NISA's Venture Capital Legacy: Igniting Australia's Innovation Engine

John H Howard, 25 November 2025

The launch of the National Innovation and Science Agenda (NISA) 10 years ago, on 7 December 2015, marked a watershed moment for Australian innovation policy (Australian Government, 2015). NISA had been preceded by a detailed report for the Senate Inquiry into Australia's Innovation System on Australia’s Innovation Future (Green & Howard, 2015). NISA was much more than an unconnected list of policy announcements; it was a deliberate attempt to shift the national innovation narrative, although it was politically truncated in August 2018 with the swearing-in of a new Prime Minister.

NISA placed innovation, science, and entrepreneurship at the heart of Australia's economic future. Amidst its diverse initiatives, NISA contained measures designed to tackle a long-standing weakness: a shallow and risk-averse venture capital (VC) market. A decade on, the impact of these interventions warrants examination.

NISA was structured around four pillars, with specific initiatives aimed at start-ups and commercialisation. These are listed below.

Pillar	Specific Initiatives Aimed at Venture Capital and Startups
Culture and Capital: The core of the agenda for start-ups. It aimed to make investing in early-stage companies more attractive	Tax Incentives for Early-Stage Investors (ESIC): Often called the "angel investor tax offset," this provided a 20% non-refundable tax offset and a 10-year capital gains tax exemption for investors in eligible start-ups. New Venture Capital (VC) Arrangements: Updated the rules for Early-Stage Venture Capital Limited Partnerships (ESVCLPs) and Venture Capital Limited Partnerships (VCLPs) to attract more local and foreign investment. Insolvency Law Reform: Introduced a 'safe harbour' for directors from personal liability for insolvent trading, encouraging sensible risk-taking and attempts to restructure struggling companies.
Collaboration: Focused on connecting research with industry.	CSIRO Innovation Fund: A $200 million fund to co-invest in new spin-off companies and licences from CSIRO and other public research bodies. ON Accelerator Program: A CSIRO-run program to help researchers validate and develop their ideas into viable businesses. Biomedical Translation Fund: A $250 million co-investment fund to move biomedical discoveries to the proof-of-concept stage.
Talent and Skills: Aimed to build a future-ready workforce.	Entrepreneur Visa: A new visa pathway to attract entrepreneurial talent to Australia. STEM Initiatives: Funding for STEM subjects and coding in schools to build a pipeline of talent.
Government as an Exemplar: Focused on modernising public services.	Global Innovation Strategy: Included the Incubator Support initiative to fund new and existing incubators and the Landing Pads program to help Australian start-ups scale into global markets.

NISA also provided $75 million to create Data61 which was formally established in 2016 through a merger between National ICT Australia (NICTA) and CSIRO's Digital Research Unit. Data61 now serves as Australia's leading digital research network, focused on data analytics and cybersecurity to develop new technology-based industries. The 2014 budget had previously cut funding to the Digital Research Unit.

Australia's VC sector had been evolving since the mid-1990s. Capital was limited, and the investment culture was cautious. Institutional investors, particularly superannuation funds critical for scale, had largely withdrawn following the dot-com bust and the Global Financial Crisis. Early government programs like the Innovation Investment Fund (IIF) had attempted to fill the void but struggled to create a self-sustaining market. Start-ups faced a significant "valley of death", unable to secure funding to progress beyond initial R&D or early traction.

A key part of this challenge was bridging the gap between university research and the commercial market. Translating academic discoveries and inventions into viable businesses is notoriously difficult and continues to be the case. University support for commercialisation through Technology Transfer and Research Offices was mixed. While there were exemplars, many lacked internal expertise, resources, and commitment for initial development work between the end of research and venture funding. NISA offered the promise of stimulating the path to innovation outcomes and research commercialisation. 

Impacts of the NISA's Intervention

Reforming Culture and Capital

The most significant structural change arising from NISA was to the Early Stage Venture Capital Limited Partnership (ESVCLP) arrangements. The government introduced a ten per cent non-refundable tax offset for limited partners on their capital contributions. This effectively acted as a taxpayer-funded discount on the "entry ticket" for investors, immediately improving the internal rate of return on high-risk portfolios.

Simultaneously, the government loosened the restrictions on fund sizes. The maximum fund size for an ESVCLP was doubled from $100 million to $200 million, allowing managers to retain pro-rata stakes in their best-performing companies for longer. NISA also deepened the pool of available capital by removing the 30 per cent ownership cap on widely held foreign "funds of funds," effectively allowing international institutional investors to take larger, controlling stakes in Australian venture capital.

For both VCLP and ESVCLP structures, the reforms removed the "divestiture" requirement that previously forced funds to sell assets once a company's value exceeded $250 million. This corrected a perverse incentive where Australian funds were forced to dump their most successful "winners" just as they were scaling, often selling them prematurely to foreign private equity.

The main features of the two schemes are provided below.

