Using growth capital to fulfil your export ambitions

03 August 2022

Exporting may be the next step in your business growth but you may be unsure of the financing options available. The Australian Business Growth Fund (ABGF) outlines how growth capital can benefit prospective exporters as an alternative to bank lending and private equity funding.

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AGBF Investment Manager Lucinda Bradshaw explains the importance of first weighing up the opportunities and risks of exporting before committing to a new market.

For example, entering a new export market can require substantial upfront investment to hire a local marketing and sales team, establish a physical presence, set up a new supply chain and complete any new product development that might be required. The business may also require local legal and tax advice before doing business in the new market.

These expenses mean the business may incur early-stage losses once it starts exporting, which could place pressure on its existing operations and affect its profitability.

“Before incurring these expenses, businesses should thoroughly research the export market to understand the competitive landscape, estimated launch costs, timeframe required to grow a local customer base and any risks that may prevent it from gaining traction in the new market (for example, cultural or language barriers),” Ms Bradshaw says.

If you’ve done your research and the conditions are right, the next step is to understand the financing options available. One emerging method is growth capital, driven by ABGF.

ABGF was established as a public-private partnership between the Federal Government and six leading banks, purpose-built to back SME businesses to pursue growth activities.

It operates commercially and makes investment decisions independently of its shareholders, and only takes a minority share in the businesses it invests in – allowing owners and founders to retain control of what they’ve built.

“Businesses may be unable to rely on their cashflows or bank debt to fund the upfront costs of entering an export market,” Ms Bradshaw says.

“Growth capital provides an alternative source of funding to underwrite the upfront costs a business incurs when it enters a new market.

“A growth capital fund can also provide strategic support, such as helping the business workshop its market entry strategy, make new hires and forecast its cashflows.

“Growth capital funds may also have prior experience working in specific export markets, which can help businesses avoid risks and spot issues early.”

Ms Bradshaw explains ABGF’s process for providing growth capital involves working with a company for approximately 10 weeks to understand its business and agree on investment terms.

“On average, we spend 3-4 weeks conducting initial discussions with a company to learn about its financial profile, customers, suppliers and market dynamics before we agree on a valuation.

“We then sign a term sheet that sets out the key terms for our investment. This is followed by several weeks of accounting, legal and tax due diligence to ensure there are no red flags affecting our investment.

“Once we have finished negotiating the legal documentation, ABGF can then complete its investment into the company.”

ABGF has helped several of its portfolio companies expand into export markets.

Its funding is currently helping enterprise software business Capsifi build out its sales and marketing team in the US and Europe, where it plans to grow its client base.

It is also helping last-mile logistics provider HUBBED expand into Asia.

A further overview of the ABGF investment process is available here.

Before joining the ABGF, Ms Bradshaw was an Investment Manager at BBRC Private Equity, a Sydney-based mid-market private equity fund. Lucinda originally trained as a lawyer and spent three years working in M&A and capital markets at Herbert Smith Freehills.

More information

Other support options are available for prospective exporters. These will be explored in a later piece.

The Victorian Chamber also delivers international services through essential knowledge and industry contacts for doing business overseas. We can provide ATA carnets, export documents, trade certificates, and help to grow your business in international markets.

For more information, please contact our registered migration agent, Eddie Zhao, on 03 8662 5234 or email ezhao@victorianchamber.com.au

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