Innovation Investment Fund Program Round Three, Direction No.1 of 2011

Administered by Department of Industry, Science and Resources

Legislation au F2011L02738 In force Legislative Instrument

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Commonwealth of Australia

 

Industry Research and Development Act 1986

Innovation Investment Fund Program Round Three

Direction No. 1 of 2011

 

I, KIM JOHN CARR, Minister for Innovation, Industry, Science and Research, acting under sections 18A, 19 and 20(1) of the Industry Research and Development Act 1986, issue the following explanatory statement on the Direction to Innovation Australia (the Board).

 

 

Dated     20 October 2011   

 

KIM CARR

Minister for Innovation, Industry, Science and Research

 

 

 

Explanatory Statement

 

Issued by the authority of the Minister for Innovation, Industry, Science and Research

 

Industry Research and Development Act 1986

 

Innovation Investment Fund Program Round Three Direction No 1 of 2011

 

General Outline

 

The Innovation Investment Fund Round Three Program (the Program) is a competitive, merit based program designed to promote the commercialisation of Australian research and development through the injection of venture capital into new companies in their seed, start-up or early expansion stage.  The Program also aims to develop fund managers with experience in the early stage venture capital industry.

 

The Innovation Investment Fund Program Round Three Direction No 1 of 2011 (the Direction) incorporates the new definition of R&D activities inserted in the Income Tax Assessment Act 1997 by the Tax Laws Amendment (Research and Development) Act 2011 and incorporated in the Industry Research and Development Act 1986. In addition, the Direction provides for changes to the merit criteria against which the Board will assess the technical merit of eligible applications, removes the discretion of the Board to prefer new fund managers over existing managers and provides that the Program Delegate may require applicants to demonstrate, to the satisfaction of the Board, their private investor capital commitments at the time applications are lodged.

 

In accordance with the Direction, the Board assesses applications against merit criteria outlined in the Direction and provides a ranking of those applications.  The Program Delegate determines which eligible applications will receive funding and takes into account the merit ranking provided by the Board, the available Program funding, and the policy objectives of the Program.

 

Each manager of a licensed fund will establish a Supervisory Board.  The Supervisory Board has responsibility for decisions in relation to the administration of each fund which are investor related and are set out in the governing documents for the Program.  Innovation Australia (the Board) is responsible for all matters relating to the administration of the Program.

 

The Direction does not affect the rights of a person (other than the Commonwealth) as at the date of registration so as to disadvantage that person or impose liabilities on that person (other than the Commonwealth) in respect of anything done or omitted to be done before the date of registration on the Federal Register of Legislative Instruments.

 

Legislative authority

The Direction is issued to the Board by the Minister for Innovation, Industry, Science and Research (the Minister) acting under sections 18A,19 and 20(1) of the Industry Research and Development Act 1986.

 

Consultation

The Minister consulted the Board during the development of the Direction, as required under clause 20(2) of the Industry Research and Development Act 1986. 

 

Financial Implications

The Direction has no financial impact.  The Direction provides a framework by which the Board provides assessments and merit ranking of eligible applications.  The Program Delegate makes the final decision in determining the quantum, terms and conditions of licences under the Program.  The role of the Supervisory Board is to determine investor related issues arising during the operation of the licensed funds.

 

 

Notes on Provisions of the Directions

 

 

PART 1 – PRELIMINARY

 

 

Name of Direction

 

Clause 1

 

The Direction constitutes the Innovation Investment Fund Program Round Three Direction No 1 of 2011.

 

 


Commencement

 

Clause 2

 

The Direction commences on and from the day on which particulars of the direction has been published in the Gazette and registered in the Federal Register of Legislative Instruments.

 

Object of these Directions

 

Clause 3

 

The object of the Direction is to provide the Board with instructions in relation to an additional function of the Board – namely the provision of assessments and merit rankings of eligible applications under the Program - and the policies and practices that the Board must follow in the performance of this function.

 

Interpretation

 

Clause 4

 

This clause explains key terms used in the Direction. It includes a definition of R&D activities and of a Supervisory Board.

 

 

PART 2 – CONSIDERATION OF APPLICATIONS TO PARTICIPATE IN THE PROGRAM

 

 

Board to have regard to certain policy objectives

 

Clause 5

 

The Board must have regard to the policy objectives of the Program in giving effect to the Direction.  

 

Procedure

 

Clause 6

 

This clause provides a guide to the Board on the assessment and merit ranking of eligible applications.  The Board must consider eligible applications in relation to a particular funding round as soon as practicable after the Program Delegate has provided those applications to it.  The Direction also provides for the Board to interview any applicant and request additional information from applicants to assist in the assessing and ranking of eligible applicants.

