Attachment A
   
Commonwealth of Australia
 
Industry Research and Development Act 1986
 
Innovation Investment Follow-on Fund Program
Direction No. 1 of 2009
 
 
I, KIM JOHN CARR, Minister for Innovation, Industry, Science and Research, acting under sections 18A, 19 and 20(1) of the Industry Research and Development Act 1986, give the following direction to Innovation Australia (the Board)
 
Dated 22 05 09
                                    KIM CARR
Minister for Innovation, Industry, Science and Research
 
 
PART 1 - PRELIMINARY
 
Name of direction
 
1                     This direction is the Innovation Investment Follow-on Fund Program, Direction No. 1 of 2009.
 
Commencement
 
2                     This direction commences on the day on which particulars of the direction are published in the Gazette and registered in the Federal Register of Legislative Instruments.
 
Object of this direction
 
3                     The object of this instrument is to give direction to the Board in relation to:
 
(a)                an additional function of the Board, namely the administration of the IIFF program; and
 
(b)               the policies and practices to be followed by the Board in the performance of the function.
 
Introduction
 
4                     The Government has committed up to $83 million for follow-on investment by approved fund managers in investee companies which have previously been supported through the Commonwealth’s IIF (Round 1 and 2), PSF, REEF and ICTI programs.  Fund managers will be invited to apply for funding for some or all of their investee companies that meet the eligibility criteria.  The process will be a competitive one in which fund managers will provide the Commonwealth with a proposal in which they identify and prioritise those of their existing investee companies for which they seek IIFF program funding, and provide the other information to be detailed in the Program Guidelines.  A committee of the Board, the IIFF Committee, will assess all applications and provide a merit assessment against the merit criteria and a recommendation to the Program Delegate.  The Program Delegate will select those fund managers to whom the IIFF program funding will be offered and the amount to be offered to each of them.  The offer may propose a cap on the amount of funding that may be invested in any one of the IIFF fund manager’s portfolio investee companies.  Those fund managers who are selected by the Program Delegate and proceed to conclude a funding agreement with the Commonwealth will be responsible for the timing, amount and type of investments made with the funding they receive within the overall parameters set by the Program Guidelines, and for the day-to-day management and control of the investment portfolio.  It is expected that not all applicants will be successful, and those who are successful may not receive the full amount of funding for which they apply. 
 
Interpretation
 
5                     In this direction:
 
“Board” means Innovation Australia and includes its successors and committees to which Innovation Australia delegates any of its functions.
 
“companion fund” means a fund managed by an IIFF fund manager through which IIFF program funding (whether alone or together with funding provided by private sector investors) is invested in portfolio investee companies.
 
“Department” means the Department of Innovation, Industry, Science and Research.
 
“eligible applicant” means an applicant for IIFF program funding that satisfies the requirements of clause 13.
“eligible Commonwealth programs” means the IIF program (Rounds 1 & 2), the PSF program, the REEF program and the ICTI program.
“eligible investee company” means a company that satisfies the requirements of clause 14.
“equity” includes any form of debt financing that is approved by the Program Delegate and which does not require the debtor to pay any interest, coupon or other charge in the nature of interest prior to the end of the term of the debt financing, except in the event of default.
“existing investee company” means:
(a)                a company in which a licensed fund has an equity interest; or
(b)               a company in which an ICT Incubator has an equity interest (including through an entity formed for that purpose) and which the Program Delegate is satisfied the ICT Incubator has not exited,
that it acquired using funding from an eligible Commonwealth program.
“funding agreement” means an agreement (or other document) entered into by a successful applicant and the Commonwealth for the provision by the Commonwealth of IIFF program funding and (where the context permits) includes the documents establishing any companion fund.
 
"ICT Incubator" means an entity that has entered into an agreement with the Commonwealth (the terms of which may or may not have expired) for funding under the ICTI program.  It includes, where an applicant requests and the Program Delegate agrees, a fund formed by an ICT Incubator for the purposes of investing funding provided under the ICTI program in investee companies.
 
"ICTI program" means the Commonwealth's ICT Incubators program.
 
