Risk mitigation, regulation and qualification
The Alumni model incorporates a number of features that mitigate investment risk. These include:
- The use of grants to reduce the capital required;
- The use of research and development tax credits;
- The use of repeatable templates and centralized and shared service procurement processes to reduce costs for individual startups;
- An innovative media and thought-leadership program tailored to each investee company;
- The development of a funding crowd for each company to increase business development opportunities;
- Creation of sales opportunities and sympathetic customer reference case studies within the Alumni investment cluster;
- The partnering with technology companies around the world;
- The tax deductibility of the amount invested in the tax year of investment;
- The stringent investment criteria applied by the investment committee when testing for the three alumni criteria – competitive advantage through community involvement, IP and financial engineering;
- The multi-stage investment approach, where the top level stage ables over $50 million per year to be raised from an international crowd.
Alumni is regulated by the Financial Sector Conduct Authority (FSCA) in South Africa as well as the South African Revenue Services.
Do you qualify to be an Investor?
Any taxpayer qualifies to invest in an approved VCC like Alumni. Qualifying investors can claim income tax deductions in respect of the expenditure actually incurred to acquire shares.
Where any loan or credit is used to finance the expenditure in acquiring a venture capital share and remains owing at the end of the year of assessment, the deduction is limited to the amount for which the taxpayer is deemed to be at risk on the last day of the year of assessment.
No deduction will be allowed where a taxpayer is a connected person to the VCC at or immediately after the acquisition of any venture capital share in that VCC.
On request from SARS, the investor must verify a claim for a deduction by providing a VCC Investor Certificate that has been issued by an approved VCC, stating the amount of the investment and the year of assessment in which the investment was made.
Except in the case of Venture Capital Shares held by a taxpayer for longer than five years, the deduction is recouped (recovered) if the taxpayer disposes of the Venture Capital Shares to the extent of the initial VCC investment (under the general recoupment rules of section 8(4) of the Act).
Standard income tax and CGT rules apply in respect of VCC shares.
Would you like to discuss how you can invest in South Africa’s energy future with no risk to your capital? Please let us know using the form below.