 

 

Board may decline to provide merit ranking

 

Clause 7

 

The Board may refuse to provide a merit ranking of a particular applicant if it is not satisfied that its application shows sufficient merit. 

 

 

PART 3 – ASSESSMENT AND MERIT RANKING OF APPLICATIONS

 

 

Assessment of applications

 

Clause 8

 

The Board assesses the merit of each applicant's activities against the merit criteria contained within the Direction.

 

Merit Criteria

 

Clause 9

 

The Board will assess applicants against the merit criteria in the Direction.  These criteria are:

 

The fund’s proposed committed capital:

 

(a)           the proposed size of the fund;

(b)           the ratio of privately sourced capital to Commonwealth program capital (subject to the Commonwealth program capital not exceeding a 1:1 ratio to the privately sourced capital and the Commonwealth program capital being no more than $100 million);

(c)           the fund’s proposed investors and the amount of capital to be committed by each;

(d)           the amount of capital, if any, to be committed by the proposed key personnel of the fund manager;

The applicant’s proposed investment strategy:

 

(e)           the extent to which the fund’s proposed investment strategy is consistent with the objectives of the IIF program, including the establishment and management of a balanced portfolio of investments in early stage companies;

(f)            the number and the size of investments the fund proposes to make and the proposed investment sector by activity;

(g)           the level and structure of management fees proposed;

The experience of the applicant’s investment team

 

(h)           whether the applicant has a balanced management team including relevantly qualified and skilled personnel;

(i)             the applicant’s capacity and experience in early stage equity investing giving particular attention to realising returns from investments, sourcing investment opportunities and managing an investment portfolio;

(j)             whether the applicant has an understanding of, and experience in, dealing with issues related to Australian and international investments, products, services and markets;

(k)           whether the proposed applicant has effective strategies to contribute to training and developing of Australian based staff in all aspects of making venture capital investments in early stage companies;

Intent

(l)             whether the applicant has a demonstrated willingness to operate within the intent of the IIF program.

 

Other matters

 

Clauses 10-13

 

The Board may attribute a higher level of importance to one or more of the merit criteria (clause 10). The Program Delegate may require that applicants demonstrate their ability to access capital at the time of lodgement of application (clause 11).  The Board may have regard to the accessibility of the Program for industry around Australia (clause 12), and may have regard to additional criteria and undertake other enquiries to consider the suitability of applicants (clause 13).

 

Clauses 14-16

 

The Program Delegate may make policies in relation to the administration of the Program (clause 14), and may make decisions and guidelines in relation to the Program (clause 15).  The Program Delegate will seek the advice of the Board on: new investments beyond the investment period; changes to key personnel; changes to structure of a fund; application of sanctions against a manager or investor; suspension of funding in relation to a fund; termination of a licence; investee company eligibility and influence or control of manager by investor (clause 16).

 

 

Clause 17

 

The Supervisory Board for a licensed fund will be established by the manager and make decisions about matters in relation to the administration of that licensed fund as set out in the governing documents.

 

PART 4 – ASSESSMENT OF PROPOSALS FOR VARIATION TO GOVERNING DOCUMENTS

 

Clause 18

 

In making a decision on whether to vary any provision of the governing documents, the Program Delegate may seek the advice of the Board and may seek the advice of others.   

 

PART 5 – BOARD TO HAVE ADMINISTRATIVE RESPONSIBILITY FOR THE PROGAM

 

Clause 19

 

The Board has administrative responsibility for the Program and where the Board provides advice to the Program Delegate, the Program Delegate must consider the advice of the Board and advise the Minister of any such advice where requested to do so by the Board.

 

Clause 20

 

The Board may advise the Minister, or the Minister may request advice from the Board, on non-financial administration matters relating to the Program.

 

Clause 21

 

The Board may collect and analyse data on the performance of the Program, provide advice to the Minister on such performance, and must cooperate with any independent evaluation of the Program.

Overview

The Industry Research and Development Act 1986 was enacted to encourage and assist the development of industry in Australia by providing for the undertaking of research and development, the commercialisation of research and development and the commercial application of research and development. The Act was introduced to address the need for targeted investment in research and development to foster innovation and economic growth. Enacted by the Parliament of Australia, the policy objective of the Act is to stimulate private sector investment in research and development through various measures, including the establishment of the Innovation Investment Fund Program. This program is designed to promote the commercialisation of Australian research and development by injecting venture capital into early-stage companies and developing experienced fund managers in the venture capital industry. The Innovation Investment Fund Program Round Three Direction No 1 of 2011 was issued by the Minister for Innovation, Industry, Science and Research under sections 18A, 19 and 20(1) of the Act. The Direction outlines the merit criteria for assessing applications, the role of the Board in evaluating and ranking applications, and the responsibilities of the Program Delegate in making funding decisions. It also establishes the framework for the establishment of Supervisory Boards by fund managers to oversee investor-related decisions for licensed funds.

