Big four-backed growth fund hunts for cutting-edge investment ideas

The mid-market fund is trying to fill a void often ignored by private equity funds which tend to seek larger investments. Mr Healy, a former National Australia Bank and ANZ business banker, said the public-private vehicle was an alternative to debt financing by banks.

“Business often estimates its growth potential from how much money banks will lend them,” he said. “Banks can only lend so much.”

The fund has so far closed nine deals including partnering last month with skincare manufacturer, distributor and retailer, Inskin Cosmedics.

The fund’s portfolio also includes investments in electric battery manufacturer for mining 3ME Technology, engineering firm Derwent Industries, tourism and aviation business HMC Group, DIY Blinds, Kikada Lane Dental and e-waste recycling business Scipher Technologies.

“Some of the valuations are going up, some are staying the same and some are struggling a bit because of the external environment,” he said.

The equity fund has partnered on two deals with the government’s Clean Energy Finance Corporation and Mr Healy said there was an opportunity to work with the government’s new $15 billion National Reconstruction Fund.

A valuation gap has opened up between founders and investors, but more deals are on the horizon because there is more certainty around the interest rate outlook, he said.

The fund targets businesses with turnover between $2 million and $100 million, that are founder-led, high growth, disruptive and bringing new technology and ideas to market.

Mr Healy said there was “very little equity capital in that space”, apart from limited investment appetite from family offices, small private equity funds and some high net worth people.

The fund, inspired by the UK’s £2.5 billion ($4.8 billion) Business Growth Fund, was set up with $100 million from each of the big four banks, $100 million from the federal government and $20 million each from HSBC and Macquarie.

Asked about the governance arrangements and the potential for risking taxpayer money, Mr Healy said investments were made at “arms length” from the government and shareholder banks.

“We don’t allow ourselves to be influenced by the banks or government.”

The banks each have a director on the board. Mr Healy said they had no say on the businesses that were invested in and only found out a few days before a deal was publicly announced.

The fund is chaired by Elana Rubin, a director of Telstra and the Reserve Bank of Australia. The government’s appointed director is Treasury deputy secretary Roxanne Kelley.

Its co-heads of investments are former CHAMP Ventures director Ghazaleh Lyari and former Crescent Capital Partners partner Patrick Verlaine.

Mr Healy said the fund’s staff were experienced at working with founders and entrepreneurs in growing businesses. He said if the nascent financing model was proven successful, the fund could be expanded in future years.

“One of our aims is to prove that commercial returns can be generated in the SME sector, which hopefully leads to more capital coming from other investors.”