This advocacy letter was provided to the Assistant Treasurer the Hon Stephen Jones MP.
Issue at Hand: The Federal Government is considering changes to the sophisticated investor exemption to increase the income and assets tests.
Individuals who may not necessarily possess significant liquidity or diversified investment portfolios are still considered sophisticated investors due to the high value of their primary residence. In other words, their wealth is largely tied up in a non-liquid asset, which might not accurately reflect their financial sophistication or ability to engage in complex investment opportunities.
However, limiting the pool of potential early-stage investors could stifle innovation, particularly in technology sectors where breakthroughs often emerge from diverse and unconventional sources. By excluding certain individuals from participating in early-stage funding, there’s a risk of impeding the development of cutting-edge technologies. This scenario also creates a concern of disproportionately impacting diverse investors, especially women given the existing gender pay gap and underrepresentation in higher-paying jobs.
Recommendations:
- Maintain the sophisticated investor threshold but exclude the value of the primary residence from the assets test.
- Create a competitive sophisticated investor exemption scheme in comparison to international partners to attract experienced investors and benefit the Australian startup ecosystem.
These recommendations aim to strike a balance between investor protection and fostering innovation in the startup sector. ATSE remains committed to engaging with policymakers and contributing to solutions that improve Australia’s technology and innovation landscape through the sophisticated investor scheme.