Innovation Investment Fund Program Round Three Direction No. 1 of 2007

Administered by Department of Industry, Science and Resources

Legislation au F2007L04107 In force Legislative Instrument

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Commonwealth of Australia

 

Industry Research and Development Act 1986

Innovation Investment Fund Program Round Three

Direction No. 1 of 2007

 

I, Ian Elgin Macfarlane, Minister for Industry, Tourism and Resources, acting under subsections 18(A), 19(1) and 20(1) of the Industry Research and Development Act 1986, issue the following explanatory statement on the Direction to Innovation Australia (the Board).

 

 

Dated 3 October 2007   

 

IAN MACFARLANE

Minister for Industry, Tourism and Resources

 

 

 

Explanatory Statement

 

Issued by the authority of the Minister for Industry, Tourism and Resources

 

Industry Research and Development Act 1986

 

Innovation Investment Fund Program Round Three Direction No 1 of 2007

 

General Outline

 

The Innovation Investment Fund Round Three Program (the Program) is a competitive, merit based program designed to promote the commercialisation of Australian research and development through the injection of venture capital into new companies in their seed, start-up or early expansion stage.  The Program also aims to develop fund managers with experience in the early stage venture capital industry.

 

The Innovation Investment Fund Program Round Three Direction No 1 of 2007 (the Direction) makes provision for a new governance framework for the Program to apply to application processes held after 2006.  The Direction provides for each manager of a licensed fund to establish a Supervisory Board.  The Supervisory Board has responsibility for decisions in relation to the administration of each fund which are investor related and are set out in the governing documents for the Program.  Innovation Australia (the Board) is responsible for all matters relating to the administration of the Program.

 

In accordance with the Direction, the Board assesses applications against merit criteria outlined in the Direction and provides a ranking of those applications.  The Program Delegate determines which eligible applications will receive funding and takes into account the merit ranking provided by the Board, the available Program funding, and the policy objectives of the Program.

 

The Direction does not affect the rights of a person (other than the Commonwealth) as at the date of registration so as to disadvantage that person or impose liabilities on that person (other than the Commonwealth) in respect of anything done or omitted to be done before the date of registration on the Federal Register of Legislative Instruments.

 

Legislative authority

The Direction is issued to the Board by the Minister for Industry, Tourism and Resources (the Minister) acting under subsection 19 (1) and 20 (1) of the Industry Research and Development Act 1986.

 

Consultation

The Minister consulted the Board during the development of the Direction, as required under sub-clause 20 (2) of the Industry Research and Development Act 1986. 

 

Financial Implications

The Direction has no financial impact.  The Direction provides a framework by which the Board provides assessments and merit ranking of eligible applications.  The Program Delegate makes the final decision in determining the quantum, terms and conditions of licences under the Program.  The role of the Supervisory Board is to determine investor related issues arising during the operation of the licensed funds.

 

Date of effect

The Direction commences on and from the day on which particulars of the Direction is published in the Gazette.

 

Notes on Provisions of the Directions

 

PART 1 – PRELIMINARY

 

Name of Direction

 

Clause 1

 

The Direction constitutes the Innovation Investment Fund Program Round Three Direction No 1 of 2007.

 

Commencement

 

Clause 2

 

The Direction commences on and from the day on which particulars of the direction has been published in the Gazette.

 

 

 

 

 

 

 

 

 

Object of these Directions

 

Clause 3

 

The object of the Direction is to provide the Board with instructions in relation to an additional function of the Board – namely the provision of assessments and merit rankings of eligible applications under the Program - and the policies and practices that the Board must follow in the performance of this function.

 

Interpretation

 

Clause 4

 

This clause explains key terms used in the Direction. It includes a definition of R&D activities and of a Supervisory Board.

 

PART 2 – CONSIDERATION OF APPLICATIONS TO PARTICIPATE IN THE PROGRAM

 

Board to have regard to certain policy objectives

 

Clause 5

 

The Board must have regard to the policy objectives of the Program in giving effect to the Direction.  

 

Procedure

 

Clause 6

 

This clause provides a guide to the Board on the assessment and merit ranking of eligible applications.  The Board must consider eligible applications in relation to a particular funding round as soon as practicable after the Program Delegate has provided those applications to it.  The Direction also provides for the Board to interview any applicant and request additional information from applicants to assist in the assessing and ranking of eligible applicants.

 

Board may decline to provide merit ranking

 

Clause 7

 

The Board may refuse to provide a merit ranking of a particular applicant if it is not satisfied that its application shows sufficient merit. 

 

PART 3 – ASSESSMENT AND MERIT RANKING OF APPLICATIONS

 

Assessment of applications

 

Clause 8

 

The Board assesses the merit of each applicant's activities against the merit criteria contained within the Direction.

 

Merit Criteria

 

Clause 9

 

The Board will assess applicants against the merit criteria in the Direction.  These criteria are:

(a)            whether the proposed applicant has effective strategies to contribute to the training and developing of Australian based staff in all aspects of making venture capital investments in early stage companies;

(b)           the proposed size of the fund and ratio of privately sourced capital to Commonwealth program capital (subject to the Commonwealth program capital not exceeding a 1:1 ratio to the privately sourced capital and the Commonwealth program capital being no more than $20 million);

(c)            the level and structure of management fees proposed;

(d)           the applicant’s capacity and experience in early stage equity investing giving particular attention to realising returns from investments, sourcing investment opportunities and managing an investment portfolio;

(e)            whether the applicant has a balanced management team including relevantly qualified and skilled personnel;

(f)             whether the applicant has an understanding of, and experience in, dealing with issues related to Australian and international investments, products, services and markets; and

(g)           whether the applicant has a demonstrated willingness to operate within the intent of the IIF program.