Scope and Application

The Innovation Investment Fund Program Round Three Direction No 1 of 2011 is an instrument issued by the Minister for Innovation, Industry, Science and Research under the Industry Research and Development Act 1986. The Direction applies to Innovation Australia, commonly known as the Board, and governs the assessment and merit ranking of eligible applications for the Innovation Investment Fund Program Round Three. The Program aims to promote the commercialisation of Australian research and development by providing venture capital to new companies in their seed, start-up or early expansion stage, as well as developing fund managers experienced in the early stage venture capital industry. The Direction outlines the criteria against which the Board will assess the technical merit of eligible applications, including the fund’s proposed committed capital, the applicant’s proposed investment strategy, and the experience of the applicant’s investment team. Additionally, the Direction removes the discretion of the Board to prefer new fund managers over existing managers and allows the Program Delegate to require applicants to demonstrate their private investor capital commitments at the time of application lodgement. The Direction does not affect the rights of any person (other than the Commonwealth) in respect of anything done or omitted to be done before the date of registration. The Direction is issued under sections 18A, 19 and 20(1) of the Industry Research and Development Act 1986, and the Minister consulted the Board during the development of the Direction as required under clause 20(2) of the Act. The Direction has no financial impact and provides a framework by which the Board assesses and merit ranks eligible applications, while the Program Delegate makes the final decision in determining the quantum, terms and conditions of licences under the Program.

Key Provisions

The Innovation Investment Fund Program Round Three Direction No 1 of 2011 (the Direction) is issued by the Minister for Innovation, Industry, Science and Research under sections 18A, 19 and 20(1) of the Industry Research and Development Act 1986. It provides a framework for the assessment and merit ranking of eligible applications by Innovation Australia (the Board), and outlines the policies and practices that the Board must follow in the performance of this function. The Direction incorporates the new definition of R&D activities from the Income Tax Assessment Act 1997 and modifies the merit criteria against which the Board assesses the technical merit of eligible applications. It also removes the discretion of the Board to prefer new fund managers over existing ones and allows the Program Delegate to require applicants to demonstrate their private investor capital commitments at the time applications are lodged. The Board must consider eligible applications for funding as soon as practicable after they have been provided by the Program Delegate. It must assess the merit of each applicant's activities against the merit criteria contained in the Direction, which include the fund's proposed committed capital, the applicant's proposed investment strategy, the experience of the applicant's investment team and the applicant's intent to operate within the Program. The Board may attribute a higher level of importance to one or more of the merit criteria, and may refuse to provide a merit ranking if it is not satisfied that the application shows sufficient merit. The Board may also request additional information from applicants to assist in the assessing and ranking of eligible applicants. The Program Delegate determines which eligible applications will receive funding and takes into account the merit ranking provided by the Board, the available Program funding, and the policy objectives of the Program. The Program Delegate may make policies in relation to the administration of the Program, and may make decisions and guidelines in relation to the Program. The Program Delegate will seek the advice of the Board on certain matters, such as new investments beyond the investment period, changes to key personnel, and application of sanctions against a manager or investor. The Supervisory Board for a licensed fund will be established by the manager and make decisions about matters in relation to the administration of that licensed fund as set out in the governing documents. The Direction imposes several obligations on the Board and the Program Delegate. The Board must assess eligible applications against the merit criteria outlined in the Direction, provide a ranking of those applications and have regard to the policy objectives of the Program. The Program Delegate must consider the advice of the Board when making decisions in relation to the Program, and seek the advice of the Board on certain matters. The manager of a licensed fund must establish a Supervisory Board and make decisions about matters in relation to the administration of that licensed fund as set out in the governing documents. The Direction also requires the Board to collect and analyse data on the performance of the Program, provide advice to the Minister on such performance, and cooperate with any independent evaluation of the Program. The Direction does not impose any offences or penalties for breach. However, failure to comply with the Direction may result in the Board not being able to provide a merit ranking of a particular applicant, or the Program Delegate not considering the advice of the Board when making decisions in relation to the Program. The Direction also does not affect the rights of a person (other than the Commonwealth) as at the date of registration so as to disadvantage that person or impose liabilities on that person (other than the Commonwealth) in respect of anything done or omitted to be done before the date of registration on the Federal Register of Legislative Instruments.

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