1. “A new species has been discovered in the financial services industry which is peculiar to Australia.
Whilst it may look the same as a number of other species, it has mutated quickly with some distinct differences…..
It is in fact a PDF.”

2. Pooled Development Funds
Tax effective catalysts
for the
Australian
Venture Capital Industry ?

3. The Australian, 14 October 2000
Expanded Habitat
“Venture Capital no longer the domain of rich fat cats and institutions. Individual investors are now getting
a look in”.
The Australian, 14 October 2000
HOW ?
WHY ?

4. Govt - part of the PDF food chain
“Governments around the world now recognise that by fostering innovation there is a positive flow on in economic activity”

5. Industry Overview ~ Australia
THE ECONOMIC IMPACT OF VENTURE CAPITAL SURVEY
TOP 100 AUSTRALIAN COMPANIES,
Source: 1998 Pricewaterhouse Coopers

6. PDF Genre 1. Seed - business angels, private investors capital
2. “Start ups” - generally <10% of funds
3. Early stage
expansion - i.e local expansion
4. Later stage
expansion - i.e listing, National, Global

7. Environmental Stimulus - Tax Breaks
For the Entity
15% tax on capital gain
25% tax on interest income
Franking credits at company tax rate
For Shareholders Investing in a PDF
* NIL tax on capital gain
* Losses not tax deductible
* Nil tax on dividend income (franked or unfranked)
* Franked dividend income may be treated as accessible to gain advantage of franking credits to offset other income

8. Superannuation funds investing in PDF’s
DIY Funds - 5 or less members
No tax rebates available for the tax paid by the PDF
Larger super funds - 5 or more members
May apply for a tax rebate of the 15%
(paid by the PDF - to allow parity with overseas venture capital funds paying nil CGT - courtesy of the Ralph report). Eg.
Complying super funds
Life assurance companies
Pooled super trusts
Registered organisations ie. trade unions and friendly societies
Complying ADF’s

9. Limitations of the Species
Permitted
Must invest in Australian businesses
Must invest in new issued ordinary shares
- convertible notes and debt instruments must have PDF Board approval
Must invest approximately 10% of investee paid up capital
65% of capital must be invested within 5 years
Not permitted
Retail
Property development
In companies with assets > $ 50 m
< 30% in any one company
Single investor not to hold > 30% of PDF (exceptions banks, life offices)

10. Watershed legislation
New Legislation - July 1, 1999
Watershed legislation
improves efficiency and attractiveness for fund managers and investors
Refer working model

11. Investment and Exit Process
REALISATION B
1yr yr C D E F A G I
Investee
Companies H J
Investment
Realisation provides progressive liquidity
A B C D E F G H I J
Period

12. Working Model - Fund Size $20 million
Return of Capital
to Shareholders
by way of
share buy back $
$7m
Profit $ $ $
NTA $1
Gross NTA $1.35
$3m
$4m
$5m
$10m
out
Soft. Co.
Manuf. Co.
IT. Co.
Bio. Co. A B C A
Exit
6 mth
12 mth
18 mth
Investment Time Line
3 yrs ….
10 yrs

13. Share Buy Back Gross Profit $ 7,000,000 Tax @ 15% $ 1,050,000
Available for distribution $ 5,950,000
plus original investment $ 3,000,000
NTA $ 1.29
Buy Back of $ 1.29
$ 8,950,000  $ 1.29 = 6,937,984 shares
or 34.68% of original issued capital bought back

14. Industry Overview ~ USA VENTURE ECONOMICS’ PRIVATE EQUITY
PERFORMANCE INDEX (PEPI) RETURNS FOR INVESTMENT HORIZONS ENDING 31 DECEMBER
Source: National Venture Capital Association NVCA and Venture EconomicsC

15. Industry Overview ~ UK
BVCA VENTURE CAPITAL AND PRIVATE EQUITY PERFORMANCE MEASUREMENT SURVEY 1999 SUMMARY OF RESULTS
Survey compiled by the WM Company in conjunction with British Venture Capital Association and Westport Private
Equity Limited. (Westport).

16. VC Capital under Management 1999-2000
Committed $4.9b
$2.6b value
in investment vehicles
46% favour unlisted companies
$2.3b
uncommitted
569 investee
companies

17. WHY? VC Allocation by Major Super Funds Performance to 30 June, 2000
Australian Equities %
Alternative investments %
Commonwealth Super Scheme
Public Sector Super Scheme
$1b
Australia Post
15%
$150m
10%
Potentially $1b

18. Growth in PDF Investment
Total invested
in VC industry
$1.1b
$476 m
$20 m

19. Cochlear Ltd Biota Ltd Resmed Ltd Vita Life Sciences Ltd
Industry Successes
Cochlear Ltd
Biota Ltd
Resmed Ltd
Vita Life Sciences Ltd

20. Government Support for VC Industry
Federal Government
(i) Innovation Investment Funds $130 m 5 VC Co’s.
2:1 - institutions $70m
(ii) Innovation Investment Funds $90.1 m 4 VC Co’s.
1:1 - institutions $90m
Government requirement on funds 7% plus 10% of profits
Queensland Government
National leader in Biotech R &D $33.90 per capita
$270m commit to industry over 10 years
Employment in Biotech industry alone 7,690
Innovation start up scheme
Specialist venture capital unit
Business Angels Group

21. What is the Habitat of the PDF ? Who should invest in a PDF?
Master Funds or Pooled Superannuation investors
Institutional Funds
DIY Super Funds
Special Situation Component of a Balance Portfolio
High Net Worth Private Investors

22. Why the Growth in Registered PDF’s
total
120 80

23. Australia Harnessing the Global Trend in Private equity
POOLED DEVELOPMENT FUND
Biotechnology
Information Technology
Medical and Healthcare
Industrial Energy
Harnessing the Global Trend in Private equity
within
Australia
September 2000