 

Other matters

 

Clauses 10-13

 

The Board may attribute a preference for new managers (clause 10).  The Board may attribute a higher level of importance to the merit criterion and will not require that short listed applicants demonstrate their ability to access capital (clause 11).  The Board may have regard to the accessibility of the Program for industry around Australia (clause 12), and may have regard for additional criteria and undertake other enquiries to consider the suitability of applicants (clause 13).

 

Clauses 14-16

 

The Program Delegate may make policies in relation to the administration of the Program (clause 14), and may make decisions and guidelines in relation to the Program (clause 15).  The Program Delegate will seek the advice of the Board on: new investments beyond the investment period; changes to key personnel; changes to structure of a fund; application of sanctions against a manager or investor; suspension of funding in relation to a fund; termination of a licence; and investee company eligibility (clause 16).

 

Clause 17

 

The Supervisory Board for a licensed fund will be established by the manager and make decisions about matters in relation to the administration of that licensed fund as set out in the governing documents.

 

PART 4 – ASSESSMENT OF PROPOSALS FOR VARIATION TO GOVERNING DOCUMENTS

 

Clause 18

 

In making a decision on whether to vary any provision of the governing documents, the Program Delegate will seek the advice of the Board and may seek the advice of others.   

 

PART 5 – BOARD TO HAVE ADMINISTRATIVE RESPONSIBILITY FOR THE PROGAM

 

Clause 19

 

The Board has administrative responsibility for the Program and where the Board provides advice to the Program Delegate, the Program Delegate must consider the advice of the Board and advise the Minister of any such advice where requested to do so by the Board.

 

Clause 20

 

The Board may advise the Minister, or the Minister may request advice from the Board, on non-financial administration matters relating to the Program.

 

Clause 21

 

The Board may collect and analyse data on the performance of the Program, provide advice to the Minister on such performance, and must cooperate with any independent evaluation of the Program.

Overview

The Industry Research and Development Act 1986, enacted by the Parliament of Australia, was introduced to foster and facilitate industry research and development initiatives in Australia. The Act establishes a framework to encourage investment in research and development activities by providing financial assistance and support. The Innovation Investment Fund Program Round Three Direction No 1 of 2007 was issued by the Minister for Industry, Tourism and Resources under the legislative authority provided by the Industry Research and Development Act 1986. The primary policy objective of this Direction is to establish a competitive, merit-based program that promotes the commercialisation of Australian research and development by injecting venture capital into new companies at their seed, start-up, or early expansion stages. The Direction outlines the governance framework for the Innovation Investment Fund Program, including the roles of Innovation Australia, the Supervisory Board, and the Program Delegate in the assessment, merit ranking, and funding of eligible applications. The Direction ensures that the Board assesses applications against specific merit criteria and that the Program Delegate makes final funding decisions based on these assessments, the available funding, and the policy objectives of the Program.

Scope and Application

The Innovation Investment Fund Program Round Three Direction No 1 of 2007, issued under the Industry Research and Development Act 1986, outlines the governance framework for the Innovation Investment Fund Program Round Three (the Program). The Direction applies to Innovation Australia (the Board) and is responsible for assessing applications and providing merit rankings for eligible applicants. The Board is tasked with considering the policy objectives of the Program and assessing applications against specified merit criteria, which include factors such as the applicant's strategies for contributing to the training of Australian-based staff in venture capital investments, the size of the proposed fund and the ratio of privately sourced capital to Commonwealth program capital, the level and structure of management fees proposed, and the applicant's capacity and experience in early-stage equity investing. The Board may decline to provide a merit ranking if the application does not demonstrate sufficient merit. The Program Delegate, who is responsible for determining which eligible applications will receive funding, must consider the merit rankings provided by the Board, the available Program funding, and the policy objectives of the Program. The Direction also provides for the establishment of Supervisory Boards by fund managers, which are responsible for making decisions related to the administration of each licensed fund. The Direction does not affect the rights of any person other than the Commonwealth and has no financial impact. The Direction commences on the day particulars of it are published in the Gazette.

Key Provisions

The Industry Research and Development Act 1986, through the Innovation Investment Fund Program Round Three Direction No 1 of 2007, sets forth the governance framework for the Innovation Investment Fund (IIF) Round Three Program. This program is designed to encourage the commercialisation of research and development in Australia by providing venture capital to new companies in their early stages (Sections 1-3). The primary objective is to assess and rank eligible applications based on a set of merit criteria, which includes the applicant's strategies for staff training, fund size and capital structure, management fees, experience in early-stage equity investing, team qualifications, understanding of investment issues, and willingness to operate within the program's intent (Sections 5-9). The Innovation Investment Fund Program Round Three Direction imposes specific obligations on Innovation Australia (the Board) and the Program Delegate. The Board is tasked with assessing and merit ranking applications, providing advice to the Program Delegate, and cooperating with any independent evaluations of the Program (Sections 5-7, 19-21). The Program Delegate, on the other hand, is responsible for making final decisions on funding, considering the merit rankings provided by the Board, and consulting with the Board on various matters such as new investments, changes to key personnel, and the application of sanctions (Sections 14-16). Additionally, the Supervisory Board established by each fund manager is responsible for making decisions related to the administration of the fund (Section 17). There are no explicit provisions in the Direction that outline specific offences, penalties, or civil/criminal consequences for breaches. However, given the nature of the legislation and its role in managing public funds, it is reasonable to infer that non-compliance with the Direction could potentially lead to administrative or financial repercussions. These might include the withholding of funding, legal action, or other measures to ensure adherence to the program's policies and objectives. The lack of explicit penalties in the Direction might suggest that compliance is expected through the governance and oversight mechanisms provided by the Board and the Program Delegate.

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