SME Growth Fund Doubles Its First Cheque to $30m and Opens a Sell-Down

The Australian Business Growth Fund has doubled the largest cheque it can write into a business for the first time, lifting it from $15 million to $30 million. Counting follow-on rounds, it can now put up to $50 million into a single company.

The fund is an unusual piece of the Australian capital market. It was founded with $540 million of initial capital under a partnership between the federal government and six of the country's leading banks, and it exists to cover the ground between a bank loan and a private equity buyout. It announced the expanded mandate on 10 August, alongside a multimillion dollar investment in Griffin Industrial Group, a maritime sustainment business with more than 200 staff across Australia's four naval homeports.

The cheque size is not the real change

Until now the fund has taken a minority stake, typically up to 49 per cent, on the principle that the founder keeps control. Under the expanded mandate it can also take a majority position where a founder wants to reduce their shareholding.

That turns a growth fund into a partial exit route. An owner who needs capital for the next stage, and who also wants to take money off the table personally, can now do both in one transaction rather than choosing between them. The fund lists an optional release of cash-out equity to owners alongside ordinary shares, preference shares, loan notes and convertible notes.

Chief executive Anthony Healy said the fund had been turning away strong Australian businesses that wanted bigger cheques or more flexible ownership arrangements.

Who it is actually for

The eligibility bar is published, and it is narrower than the phrase small business suggests. The fund asks for an Australian headquarters, turnover between $2 million and $100 million, at least three years of profitable operations, and a clear growth strategy. Three profitable years is the test that does most of the filtering. This is capital for businesses that already work, not for turnarounds and not for ideas.

It is also slow by the standards of business finance. The fund puts the full path at eight to ten weeks, from exploratory discussion through due diligence to documentation. It takes a board seat, and describes the partnership as running three to ten years before an exit.

Equity and debt answer different questions

The useful distinction is not which one is cheaper. Debt is usually cheaper when the cash flow is there to service it and you want to keep every share you own. Equity costs ownership permanently but carries no repayment schedule, which is why it suits a business financing three years of hiring, systems and acquisitions before the return shows up. The other difference is who arrives with the money: a lender wants to be repaid, while an equity investor takes a seat at the table and a say in the decisions.

What to do

Start by working out which side of the line you sit on. Below $2 million in turnover, or without three profitable years behind you, this fund is not the conversation to be having. The realistic options there remain cash flow lending, asset and equipment finance, angel or family investment, and the grant programs that fit your industry. Any finance is subject to lender approval, terms and conditions apply.

If you are inside the band, settle two numbers before you speak to any investor. The first is what the money buys, in specifics: two site fitouts, eleven hires, a competitor's book of customers. Growth is not a use of funds. The second is the share of the business you are prepared to sell, decided while you are calm rather than while a term sheet sits in front of you.

Then read the governance, not just the price. In a minority deal the percentage matters least. What matters is the list of reserved matters: the decisions that need investor consent regardless of who holds more shares. Capital spending above a threshold, new debt, hiring or removing a chief executive, changing the dividend policy. Ask for that list early, because it describes what your working week looks like for years afterwards.

This article is general information only and is not financial advice.