Government-backed investment funds have emerged as a key component of increasingly interventionist industrial policy strategies across the developed world. The is certainly the case in Australia, with the $15 billion National Reconstruction Fund the latest government-led investment vehicle set up to drive future industries.
The $2 billion taxpayer-funded Breakthrough Victoria was set up just over two years ago, and has made venture investments in 18 portfolio companies alongside co-investment partners like Main Sequence, Investible, Rampersand and Jelix Partners among others.
Government-led funds have attracted criticism from market purists, who say they crowd-out private capital and are inevitably poorly managed.
In this episode of the Commercial Disco, Breakthrough Victoria chief executive officer Grant Dooley outlines the strengths of the model, whereby prudent investment across a broad portfolio can create an evergreen fund that provides a return to the state’s taxpayers.
While government support for industry has more traditionally been based on grant funding, Mr Dooley says that taxpayers should reasonably expect to enjoy a return on that investment if those companies are successful.
Grants are a powerful tool. But often the recipients of those grants – very often deep tech companies – are left stranded on the other side of that grant. Breakthrough Victoria was set up to provide that long-term, patient capital once that grant money has helped build the minimum viable tech.
“Breakthrough Victoria has a number of roles that we play,” Mr Dooley said. “We are not just a VC – a venture capital business – although we do invest in that market.
“Our mission is broader than that, and our investment mandate is broader than that. We are here to invest for impact,” he said.
“We’re searching for breakthrough technologies and ideas that can improve the health and well-being of Victorians – that solve environmental problems, create jobs, all those types of things.”
The fund does this through equity investments, for sure. But it has also made investment through a five university innovation platform; invested in a pre-seed fund with the University of Melbourne; and helped to set up a biotech incubator within Melbourne’s Biomedical Precinct.
“Those types of investments are very different to a normal VC style investment. And they’re really there to try and solve the issue that we all have in Australia – not just in Victoria – and that is that we are very good at producing world class ideas and technologies, but we have a very patchy track record in commercialising those ideas,” he said.
“And really, the idea for Breakthrough [Victoria] was based on that. If we are looking at the future industries for the state, if we are going to create the future prosperity in the state of Victoria, how can we use that taxpayer money to support those future industries and to help them grow and scale.”
These government-led funds have a powerful role to play in the development of deep tech companies in Australia, Mr Dooley said. And the growing number of government-led funds – with the arrival of the NRF, and with state governments also becoming more active – it was important that these funds worked in a coordinated way.
Breakthrough Victoria has already worked closely with and coinvested with the Clean Energy Finance Corporation and would expect to similarly work with the National Reconstruction Fund.
Having spent the last two years setting up Breakthrough Victoria and building the systems and processes – and the investment team – does he have any advice for the NRF? Or other states looking at government-led investment funds?
“The key learnings for me is [maintaining] that arm’s length from government. We have not had any pressure from government to invest in a particular project,” Mr Dooley said.
“Every investment that we have made – including the grants, including the university innovation platform – has been devised and has been sourced by the team. That investment decision has been made by the business at arm’s length from government,” he said.
“If you are going to be successful, then it has to literally be a standalone entity, and independent.”
In this podcast interview, Mr Dooley also discusses the role of government grants, the investment mandate at Breakthrough Victoria, and what kinds of companies are most interesting to the fund.
Do you know more? Contact James Riley via Email.