Review of the ABGF’s report Powering the Growth Economy

by | Apr 2, 2025 | Uncategorized | 0 comments

The Australian Business Growth Fund’s 2024 report, “Powering the Growth Economy,” explores the pivotal role of Growth Economy businesses (medium-sized enterprises with annual revenues between $2 million and $100 million) in driving Australia’s economic prosperity.

Defining the Growth Economy

Growth Economy businesses make up just 6% of Australian companies but are responsible for:

  • 42% of all employment.
  • A quarter of the nation’s economic output.
  • Nearly 50% of Australia’s R&D expenditure.

They are characterised by their innovative nature and their potential to advance national priorities like economic sovereignty and resilience. Over the last four years, their revenue growth (5.7% CAGR) and employment growth (14%) have outpaced the broader economy.

The Funding Landscape

Despite their economic importance, these businesses face significant funding challenges:

  1. Debt Dependence: Australian SMEs rely heavily on debt funding, with a ratio of 247:1 compared to equity or venture capital—much higher than other OECD countries.
  2. Equity Gap: There is a $38 billion funding gap for external equity, with only 2% of private equity and 0.4% of venture capital allocated to growth capital.
  3. Barriers to Access: Regulatory burdens and insufficient access to growth capital are major obstacles for 80% of these businesses.

The Economic Impact of Addressing the Funding Gap

Bridging the equity gap could result in:

  • A 24.5% increase in revenue growth for businesses, unlocking innovation and market expansion.
  • Positive long-term outcomes in employment, wages, and household consumption, further strengthening economic resilience.

These businesses are vital to achieving national goals, especially in sectors prioritised by the National Reconstruction Fund, such as renewable technologies, defense, and advanced manufacturing.

Challenges in Current Investment Models

Traditional private and venture capital models do not adequately serve Growth Economy businesses because:

  • Private equity prefers larger investments and majority control.
  • Venture capital targets high-growth startups with rapid scalability, not established medium-sized enterprises.

As a result, 90% of equity funding for these businesses comes from personal networks like family and friends, which lack the strategic expertise institutional investors could provide.

Proposed Solutions

To address these challenges, the report emphasises the need for innovative equity funding models:

  1. Patient, Minority Capital: Long-term investments that enable founders to retain control while benefiting from strategic investor support.
  2. Public-Private Partnerships: The Australian Business Growth Fund exemplifies such a model, combining government and institutional investment to provide tailored growth capital.
  3. Government-Led Initiatives: Leveraging programs like the National Reconstruction Fund to support strategic industries through SME growth.


The Path Forward

The report concludes by advocating for systemic changes to Australia’s funding ecosystem. It calls for broader institutional participation in Growth Economy investment, a shift in investor mindset to value medium-term gains, and more government collaboration to de-risk investments in SMEs. The goal is to unlock the untapped potential of these businesses, fostering innovation and ensuring Australia’s competitive edge in the global economy.