Soon small, high-growth potential businesses can go to the government for capital rather than investors
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It seems certain the Morrison government’s plan to invest in businesses with high-growth potential will become law, but the move has drawn criticism that it could divert companies away from ASX and retail investors.
The Business Growth Fund (BGF) is about to be debated in the senate and is all but certain to become law. It has already passed the lower house and endured an inquiry from its economics committee.
While some cross-bench senators have criticised the bill, the Labor opposition ultimately recommended the legislation be passed despite concerns.
The government will contribute $100m in return for equity stakes in the firms. It is expected that with further cash injections, in particular from the banking sector, the fund will mature to $1bn.
The big four banks will contribute $100m each, while Macquarie and HSBC will also chip in $20m.
The move seems like a good move for businesses but it has not been without criticism.
Some investor groups have expressed concerns that they could be disenfranchised. They are concerned over the possibility businesses will bypass the ASX and go straight to the government.
“We are concerned the BGF could lead to the disenfranchisement of retail investors by excluding them from investing in SMEs that otherwise would have conducted an initial public offering on the ASX,” Australian Shareholders Association CEO John Cowling said.
Crowdfunding platform OnMarket proposed the government give public investors an opportunity to buy in.
But companies are singing from a different hymn sheet, particularly those in capital intensive industries.
Jeff Lang, CEO of additive manufacturer Titomic (ASX:TTT), told Stockhead yesterday he thought it was a game changer. He argued this could help companies get to the ASX in the first place.
Lang noted private investors were often impatient as well as unwilling to invest in pre-revenue companies. This impediment is particularly strong for the advanced technology sector, which is particularly capital intensive.
“I think whatever way we look at it all stakeholders need to work with smaller enterprises and help them deliver,” he said.
“Venture capitalists are impatient. They want an immediate return on investment so it puts companies to the wall at that start up phase.
“The government is saying we’ll support the start-up phase by taking an equity position, it is a more viable model than venture capitalists putting the money in and risking losing all their money.
“It’s not a hand out, it’s about how you grow investment in these companies and exports for Australia and open up Australia’s potential on advanced technology.”
Lang also expressed disappointment that the focus was on larger companies that could potentially be diverted from listing.
“I think one thing the media has missed out on is that 95 per cent of Australian business is small and 93 per cent of the turnover is less than $2m,” he said.