Victorian government establishes pilot program to make equity investments in startups

In the 2022-23 Victorian budget which was unveiled by Victorian Treasurer Tim Pallas on 3 May 2022, it was announced that the Victorian government will be offering funding in exchange for a direct equity stake in high-growth and innovative Victorian businesses.

A new $20 million Equity Investment Attraction Fund will be established by the Victorian Government as a pilot program to attract young, highly-innovative companies looking to grow in areas that align with Victoria’s priority strengths, such as medical technology.

This program is in addition to the $60 million investment which the Victorian government has already made in the Victorian Startup Capital Fund (VSCF), to be matched by at least $60 million from private investors, super funds, family offices and high net worth individuals. The VSCF, which was announced in the 2019-20 Victorian budget, does not invest directly in companies but will invest in Victorian based early-stage VC Funds Limited Partnerships and Victorian-based angel sidecar funds who will need to match the funding made by the VSCF.

The Victorian Equity Investment Attraction Fund is similar to the direct investment model of the $50 million South Australian Venture Capital Fund (SAVCF). The SAVCF was established to invest in high growth and export potential companies that have at least demonstrated a market for their product or service and have either commenced generating revenue or can demonstrate customer validation and evidence a route to revenue generation. This is structured as a co-investment fund, requiring each initial investment into an eligible company to be matched with at least 50% investment from other venture capital funds, high net-worth individuals or other sophisticated investors. According to its website, the SAVCF has invested in 7 companies so far.

It will be worth monitoring the success of this new Victorian Equity Investment Attraction Fund as other States may follow suit and set up their own direct equity investment funds focussed on startups.

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