Feature	VCLP (Growth Stage)	ESVCLP (Early Stage)
Primary Benefit	Foreign investor CGT exemption.	Tax-free returns for all investors.
Incentive	Attracts offshore capital.	Incentivises high-risk seed capital.
Manager Benefit*	Carried interest taxed as Capital Gains.	Carried interest taxed as Capital Gains.
Tax Offset	None.	10% non-refundable tax offset on capital.

*Carried interest (or "carry") is the performance fee earned by the fund manager. It is the primary mechanism used to align the financial interests of the manager (General Partner) with those of the investors (Limited Partners).

These structures currently act as the primary vehicles for institutional venture capital in Australia

Collaboration

The CSIRO ON Accelerator program began educating researchers on the creation of new ventures. It was a no-risk initiative that sparked significant interest in start-ups, though many universities were not set up to manage that level of activity. An understanding of the risks and complexities of running a company was missing. This is something learned from experience, time, and the daily challenges of managing and operating startups as businesses. 

The CSIRO Innovation Fund was mandated to commercialise research generated at CSIRO and other publicly funded bodies, including universities. In 2017, Main Sequence Ventures was formally established to manage the CSIRO Innovation Fund. The initial fund comprised $70 million in government funding, $30 million in revenue from CSIRO's WLAN program, and additional private sector investment.

Main Sequence Ventures has a mandate to address what policymakers identified as a critical gap in Australia's innovation ecosystem: the need for patient capital to support the commercialisation of research from publicly-funded institutions, particularly in deep technology sectors where traditional venture capital has been hesitant to invest.

The Outcomes: Increased Capital, Deal Flow, and Valuations

The impact of reforms to the VCLP arrangements on capital flows was immediate and dramatic. Bolstered by the improved tax settings, VC fundraising surged. Industry data showed capital raised more than doubled in the year following the NISA reforms.

The Department of Industry, Science and Resources, in its on-line Venture Capital Dashboard, reported that at the end of 2023-24 the total lifetime commitment to ESVCLPs and VCLPs amounted to $32.9 billion, supporting 2,885 businesses. The total number of limited partners who may benefit from the programs via tax concessions is 15,370. Foreign capital has contributed 50% of program committed capital.

As of 30 June 2023-24, committed capital stood at $5.6 billion for ESVLPs and $23.1 billion for VCLPs. The median fund size reported for the June quarter was $25.0m for ESVLPS and $83.8m for VCLPs. These amounts have increased substantially each year from 2016-17[1].

This influx of capital has significantly increased deal flow, providing more "shots on goal" for promising start-ups. However, the impact on deal quality presented a complex picture. The requirement for ESVCLPs to have investment plans approved, focusing on criteria like technology levels and intellectual property, acted as a quality filter. This steered funds towards genuine, research-backed innovation emerging from universities and labs.

The ESVCLP regime's structure was well-suited to addressing the "market failure" in funding deep-tech, research-intensive ventures. The complete tax exemption and long fund life (up to 15 years) provided the "patient capital" essential for commercialising complex science, which often requires a decade or more of development before showing returns.

This focused investment helped create a necessary cultural shift. Within universities, clearer funding pathways and visible success stories encouraged researchers and administrations to view commercialisation as a viable route for research impact. But many universities/researchers still largely pay lip service to commercialisation and consider it an expense, not core to university business. 

Nonetheless, NISA signalled government backing for entrepreneurship, encouraging a greater societal acceptance of risk-taking. This was great news for those in STEM fields, but it did not help the Turnbull government.

The Hidden Subsidy: Tax Expenditures

Despite its apparent success, the substantial government support delivered through the ESVCLP/VCLP tax concessions remains largely unrecognised in broader policy debates. This stems from its nature as a tax expenditure (revenue forgone) rather than a direct budget outlay.

Direct grants face annual scrutiny; tax concessions embedded in legislation are less visible. Treasury reports these annually in the annual Tax Expenditures and Insights Statement. But the cost of tax-free capital gains through the ESVCLP/VCLP, realised years later, is complex to quantify and, unlike the cost of the R&D Tax Concession, rarely features in publications. The cost of the RDTI appears annually in the Science Research Innovation Budget Tables.

The Evolving Landscape: The Scale-Up Challenge and the NRF

More recently, the focus of innovation policy has begun to shift. NISA successfully stimulated the early-stage ecosystem, but a new bottleneck has emerged: the scale-up funding gap. While start-ups could secure seed and Series A funding, accessing the larger $50M-$100M+ rounds needed for serious global expansion remain. Australia's superannuation funds, despite their immense size, remained cautious about allocating significant capital to later-stage domestic VC compared to global peers.

This "second valley of death" forces promising Australian companies to seek capital offshore, often leading to them re-domiciling in the US or UK.  This problem continues to this day, and this gap still exists. Many would also argue that the early-stage funding could still do with many more players.

The clear implication is that IP ownership, future high-value jobs, company tax revenue, and strategic control are often lost to Australia just as the company reaches significant scale. The economic benefits generated by NISA's early-stage success have been leaking offshore. This remains the fundamental problem with our innovation funding system. 

