Small business ombudsman Kate Carnell has welcomed the formal establishment of the Australian Business Growth Fund (BGF), saying the federal government program fills a “critical gap” in the capital market for growing SMEs.
The shareholders agreement has now been signed for the BGF, which was first announced in 2018 and brings together government and private sector investment to offer capital to high-potential SMEs and startups.
The fund is valued at $540 million, with the government contributing an initial $100 million to seed the fund.
This funding has been matched by the four major banks, with ANZ, Commonwealth Bank, National Australia Bank and Westpac each committing $100 million.
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Macquarie and HSBC will also invest $20 million each in the BGF, which the participants plan to grow to a value of $1 billion as it matures.
The BGF will allow established SMEs with annual revenue between $2 million and $100 million to apply for long-term equity investment of between $5 million and $15 million.
To access investment, businesses will need to be able to demonstrate three years of revenue growth and profitability, although the effects of COVID-19 will be taken into consideration.
The fund will take minority stakes in these businesses, of between 10% and 40%, which Carnell said will allow “promising businesses to retain control of their company, while providing the funds they need to invest in growth”.
The fund was recommended by Carnell’s office in mid-2018 and is modelled on similar schemes in other countries.
“Similar models in the UK and Canada are tried and tested — overcoming barriers to accessing affordable capital for businesses that have gone on to demonstrate successful growth,” Carnell said in a statement last week.
“In supporting our high-growth potential SMEs, the Australian Business Growth Fund will play a significant role in encouraging business growth and economic recovery at a time when we need it most,” she added.
CEO appointed, investment guidelines outlined
Commenting on the signing of the shareholders agreement on Friday, Treasurer Josh Frydenberg also announced Anthony Healy has been appointed as chief executive of the BGF.
Healy is the former chief customer officer for business and private banking at NAB. He joins former Tasmanian premier Will Hodgman, who was appointed as chairman of the fund earlier this year.
Frydenberg said following Healy’s appointment, the BGF will “shortly begin engaging with SMEs that are seeking patient equity investment in their business to enable them to grow and expand”.
“The BGF will operate commercially and make investment decisions independently of government,” he said.
“The government’s investment in the BGF is part of its ongoing commitment to support SMEs as they seek to innovate, expand and create new jobs on the other side of the coronavirus crisis,” he added.
Speaking to The Adviser, Healy said he expects the fund to make its first investments in the first quarter of 2021, with funding to be provided to businesses over five-year periods.
“As the CEO, I now have to go out and hire the senior team, the investment team, the analysts — all those who will work with all the SMEs on the ground when we make investments,” he said.
“We’re now doing that and setting up all the technology requirements, the premises, et cetera, as well as building a talent network external to the fund (entrepreneurs, ex-business owners, consultants, et cetera), who can bring their expertise in when we invest in that business — and maybe even work in that business over time.”
The Treasurer also released a set of investment guidelines for the BGF, which spell out four key objectives for the fund:
- 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.
According to the guidelines, each investment made by the BGF must be “commercially viable and make a return appropriate to the underlying risk of the investment”, and the fund will seek to invest across industries and regions.