October 18-20 | Tucson, AZ

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Valley of death looms for Australian ideas

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October 18-20, 2023 / Tucson, AZ
The annual summit for research institution gap fund and accelerator programs, including proof of concept programs, startup accelerators, and university venture funds

The Story

When Swiss pharmaceutical giant Novartis pounced on Australian biotech Spinifex Pharma for $US700 million ($915.69 million) this week, one fact stood out: without federal government funding, this Australian pain therapy innovator may never have made it out of the lab.

Cash is still being thrown at research and development, but after the Abbott government axed the Innovation Investment Fund (IIF) scheme in 2014’s budget there are no programs to support early-stage funding for Australian start-ups.

There are concerns that the pipeline that takes great ideas to the marketplace, ideas like those underpinning Spinifex, Cochlear, ResMed and CSL, will simply be choked off.

“Australia is very, very strong in research, as good as anyone in the world. Great discoveries are being made all the time,” says Peter Devine, chief executive of university-backed venture fund Uniseed.

“[But] it is grossly inadequate if you compare the amount of seed capital to the funding of R&D … if we didn’t have the IIF funds a lot of investments might not have got off the ground.”

Uniseed, a venture fund providing early-stage capital to commercialise ideas, is backed by the universities of Melbourne, Queensland and NSW and super fund AustralianSuper.

It was one one of the first investors in Spinifex, along with GBS Venture Partners, Brandon Capital and UniQuest.


Spinifex was spun out of the University of Queensland in 2005 after UQ Professor Maree Smith and Dr Bruce Wyse found a new way to treat chronic pain that could have applications with diabetes, shingles, chemotherapy, and osteoarthritis.

After promising phase 1 and phase 2b clinical trials with patients suffering ongoing neuropathic pain after a bout of shingles, Novartis swooped on Spinifex.

The Swiss company paid $US200 million upfront and pledged up to $US500 million in additional payments if milestones are met, making the deal one of, if not the most, successful exit in Australian venture capital history.

As well as its venture capital backers, Spinifex also received federal government support from the Pre-Seed Fund initiative, IIF and its follow-on fund IIFF, Commercial Ready and the R&D tax rebate program.

The first three of those programs no longer exist. The funding gap, known as “the valley of death”, to get early ideas to market is widening into a chasm.

Industry body AVCAL says the 2013-14 year was the first time since 2006-07 that there were no public sector commitments to Australian venture capital.

“It is as bad as it’s ever been,” Brandon Capital managing director Chris Nave says.

“I think it’s crazy the government spends so much on research and so little on translation. We [Australia] are generating a lot of very exciting intellectual property but we are atrocious at commercialising the ideas. We fall well short on capitalising ideas into jobs and income.”


The early-stage venture capital investors have often also depended on federal government funding to get started.

Brandon Capital’s first two funds were backed by the IIF program. Brandon’s second Medical Research Commercialisation Fund received $20 million from IIF and it matched that funding from the private sector.

Having established a track record, Brandon raised $200 million in April for its third fund, Australia’s largest-ever life science venture fund, with no government money.

“In the early days that [government support] was crucial,” Nave says.

“Because of our performance, the investors are no longer looking for some sort of assistance … that doesn’t mean I don’t think the government should intervene. There is clear market failure.”

GBS Venture Partners, a venture fund spun out of investment and advisory house Rothschild, was also incubated by government funds.

Managing partner Brigitte Smith says the IIF program “was essential to get us started and into business”.

The firm, which now manages more than $400 million, received one of the first of five IIF licences and was awarded one of four pre-seed fund licences in 2002. That fund invested in Spinifex.


These funds are not handouts. Smith says the fund backed by the IIF returned more than two times its capital and the government got all of its money back plus a return.

“I think we spend $9 billion a year on R&D in Australia. Right now there are fewer venture capital funds than ever to take these ideas to the next stage,” she says.

Federal Trade and Investment Minister Andrew Robb has taken a step to direct capital to seed funding by making changes to the significant investor visa (SIV) program that fast-tracks Australian residency for wealthy migrants.

The SIV requires that at least $5 million must be invested in complying investments. From July 1, at least $500,000 of this must be invested in eligible Australian venture capital or growth private equity fund investing in start-up and small private companies.

At least $1.5 million must be invested in an eligible managed fund or funds or listed investment companies that invest in emerging companies listed on the ASX.

But this is a drop in the ocean.

Getting to late-stage trials to secure regulatory approval for a drug or medical device can take more than a decade and cost tens of millions of dollars.


It is an area that the federal opposition has in its sites.

“Support for innovation can’t be turned on and off like a tap,” Labor Senator Kim Carr says.

“Instead of backing Australia’s ability, the Liberals have cut billions from successful innovation programs like the R&D tax incentive, while overseeing the wholesale abolition of government-backed venture capital and commercialisation programs.”

Labor says if elected it will establish a $500 million smart investment fund modelled on the IIF.

The office of federal Industry and Science Minister Ian Macfarlane did not respond to request for comment.

Brandon Capital’s Nave says the chopping and changing of government programs is also killing early-stage funding.

It typically takes five to seven years before Brandon starts to make money from its investments.


The firm’s approach is to invest 25 per cent of a fund in a wide range of promising ideas to spread risk.

After the initial investment, Nave says the firm “actively tries to kill” its investments to cull the field down and whittle away ideas that cannot be commercialised.

The remaining 75 per cent of a Brandon fund is then invested in the smaller pool of companies that have survived the first two years.

In the world of venture funding there is no sudden uproar when government support is pulled, like there is when funding for front-line services such as healthcare is cut.

But there is a cost when good ideas fail to make it out of the test tube or beyond the blueprint.

Uniseed has invested in more than 40 ideas and at times it is the only investor.


Some of Uniseed’s current investments include BT Imaging, Hydrexia, and Smart Sparrow.

BT Imaging was founded on the back of research into solar panels at the University of NSW and has more than $20 million in sales.

Researchers at the University of Queensland worked out how to store hydrogen as a powder rather than as a compressed gas and Hydrexia now markets the product. It has just secured its first sale to a French multinational.

Smart Sparrow is a UNSW e-learning system that is on the market now after being supported by IIF, Uniseed, and the Bill & Melinda Gates Foundation.

Without early-stage capital, none of these companies would exist.

Brandon Capital’s Nave says Spinifex is a great example of the quality and value of Australian ideas, but he says it is also a bittersweet example.

“A European company will now take that that drug to market. If it gets to market, it will be worth $3 billion or $4 billion in annual sales. It would be great if they were making the drug here,” he says.

Valley of death looms for Australian ideas | afr.com.

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