Knowledge is worth more than money, VC Giant Leap tells inquiry into the wholesale investor test

Impact venture capital firm Giant Leap has told a parliamentary inquiry into the sophisticated investor test that the government should measure investor quality rather than the size of their capital when it comes to the threshold qualifications

The investment sector has swung into action as submissions to the inquiry close tomorrow and Startup Daily revealed last week that the inquiry had received just five submissions on the issue

Concerns about possible changes to the wholesale investor test that increased the thresholds sent alarm through the startup sector earlier this year, after submissions for the Treasury investigation into the issue closed and early-stage investors such as Cheryl Mack, founder of Aussie Angels, led a reguard action to have late submission accepted.

The 10-member Parliamentary Joint Committee, chaired by Labor senator Deborah O’Neill, with Liberal MP Alex Hawke as deputy, has been delving into the issue for the past 14 months and final submissions close tomorrow, May 15.

Giant Leap managing partner Will Richardson said the VC’s submission recommends an education-based pathway to wholesale investor status, with ASIC charged in policing courses aimed at bringing interested investors up to speed.

“The goal of our submission was to demonstrate that there is both a way in which policy makers can protect new investors and ensure there’s fair access to wealth generating opportunities,” he said.

“It’s important that we get the policy setting regarding wholesale investors right, as the are key to the growth of innovative and emerging companies, solving societal challenges in climate, health and education.”

Richardson believes Australia should consider a similar framework to the EU and Norway for assessing wholesale investors via a knowledge test rather than asset base, so they fully understand the risks associated with their decisions, warning the the current approach also disadvantages women. Cheryl Mack takes a similar view.

“To link the status of a wholesale investors to a threshold amount, and then increase that bar over time, in our view, limits wealth generating opportunities, especially for minorities and women,” Richardson said.

“There’s a risk here that policy ingrains the status quo with wholesale investing — which is male-dominated — and that needs to be acknowledged and addressed in future policy decisions. Changing the way in which wholesale investors are assessed via meeting a threshold figure could disproportionately affect women and other minorities who have less to invest, shutting them out of wealth generation.”

Giant Leap was founded in 2016 as Australia’s first impact VC and manages Early Stage Venture Capital Limited Partnership (ESVCLP) registered funds in sectors such as climate, health and empowerment & education. It has invested in more than 30 companies.

Details on how to prepare a submission for the Parliamentary inquiry are available here.