ESVCLPs Explained: What Fund Managers Need To Know

Early stage venture capital limited partnerships (ESVCLPs) can provide a tax-effective way to fund and support investment in Australia’s start-ups. 

The 2026-27 Budget has put this structure back in the spotlight, with plans to lift several caps from 1 July 2027 and retain beneficial tax treatment for investors. 

If you’re looking to establish a venture fund or raise capital to invest in early stage start-ups, here’s what you need to know.

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What Is an ESVCLP?

An ESVCLP is an early-stage venture capital fund established as a limited partnership or incorporated limited partnership under local state laws, and then registered with Industry, Innovation and Science Australia (subject to an application process and meeting registration requirements). When registered, the fund can make eligible venture capital investments in early-stage businesses on a flow-through tax basis and unlock tax-free capital gains for investors and certain tax offsets for eligible investors. 

ESVCLPs are governed by the Venture Capital Act 2002 (Cth) and Australian tax acts such as the Income Tax Assessment Act 1997 (Cth).

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What Do ESVCLPs Invest In?

ESVCLPs invest in companies or unit trusts at the pre-seed, seed, startup or early expansion stage. They must hold each eligible venture capital investment for at least 12 months. 

There’s also an asset cap. To remain eligible, an investee business must hold no more than $50 million in total assets at the time of investment. This threshold is set to increase to $80 million from 1 July 2027 under recent budget reforms.

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How Do You Set One Up?

For fund managers, setting up an ESVCLP requires structuring a compliant partnership vehicle, applying for formal registration with Industry Innovation and Science Australia and meeting registration requirements.

The key requirements are:

• General Partner:
  ‍The General Partner of the ESVCLP must be based in Australia.
• Limited Partnership (LP) or Incorporated Limited Partnership (ILP):
  Registration as an LP or ILP is first required under the law of your state, and the partnership must have a minimum five-year term and a maximum 15-year term. 
• Limited Partnership Deed:
  The partnership’s limited partnership deed must set out terms which comply with the registration and ongoing requirements of an ESVCLP as set out in the Venture Capital Act 2002 (Cth).
• Investment Plan:
  The partnership’s limited partnership deed must also include an Investment Plan focused on investing in early-stage businesses and the resources available to the partnership (such as the investment team). 
• Registration:
  Industry Innovation and Science Australia considers applications within 60 days, unless it requires additional information. Conditional registration is often applied for first ahead of the partnership raising a minimum of $10 million in committed capital (a registration requirement), followed by unconditional registration (within 24 months of obtaining conditional registration).
• Maintaining Registration:
  Ongoing registration requirements apply, such as quarterly and annual returns.

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Why Are ESVCLPs in the News?

The CGT discount reforms announced in the May 2026 Federal Budget have refocused investors on ESVCLPs and their legislated tax benefits, such as tax-free capital gains.

The Federal Budget also proposed to lift three caps from 1 July 2027, subject to legislation: 

• Investee asset cap (at the time of investing):
  ‍Rises from $50 million to $80 million.
• Tax incentive cap (the investee asset size up to which returns remain fully tax-exempt):
  ‍Rises from $250 million to $420 million.
• Maximum fund size:
  ‍Rises from $200 million to $270 million in committed capital.

These higher caps are proposed to apply to new and existing funds, and to new investments they make (including follow-ons). 

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Stay Ahead of the Changes

These changes signal that the government wants more venture capital flowing to early stage and growth businesses, including from super funds. Fund managers planning a new ESVCLP should aim to get the structure right from the start.

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To ensure your next ESVCLP is set up for the new rules, speak with Robyn Coote or the PMC Legal team.