The government (tax payers) spend millions on research and development, and support for early-stage companies only for almost every one of them to be subsequently sold overseas.  There is value in this, but as pointed out, the long-term economic value for all the prior investments leaves the shores often never to return.  While it may not be feasible, more effort should be directed toward maintaining Australian-domiciled companies so that our economic complexity, job opportunities, and wealth creation remain local.

An important policy response is embodied in the $15 billion National Reconstruction Fund (NRF). After a slow start, the NRF is developing some traction. Unlike NISA's passive tax incentives designed to catalyse a market, the NRF is an active, government-owned investment corporation making direct debt and equity investments. It represents a philosophical shift towards more direct industrial policy. It operates commercially but targets specific national priority areas, aiming to provide patient, catalytic capital to de-risk large-scale projects and "crowd-in" private co-investment, tackling the scale-up gap.

NISA's Enduring Legacy

NISA's lasting legacy for Australia's venture capital sector has been undeniably transformative. By overhauling the ESVCLP/VCLP regimes and introducing investor incentives, NISA restructured the market, unleashing unprecedented levels of private capital. It didn't just increase the quantity of funding; it critically enabled the funding of quality deep-tech and research-based ventures through patient, tax-advantaged capital, directly boosting university commercialisation efforts. It built the foundations of today's vibrant early-stage ecosystem and catalysed an important cultural shift towards innovation. This can only be of benefit, but also still has a way to go

While challenges remain, particularly in securing domestic scale-up funding and navigating the complexities of later-stage growth, the NISA-era reforms created the essential bedrock for future progress. The architecture it established continues to channel billions into Australian innovation. It demonstrated the powerful, albeit often hidden, role well-designed policy can play in shaping a nation's economic trajectory, even as the focus now evolves to address the next set of challenges on the path to building a diversified, innovation-led economy.

It is important to acknowledge that just pre-dating NISA but also amended after NISA is the R&D tax incentive /rebate.  In a policy sense, this shouldn’t be seen as “funding” R&D, but many companies treat the tax incentive/rebate that way and rely heavily upon it.   It is not a sustainable approach, but it is widely used.

Reflections: Policy Cycles and Building on Success

There is, however, an inherent feature of the policy cycle that governments favour announcing 'new' initiatives over refining existing ones. This reflects an Australian chronic disease of policy amnesia, where the successes and lessons of previous frameworks like NISA are overlooked or forgotten. NISA's VC reforms, particularly the less visible tax concessions, built critical market infrastructure. But, there is a risk that their foundational role is underestimated by commentators and subsequent policymakers eager to launch their own signature programs.

The ongoing Strategic Examination of R&D (SERD) presents such a juncture. It could either build upon NISA's legacy, perhaps optimising existing mechanisms like the ESVCLP/VCLPs for current challenges, or it could pivot towards new models, potentially discarding effective tools in the pursuit of novelty and risking the destabilisation of a system that, while imperfect, has demonstrably delivered significant progress. Unfortunately, there have been too many precedents for this "announce, fund, and cut" syndrome.

Balancing continuity with necessary evolution will be key. We must continue a commitment to innovation and improve on the systems, processes and programs we have.  History should not be ignored just to introduce a new shiny (untested) program.

Below is a table comparing the policy focus and key elements of the 2015 National Innovation and Science Agenda (NISA) with the new algorithmic narrative described in the Insight Post of 21 November: Atoms and Algorithms: Building Australia's New Innovation Infrastructure. 

Feature	2015 National Innovation and Science Agenda (NISA)	New Algorithmic Narrative
Hero Asset	The startup	The algorithm, the trained model, or the proprietary dataset
Core Problem	The "valley of death" (where ideas fail to become commercial products)	Algorithmic valleys (gaps in accessing data, computation, and talent)
Primary Failure	Political: failed to secure long-term commitment and capture public imagination	Policy focusing on manufacturing scale-up must support deep digital transformation and not be limited to legacy, factory-based models
Infrastructure Focus	R&D grants for physical facilities and patent systems designed for physical inventions	Computational resources, massive datasets, and algorithmic expertise as critical public goods
Key Lever for Success	Capital reforms, such as Venture Capital Limited Partnerships (VCLPs) and tax incentives	Strategically uniting talent, data, and compute capabilities
Connecting to Public	Perceived as a policy for the elite/inner-city entrepreneurs	Links code to physical outcomes and regional jobs in foundational industries (e.g., advanced manufacturing, construction)

Footnote

[1] See https://www.industry.gov.au/sites/default/files/2020-02/venture-capital-dashboard.pdf

References

Australian Government. (2015). National Innovation and Science Agenda. Department of Industry, Innovation and Science. https://www.industry.gov.au/publications/national-innovation-and-science-agenda-report

Green, R., and Howard, J.H. (2015).  Australia’s Innovation Future: A Report on the Structure and Performance of Australia's National Innovation System. The Senate, Canberra. Download Report. 

Comments from Brenton J Hamdorf on an earlier version of this Insight are greatly appreciated.