Aussie funds are tapping into this multibillion-dollar ‘tough tech’ sector

• The ‘tough tech’ sector is starting to attract major investor attention thanks to its ability to enable breakthroughs in how the world can more efficiently produce resources and energy
• Australia’s culture of innovation, coupled with our natural resources, puts our home-grown sector in a prime position to lead the next wave of tough tech development
• Funds are targeting high-conviction opportunities in critical minerals and related technologies

Special Report: The darlings of the tech sector have long been rapidly scaling up software companies, many emerging from the comfort of the founder’s home before booming in glossy headquarters. But another breed of innovation is starting to attract some serious attention and capital.

Dubbed ‘tough tech’ by the likes of the Massachusetts Institute of Technology, this sub-sector comprises companies borne out of labs filled with heavy equipment and years of R&D.

Bringing together cutting-edge science and engineering with entrepreneurial grit, tough tech start-ups have the potential to solve some of the world’s biggest challenges. Chief among those hurdles is working to efficiently provide the resources needed by the world’s growing population, whilst also responding to demands for reduced environmental impacts.

Funds eye the future

Tough tech ventures can have big-picture visions but often start small and require patient, specialised capital because their technologies haven’t yet been commercialised. But they do have potential to offer large payoffs.

Australia already has a head start to be a global leader in transformative tough tech, given our strong record of research excellence in our rugged primary industries, abundant natural resources and mature capital markets.

To help local industry stay on the front foot of global shifts, the Future Made in Australia policy promises $22.7 billion over the next decade to drive investment in key sectors of the transition economy. That includes $2 billion for the Australian Renewable Energy Agency and more than $8 billion for critical minerals projects.

Australia’s policy mirrors others around the world and recognises that opportunities in tough tech innovations go beyond individual startups: They have the potential to impact entire industries, creating fertile ground for investors with a long-term view.

Viability still key

Stefan Skorut, CIO of RFC Ambrian Funds Management (RFM) arm, says Australia already produces world-class tough tech science, especially in mining.

“But miners aren’t looking for science experiments on their sites, and researchers don’t necessarily want to become entrepreneurs,” Skorut said.

“The ventures that succeed are the ones that blend breakthrough science with deep industry insight, smart deployment, and strong governance and business models, and that’s where RFM is finding its niche.”

Skorut also emphasised the importance of economic viability in the here and now, not just the future.

“We all want to reduce impact on the environment, but no one will back a technology that doesn’t create economic and ultimately societal value,” he said.

“Innovators must deliver benefits for their customers and profits for their own company so they can reinvest, continue to innovate and stay ahead. Without that, you don’t have a viable business. That reality is sometimes overlooked in the rush to support future assumptions rather than present-day fundamentals, and we remain very vigilant of that.”

RFM has grown out of the firm to focus on deploying capital into breakthrough opportunities in critical minerals and critical technologies that offer scalable solutions to resource and transition challenges.

Skorut said the RFC Ambrian team’s mix of hands-on engineering experience in the resources industry, alongside financial expertise and a deep industry network gave it an edge in scaling up transformative technologies for heavy industry.

A number of the companies RFM has selected to back have grown out of cutting-edge CSIRO R&D projects to become global leaders in their fields.

This includes MagnaTerra which combines the magnetic resonance technology expertise of CSIRO spin-offs NextOre and MRead.

Via NextOre, the tech is already helping miners separate copper ore – critical for electrification – from waste using significantly less water and energy than traditional methods.

Meanwhile MRead’s explosive detection provides life-protecting benefits in landmine clearing. The company is also pursuing R&D in a narcotics detection system with robust potential for resource efficiencies in illegal drug detection.

In the renewable power sector, RFM is supporting the scale-up of innovations developed by Hadean Energy and FPR Energy.

With its innovative electrolyser tech, Hadean is successfully targeting the rapidly expanding e-fuels sector and the ‘hidden’ but multibillion-dollar market for low-emissions hydrogen used to fuel hard to abate heavy industries.

FPR Energy, which has received backing from Japanese utilities leader Osaka Gas, is commercialising CSIRO-developed, next-generation Concentrated Solar Thermal (CST) technology. In an industry first, FPR’s tech can produce temperatures up to 1,000C, enabling the storage of solar energy for reliable and on-demand renewable heat or electricity for industry.

Separate from the CSIRO but also scaling up out of the RFM stable is Gaia EnviroTech. Gaia’s pioneering anaerobic biodigester systems and rapid composter tech help industries cut methane emissions from rotting food and vegetation. At the same time, it produces carbon neutral biogas and high-quality compost at greater speed and consistency than traditional methods.

All these tough tech examples sit at the intersection of science, industry and capital – a space that holds great potential to address some of the world’s biggest challenges related to resource efficiency and decarbonisation. Meanwhile, Aussie funds and investors will be watching it all unfold with keen eyes.

This article was developed in collaboration with RFC Ambrian Funds Management, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.