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Business Growth Fund
The Australian Business Growth Fund (BGF) is ready to invest, with an initial war chest of $540 million that is planned to grow to $1 billion. The federal Government is making an investment of $100 million and partnering with other financial institutions to provide equity funding to SMEs through the BGF. The Big Four in the Australian banking sector (ANZ, CBA, NAB, and Westpac) have each committed $100 million to the BGF, and HSBC and Macquarie have both pledged $20 million.
The arrival of the Australian BGF means that Australian businesses that are generating annual revenues of $2 million to $100 million and can demonstrate three years of revenue growth and profitability (allowing for the impact of COVID-19 on recent business performance) will be eligible to apply for long-term equity capital investments of $5 million to $15 million, which will typically be 10–40% of total, fully-diluted, share capital, on an ‘as-converted’ basis.
This kind of fund follows the lead of countries like Britain and Canada who already have BGFs with similar financing structures and objectives, and seeks to help expanding businesses that often encounter difficulties obtaining finance other than on a secured basis (e.g. with a family home as collateral), and also struggle to get extra funding once they have pledged all of their real estate.
The Investment Guidelines for the Australian BGF state that its objectives are as follows:
- Increase the availability of patient equity capital to Australian SMEs;
- Increase the level of investment in SMEs across Australia;
- Facilitate interstate and overseas trade and commerce; and
- Support job creation and economic growth in response to the current COVID downturn.
After having launched their website and starting to accept applications in late FY2021, the fund is expected to be a long-term source of funding similar to the UK equivalent, which has been operating since 2011 and has backed around 400 businesses during good times and hard times, across all sectors and regions. Guidelines for the Australian BGF also state that there must be an industry and regional spread of investments, and looking at both the UK and Canadian BGF versions reveals diverse portfolios, which gives an idea of what to expect with the Australian BGF. In other words, although much of the global boom in start-ups and scale-ups is in the IT/Tech sector, if your venture is commercially viable and likely to make a return appropriate to the underlying risk of the investment, funding from the Australian BGF could be well worth chasing regardless of what industry and region you’re operating in.
BGFs at the state level
In Australia, the states have shown the initiative compared to their counterparts at the federal government level. For example, the Victorian state government established the Victorian Business Growth Fund (VBGF) back in mid-2019 with a $50 million contribution, which was complemented by leading industry superannuation players to reach a total of $250 million. It is expected that the VBGF will operate for 10 years, helping SMEs to access funds or find the right partner to grow their business. The VBGF will invest in businesses on commercial terms and take either an equity or debt stake (i.e., it’s not a grant). The fund manager will be targeting a commercial return on its investment and will also provide strategic insights, expertise and commercial experience to accelerate growth outcomes for investments. A focus of the VBGF is to support the creation of permanent, high-skilled jobs in priority areas of the economy.
The VBGF will consider businesses that:
- present a compelling growth opportunity to Victoria (i.e, lead to growth in a Victorian business, fund growth of a business expanding into Victoria, lead to meaningful job creation in Victoria, or add meaningful capital investment in Victoria);
- have annual revenue of $5 million to $100 million;
- have no more than $250 million in assets; and
- have positive cash flow, or likelihood of cash flow turning positive during the investment.
The first investment of the VBGF was in Flavorite, an agri-food company operating in regional Victoria, which will now be able to expand its operations, create more jobs, and explore new product lines and markets.
Perhaps even more impressive is the South Australian Economic and Business Growth Fund, which will provide financial support as opposed to an equity investment like in the BGFs of the Federal and Victorian governments. The substantial $100 million initial investment has been expanded to a total investment of $320 million thanks to the $220 million provided by the South Australian government as part of the 2020-21 Budget. The “Growth State” plan, which partners the SA government with industry, identified the following 9 priority sectors for the Fund to financially support:
- Defence industry
- Space industry
- Energy and mining
- Hi-Tech sector
- Health and medical industries
- Food, wine and agribusiness
- Creative industries
- International education
Funding from SA’s Economic and Business Growth Fund, which will be conditional on the recipient meeting agreed milestones and outcomes, will be primarily targeted to support initiatives that improve the overall productivity, capacity, and competitiveness of at least one of these priority sectors. Some other key criteria for receiving funding as part of SA’s Economic and Business Growth Fund are that potential projects drive high paying and sustainable jobs, attract and retain young wealth creators, lead to the growth or creation of value-added products and service industries, or drive export industries’ productivity efficiency and capacity; and that the investment would not otherwise occur without this financial support from the SA State Government.
Even though you may not currently satisfy certain threshold criteria (e.g. annual turnover) of the various BGFs mentioned here, if you’re a start-up that is turning into a scale-up, then keep the Australian BGF and other state BGF programs on your radar!
Whether it’s the BGF, RDTI, MMI, or a range of other funding and incentives, Fullstack has the knowledge and expertise to ensure you obtain everything you’re entitled to so your business can thrive and redefine its potential.
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Stuart Reynolds is the founder of Fullstack Advisory, an award-winning accounting firm for businesses leading the future. He is a 3rd generation accountant who specialises in tech companies, crypto and entrepreneurs.