UNBEKNOWNST to many, Venture Capital, has been a form of alternative investment in one way or another, for the last few centuries.
In its contemporary form, Venture Capital is primarily accessed by entrepreneurs who are looking for funding to pursue their ventures. It fills the gap between private equity firms and banks who deem these early-stage ventures too risky to be invested into.
Venture Capital, as an alternative investment asset class, historically has only been available to high-net worth individuals or institutions and not to retail investors.
Section 12J offers retail investors the chance to invest in Venture Capital through approved Section 12J Venture Capital Companies registered with the FSCA and South African Revenue Services (“SARS”). Not only does investing in a Venture Capital Companies allow retail investors to gain exposure to this exciting asset class, it also affords investors into the Venture Capital Companies to invest tax-efficiently.
The investor into a VCC is entitled to deduct 100% of their investment from their taxable income in the year in which the investment into the Venture Capital Company is made. This tax break allows for the investors to mitigate their total risk in the asset class, as the investor has reduced his investment risk by receiving a 45% Section 12J allowance.