New VC rules give hope to NSW biotechs

"Getting money for scientific research in this country is like crawling over broken glass," says Dr Tony Smithyman from the Brookvale laboratories of biotechnology company Cellabs, where he is managing director.

But he is upbeat about new legislation announced by the NSW government which brings NSW venture capital partnership structures in line with overseas venture capital rules, particularly US limited liability partnerships.

Under the Partnership Amendment (Venture Capital Funds) Act, venture capital partnerships will now have the same limited liability protection as investors in a company enjoy. Partners will only be liable for the amount that they bring to the partnership, and will not be liable for unlimited penalties, as was previously the case.

"We want our best brains and their ideas staying here," said NSW premier Bob Carr in a statement. "By changing these laws... we hope more finance can be directed toward start up Australian biotech companies with exciting ideas."

The new laws will work in tandem with the Commonwealth government's recent tax law changes, under which international partners can retain their home tax benefits when investing in an Australian venture capital partnership. The government hopes that the new legal structure will trigger investment of more than $1 billion in Australian companies.

"The big thing that Australia hasn't been able to do is attract offshore investment into the venture capital industry in any quantum," said Geoff Mullins, chairman of venture capitalists, VentureAxess.

"Internationally, they prefer partnership arrangements. Our partnership laws here meant the partners were liable for everything. The state government has now set up the legal infrastructure to allow venture capital limited partnerships to be set up. This is something that the industry has been wanting for some time."

However, Mullins cautioned that further incentives were needed to stem the flow of Australian technology overseas. "We are constantly losing ground-breaking technology and businesses which are being sold cheaply offshore because they are not supported locally," he said.

"We need to incite or compel superannuation funds to allocate a portion of their investments to emerging Australian businesses. One or two per cent would make a huge change for this nation in terms of creating jobs and wealth."