The Victorian government is set to invest $25.7 million directly into the state’s startup ecosystem, via a new venture growth fund expected to be announced in today’s budget.
The fund will be focused on boosting innovation in Victoria by co-investing in local startups over a four-year period.
A $25.7 million anchor investment is intended to encourage additional investment from private investors, addressing the challenge startups face in accessing capital.
However, it appears the funding will be structured as a loan, rather than an equity investment, meaning founders won’t have to surrender equity.
It will be available to high-growth, revenue-generating startups across all industries. So far, no further information on eligibility has been released.
“It’ll allow us to co-invest in these organisations so they can be the best they can be,” a government spokesperson said.
Speaking to SmartCompany, StartupVic chief executive Judy Anderson says more money is always welcome in startupland.
“Of course, the devil will be in the detail,” she says.
We don’t know yet who will be managing the fund, what the process will be for startups, or, as Anderson puts it, how “founder-friendly” it will be.
But, it’s a decent chunk of money, and she hopes the co-investment model will see it matched by the private wealth community too.
The fund is intended to keep high-growth-potential businesses in Victoria, offering an alternative to seeking funding offshore.
It could also prevent those startups from approaching the private equity market too soon, and getting burnt.
Meanwhile, Victorian Treasurer Tim Pallas has seemingly lamenting missed opportunities for innovation in his state.
“I wonder how many of these great ideas have just gone missing or gone overseas as a consequence of us not being prepared to be a bit strategic in terms of our interventions,” Pallas reportedly said.
The Treasurer also acknowledged the capacity for startups to fuel economic growth and create jobs — while noting the challenge in securing the capital they need to do that.
“Innovation will drive productivity, will drive employment, and that is the key focus of the government,” he said.
“We know that particularly the Reserve Bank, and the Productivity Commission, has made observations that access to loan capacity is extremely difficult for commercialising companies.
“It’s even more difficult for those companies that don’t have a substantial capital base but have a great idea.”
Anderson agrees, in theory. Where there’s less funding, there’s clearly less potential for growth.
She believes local startups have missed out on the opportunity to scale more quickly.
“They’ve almost paid a pace penalty,” she says.
But, she’s all about looking forward, not back. It’s not useful to think about what could have been, she says.
“What do we do now to try and course correct and try to recharge that growth?”
A shift in strategy
The announcement follows the launch of the $250 million Victorian Business Growth Fund back in June.
That fund was designed to help give small- and medium-sized businesses access to equity funding, in order to help them manage the effects of the COVID-19 pandemic.
“This is a Victorian-first program that finds a new way of backing our local businesses to become bigger and better. We know access to capital is often a handbrake on growth — we’re fixing that,” Pallas said in a statement at the time.
“As we continue to recover from this crisis, we’ll continue to pursue more opportunities to work closely with the private sector to grow the economy.”
The venture growth fund seems to be a continuation of this strategy. However, when it comes to the innovation ecosystem, it could mark something of a strategy change.
Previously, the government has focused its innovation funding on startup agency LaunchVic, which funds accelerators, events and research into the ecosystem, and issues government grant funding.
LaunchVic also heads up CivVic Labs, a procurement program designed to give startups easier access to government contracts.
Last week, the program announced six startups have secured a combined $1.1 million in government contracts.
It’s not clear, as it stands, whether the new program will run hand-in-hand with LaunchVic, whether the two schemes will be combined, or whether the new approach will replace the old one.
The budget is also expected to include additional ‘access-to-capital’ initiatives directed at startups and complementing the Victorian Business Growth Fund.
More to come.