A clean energy technology company based in the Hunter Valley region of New South Wales has become the first company to secure investment from the $540 million Australian Business Growth Fund (ABGF).
In line with its mandate to offer long-term, patient equity capital to help SMEs grow, the ABGF will invest $15 million in 3ME Technology via a convertible note in a 10-year deal that will help the company expand its production facilities, conduct more research and development and move into new sectors.
3ME Technology has been operating for more than 15 years and specialises in developing systems for electric vehicles and high-performance lithium-ion batteries.
The company’s cell-level battery management system can be retrofitted to large diesel-powered vehicles, and the company has seen growing demand in the mining, defence and aerospace industries.
However, CEO Justin Bain said the company has also encountered “the same challenge as most SMEs” in accessing capital to grow while still retaining control of the company.
“There’s a big opportunity to scale up production because we’re solving safety and environmental problems that apply across a range of industries, not just mining,” he said.
The company worked with Sydney-based financial advisory firm VCF Capital Partners, which contacted the ABGF following the fund’s launch.
The investment is expected to triple 3M Technology’s capabilities by 2026, which would not only accelerate growth in the Australian battery manufacturing industry but also create more jobs in the Hunter region. The company currently employs more than 40 employees and is actively recruiting to double that figure this financial year.
Treasurer Josh Frydenberg welcomed the fund’s inaugural investment, which he said will also allow 3M Technology to help “empower the clean energy transition of specialist electric vehicles and power solutions to current and new industries”.
Speaking to SmartCompany, ABGF chief executive Anthony Healy said the fund is “actively looking” for more growing, profitable companies with proven business models to invest in and expects to invest in 10 businesses a year.
“With our first successful investment underway, we are building an ‘investment pipeline’ of companies with potential for growth and anticipate making a further announcement later this year,” he says.
A mandate to help SMEs grow
The fund was first announced in 2018 and formally established in October 2020, after the federal government and Australia’s largest banks together put forward $540 million to establish the fund, which it is hoped will grow in value to $1 billion.
It is modelled on the UK’s successful Business Growth Fund and offers minority investments of between $5 million and $15 million, over terms of up to 10 years, to businesses that are headquartered in Australia and have annual revenue of between $2 million and $100 million.
In a sit-down interview with SmartCompany in May, Healy said the fund has a clear mandate to see the SME sector as a whole grow.
The fund has been designed to fill a gap in the market for funding for SMEs that are bigger than early-stage startups that attract venture capital, but smaller than larger companies that are more suited to private equity deals, with its guideline of not making majority investments crucial to its function.
“We don’t have any of those typical control rights; we can’t turf out management, we can’t sell our shareholding and drag the owner into a sale process. We’re sitting alongside them, supporting the owner to grow the business and achieve their vision,” Healy said at the time.
Healy said he expects the evergreen fund will do an average of 10 deals a year with a cheque size of $10 million, meaning the fund will likely invest $100 million in capital each year across a range of industries.
Each investment will also involve a member of the fund’s team joining the companies’ board of directors and each company will be required to appoint an independent, non-executive chair.
Healy says a formal appointment to the 3M Technology board is expected to be announced in coming weeks, and discussions are continuing about the skills and experience needed by the company, which could result in additional independent board appointments.
Steve Lawn, head of growth at 3ME Technology said in a statement the business learned a lot by going through the due diligence process after contacting the ABGF.
“Clearly, if you want to raise a reasonable amount of money, you have to prove your product is sounds and that you understand your market,” he said.
“The ABGF team listened to where we were as a business and crafted an offer that gave us the best shot to grow in a manner that would maintain our motivation to do so.”