer significant tax exemptions and ensure capital gains and losses flow straight to the end investors, rather than to the fund managers. This change brings Australian venture capital industry in line with the structures used in most other countries. Both AVCAL (Australian Venture Capital Association) and the Federal government claimed that this is a major reform package and should immediately attract many international investors, such as, foreign pension funds, fund of funds, university foundations and other endowment funds. This paper critically examines the key features of the reform package and its implications for Australian VC industry. The analyses suggest that while the reform package looks quite encouraging from outside, its actual impact seems to be significantly compromised in the details.