News & Analysis

OneVentures opposes banning of innovation funds, saying VC industry would suffer

- May 9, 2014 3 MIN READ
Michelle Deaker

Australian venture capital firm OneVentures has voiced its disapproval of Commission of Audit’s recommendation to abolish innovation funding programs like the Innovation Investment Fund (IIF), saying it would be “a step backwards for Australia”. Innovation funding programs, the firm believes, is a “key building block for the future of Australia with a multiplier effect in the economy that is not a cost to the Government”.

The purpose of the IIF, OneVentures points out, is to seed new VC firms to facilitate the growth of a viable venture capital and innovation industry by building necessary infrastructure and capacity in the sector.

OneVentures stresses that the IIF program is not a grant, but held by treasury on capital account with venture fund managers to return capital to the Government when profits are made on investments.

“Importantly, this program is not a grant and the investment by the Government is on capital account, to be returned in the future as investments are realised by IIF fund managers,” said OneVentures’ Managing Director and CEO, Dr Michelle Deaker in a media release.

“Our first Fund has already returned early capital to the Government with that investment providing an internal rate of return of 28% to investors. The Fund also has a carrying value of investments at approximately 2 times just 4 years into its investment cycle.”

OneVentures’ first fund is a key beneficiary of the Australian Government’s IIF, demonstrating the role Government can play in investing in the future of Australia. The firm is now in market for a new $100 million fund with its Fund I being regarded as a portfolio of quality assets by investors.

The OneVentures Innovation Fund raised $40 million, including $20 million of IIF funding, allowing the firm to make investments into emerging Australian companies operating within the technology and life sciences space. The fund was able to launch just after the Global Financial Crisis, leveraging the benefit of the IIF program for private investors.

Through the IIF Program, OneVentures has also been able to attract and repatriate a number of entrepreneurs and business leaders returning from overseas into Australian VC management.

Dr Deaker said that OneVentures may not have become the established firm it is today without the IIF Program.

“Innovation funding programs like the IIF are integral for the venture capital industry in seeding new funds and creating the new industries of the future, and its removal would reduce Australia’s global competitiveness in the long run,” Dr Deaker said in a media release.

“Government funding programs foster the broader investment community and the IIF model where the government matches private investor capital, sharing risk and taking a low capped return, encouraging capital from institutions and high net worth individuals to the venture capital asset class.”

Alongside the $40 million Innovation Investment Fund, OneVentures has run a co-investment model where private investors in the Fund can choose investments they prefer and provide additional capital where a funding round is larger than what the fund can support.

The IIF fund laid the platform with OneVentures raising an additional $40 million in capital to support technology startups with strong market potential through co-investments and syndicated funding largely from offshore. The quantum of funding has therefore effectively doubled into the economy and OneVentures expects the number to be far greater before the end of fund life.

Emerging companies which OneVentures has been able to support include medical electronic information system Charmhealth, nanoneedle vaccine technology developer Vaxxas and adaptive e-learning platform Smart Sparrow.

“The multiplier effect of the government support is clearly visible when you look at OneVentures Innovation Fund through the additional capital raised into our companies via co-investment and syndication,” Dr Deaker said.

“In the medium to long term, the quantum of new jobs in potentially new emerging industries generated through this program for the economy represents a strong case for Government support. The program also ensures that the country benefits from public financed R&D with six of our nine portfolio companies originating from R&D in Australian universities and research institutions.

OneVentures launched its Innovation and Growth Fund II in March this year, seeking to raise $100 million for institutional investors and high net worth individuals, to invest in startups through to emerging high-growth companies.

“The IIF is part of a structure currently in place to aid a venture capital firm’s fundraising process, and contrary to the National Commission of Audit report, I believe the Government will be looking to develop this program further if it can,” said Dr Deaker.

“The Liberal government originally developed the program recognising that it helps to provide the necessary oxygen to build the new economy, encouraging private sector investment, driving growth companies and fuelling job creation to support Australia’s future.”