Submissions to a super-fast consultation on the Australian Business Growth Fund have finally been made public, with a whirlwind two-week Senate inquiry into the legislation now kicking off.
Draft legislation that paves the way for government to inject $100 million in Commonwealth money into the Australian Business Growth Fund was open for consultation for just five days last November. The legislation has now been introduced to Parliament and has passed by the lower house.
Labor supported its passage despite raising a series of “unanswered questions” and concerns over “red flags”. The Opposition did refer it to the Economics Legislation Committee, which has been tasked with reporting back on the bill in two weeks.
The fund would provide “patient capital” to local SMEs, and aims to fill an apparent gap in the market for growing companies approaching a Series A round that don’t want to give up control of the business or take on further debt.
Each of the big four banks have pledged $100 million, while Macquarie Bank and HSBC will chip in $20 million each.
The government has broadly outlined how the fund would function. It would provide investments of $5 million and $15 million to businesses with annual revenue of between $2 and $100 million, as well as evidence of three years’ revenue growth and profitability.
The entity backing the fund would take equity positions of between 10 and 40 per cent and would be incorporated as a private company with the Commonwealth as a minority stakeholder.
Labor criticised the lack of detail in the legislation as well as the rushed consultation process. It called on the Senate committee to look into the fund’s investment mandate, board make-up and its potential use of profits.
The Opposition had also been critical of a lack of transparency after submissions on the draft Business Growth Fund legislation were not made public before it was introduced to Parliament.
Just 13 submissions were made during the lightning round consultation, with most largely supportive of the fund but calling for more detail on its operation.
In its submission, the Australian Chamber of Commerce and Industry said more information was needed on the fund structure, majority control, investor range, portfolio diversity and whether there would be a cap on the overall funds available.
“The exposure draft does not provide sufficient information on how the established corporation will process applications for funds and opportunities for investment, whether systems will be developed or maintained to establish, monitor and manage the loans and investments, whether a network of finance industry lenders and equity fund specialists will undertake assessment of funding opportunities or provide mentoring and education to SME business owners,” the ACCI submission said.
“The Australian Chamber is supportive of a Business Growth Fund, however we recommend further consideration to be given to the Fund structure, how the established corporation will process applications for funds and opportunities for investment and whether systems will be developed or maintained to establish, monitor and manage the loans and investments.”
The Australian Finance Industry Association also called for more detail, with a need for further consultation once the rules are established.
OnMarket, a company which facilities equity raisings for SMEs, hit out at the fund in its submission, saying it would “substantially negatively impact” the business, the supply of ASX-listed IPOs and opportunities for small investors to invest in SMEs.
“We believe that the Business Growth Fund will have the likely effect of a substantial lessening of competition in the market and cause a long-term detriment on SMEs’ access to equity,” the OnMarket submission said.
The company claimed to have previously “extensively explained” these concerns to the government, and said that the fund would “cripple” its business.
“We are at a loss as to why the government seeks to emulate the UK Business Growth Fund, when OnMarket and our industry peers facilitate and collaborate on equity raisings for approximately the same number and value-raised as the UKBGF at a fraction of the cost,” it said.
“We have advised the government, its agencies and the banks that the likely outcome of the ABGF will be to severely damage our business and other like businesses.”