The South Australian government has dropped Blue Sky as the manager of its $50 million tech fund, as the company now shows “no interest” in venture capital.
It comes as Blue Sky Venture Capital general manager and head of the South Australian VC fund Elaine Stead announced on Wednesday that she had been made redundant from the company she had been “central to building”.
After falling into administration earlier this year, Blue Sky Alternative Investments’ receivers announced the company would undergo a “restructure” that would lead to a number of redundancies.
The Blue Sky receivers now had “no interest” in the venture capital side of the business, according to the South Australian government.
Blue Sky has previously played a prominent role in the Australian tech and startup sectors, and has invested in the likes of Vinomofo and Shoes of Prey.
Blue Sky Venture Capital was appointed as the manager of the $50 million South Australia Venture Capital Fund (SAVCF) in mid-2017, established by the former Labor government to help local startups and tech companies secure growth funding.
But its future has been in doubt since Blue Sky Venture Capital’s parent company fell into receivership in May this year.
It followed a disastrous year for Blue Sky Alternative Investments. Activist hedge fund Glaucus published a spurious report in March last year claiming the fund manager’s assets were overvalued by 77 per cent, a claim Blue Sky has repeatedly denied.
Since the report landed, the company’s market value has fallen from nearly $1.2 billion to $14 million. It secured a $50 million convertible note facility from Oaktree Capital Management in September last year, but breached the covenant of this deal earlier this year. Oaktree then enforced its rights to appoint receivers and managers to the company.
Following the news, South Australian treasurer Rob Lucas said the government had sought “urgent advice” on the future of its fund, and the independent committee set up to oversee it has now decided that Blue Sky should be removed from its position.
Mr Lucas said it was the State’s preference was for the current team to continue in their roles under a new employer.
“I am advised the team has continued to manage the SA Venture Capital Fund effectively – notwithstanding the events that have impacted its parent company over the past year – and has met all its obligations under the terms of the management agreement,” Mr Lucas said in a statement last week.
“In the past two years they have evaluated more than 350 investment opportunities and actively manage $6 million into three investments in the fund. The independent SAVCF management committee expects this level of activity to continue.”
The committee is now set to open up an expression of interest and proposal process to select the manager.
The state government said that the receivers of Blue Sky have shown no interest in the venture capital side of the business.
“Receivers KordaMentha have since indicated to the SAVCF management committee that Oaktree has no interest in the venture capital component of the Blue Sky business,” Mr Lucas said.
It’s understood that Ms Stead would remain in her role overseeing the South Australian VC fund despite being made redundant at Blue Sky Venture Capital.
In a Medium post, Ms Stead said the downfall of Blue Sky had been “devastating” and the company’s investors and shareholders had “paid an incredibly high price”.
“I have been made redundant from the business I was central to building. I of course feel a deep sadness. It’s dispiriting and difficult to see the end of something on which you have spent vast amounts of your time, blood, sweat and tears building,” Ms Stead wrote.
Ms Stead said Blue Sky represented the best and worst of times for her.
“The beautiful business we built, many of the jobs we created and the wealth we grew for our shareholders and investors have been decimated over the past 18 months. I am proud of the companies and the founders I backed, what they created and how they have conducted themselves,” she said.
“The blunt reality is that my industry shouldn’t pretend to be a quiet and safe one. Its volatile nature is a necessary evil, part of the circle of life that encompasses high risk, high reward and technological and commercial bleeding edge.”
Ms Stead is a prominent member of the startup sector, and has led investments in a number of high-profile Australian startups.
In a market update at the end of July, the Blue Sky receivers confirmed that a “restructuring” of the company would lead to redundancies, commencing at the start of this month.
‘With the review completed, a number of positions regrettably are in the process of being made redundant. All entitlements will be met in full for affected employees,” the company said.