In November 2020, the Victorian government announced a10yr $2Bn Breakthrough Fund to bring new ideas to market and continue to reshape a modern ‘maker’ economy driven by science and technology. Whilst this investment is really only $200M pa, a small down payment given the size of the task, it recognises that –
1. access to early stage investment capital remains challenging for research institutions/businesses wanting to bring new technologies to market.
2. the capital needed to translate research into commercial potential is high risk and often beyond the resources of the originating parties or the risk appetite of Angel investors..
3. taxpayer support is needed to commit high risk capital (due to ‘market failure’) to catalyse matched and follow-on funding from Investors.
4. this type of investment has a long-term positive ROI that will underpin jobs, economic growth, and sustainable living.
The concept and design logic of the Breakthrough Fund is attractive for 6 reasons:
1. It is independent of politicians, although perhaps not of political influence. A corporation has been established to administer the Breakthrough Fund with a separate Board and inaugural Chair, John Brumby.
2. It plays to Victoria’s existing infrastructure strengths – health and MedTech, Advanced Manufacturing, Clean Energy, Agri-food, and Digital Technologies with an explicit focus on research-SME-Industry collaboration.
3. It is holistic offering a range of grants, repayable loans, equity investment though partnerships with private Investors, Superannuation Funds, Venture Capital and the Federal Government. Leveraging Victorian Government foundation funding is what it is all about. Securing a 5x return on each Government $ invested offers total investment of $10Bn over 10yrs and another (est.) 10x multiple over the long-term (based on UK modelling) is a comparatively cheap way to generate jobs and economic growth when borrowing costs are low.
4. It will fund at least two non-competing Project streams: transformational early stage Projects, and later stage Projects that demonstrate strong commercial potential.
5. The Breakthrough Fund will work with 2 other modestly capitalised Venture Funds to support late and early stage equity investment – the $61M Start-up Capital Fund will provide capital for start-ups over 3 yrs, and the $25M Venture Growth Fund will co-invest into a venture debt facility with a private investor.
6. A $50M fund has also been established to provide low-interest advance R&D loans to Victorian companies claiming the R&D Tax Incentive. Loans will be capped at 80% of a borrowers forecast refundable R&D tax offset. The private Advance R&D Lending market currently offers loans at 20%pa with an upfront facility fee, so access to a low cost option will sharpen market competition. . .
The holistic nature of the Victorian Breakthrough Fund raises the bar for other State grant programs, assuming it is thoughtfully implemented. For the moment, this is the gold standard for others to emulate. .