“IIFF Committee” means the committee of the Board appointed by the Minister to assess applications for IIFF program funding, advise the Program Delegate on the relative merit of those applications and for related purposes.
 
“IIFF fund manager” means an entity that has entered into a funding agreement with the Commonwealth under the IIFF program.
“IIFF Guidelines” means the guidelines made under section 20 of the Industry Research and Development Act 1986 for the IIFF program.
"IIFF program" means the Commonwealth's Innovation Investment Follow-on Fund program.
 
“IIF program” means the Commonwealth’s Innovation Investment Fund program.
“licensed fund” means a fund whose manager has been granted a licence by the Commonwealth in respect of that fund under the IIF program (Rounds 1 or 2), the PSF program or the REEF program.
 
"Minister" means the Minister for Innovation, Industry, Science and Research.
 
“portfolio investee companies” means, as the context requires:
(a)         in respect of an applicant, those eligible investee companies proposed by the applicant for follow-on funding under the IIFF program; or
(b)         in respect of an IIFF fund manager, those of the eligible investee companies referred to in paragraph (a) that have been approved for follow-on funding under the IIFF program.
"prior Commonwealth investment" means funding provided by the Commonwealth or a Commonwealth company to either a licensed fund or an ICT Incubator under an eligible Commonwealth program prior to commencement of the IIFF program.
 
"Program Delegate" means an employee of the Department who has been empowered by the Minister, or is otherwise duly authorised, to carry out the relevant function in respect of the IIFF program.
 
“Program Guidelines” means the Program Guidelines that are given by the Minister to the Department to provide a framework for the operation and administration of the IIFF program.
 
“PSF program” means the Commonwealth's Pre-Seed Fund program.
 
“R&D activities” means systematic investigation or experimentation activities:
 
(a)        that involve innovation, technology transfer into Australia or technical risk;
 
(b)        that are carried out in Australia; and
 
(c)        the object of which is new knowledge (with or without a specific practical application) or new or improved materials, products, devices, processes or services.
“recoverable expenses” are expenses incurred by an IIFF fund manager in that capacity that are of a kind approved by the Program Delegate for payment or reimbursement out of the proceeds of IIFF program funding and set out in a funding agreement.  Those expenses will not include any amount in the nature of a management fee for the IIFF fund manager.
“REEF program” means the Commonwealth's Renewable Energy Equity Fund program.
“repayable grant” means an amount of IIFF program funding provided to an approved applicant on terms that it is, together with interest, repayable to the Commonwealth at a fixed or determinable future time.
“selection round” means the process of inviting applications for IIFF program funding selecting the successful applicants and awarding funding agreements.
6                    A reference in this direction to a statute is a reference to that statute as amended or replaced from time to time.
7                    A reference to Board may or Program Delegate may is permissive and not mandatory.
8                    A reference to a fund includes a firm, body corporate, trust, partnership or other structure (including a co-investment arrangement), which is not, or is not part of, an exit from a licensed fund or an ICT Incubator. 
9                    A reference to funding is a reference to amounts provided under the IIFF program to selected applicants pursuant to a funding agreement with the Commonwealth and includes amounts provided in the form of equity or repayable grant. 
10                A reference to include, includes, including, in particular and for example does not limit the generality of the words which to which they refer.
11                A reference to a person includes a firm, body corporate, trust or other entity.
 
 
PART 2 – CONSIDERATION OF APPLICATIONS TO PARTICIPATE IN PROGRAM
 
Board to have regard to certain policy objectives
 
12                The Board must have regard to the following policy objectives in giving effect to this direction:
 
(a)        to respond to the constraint in accessing capital in the global financial crisis;
 
(b)        to support selected fund managers through the provision of additional follow-on investment capital;
 
(c)        to ensure that the early stage venture capital industry in Australia continues to develop;
 
(d)        to achieve value from prior Commonwealth investment by targeting investee companies which have the highest potential to utilise the IIFF program funding to continue to develop;
 
(e)        to continue to provide the management and entrepreneurial expertise of fund managers to investee companies;
 
(f)         to provide funding to investee companies in an expeditious manner; and
 
(g)        to replenish the IIF Revolving Fund with returns from the IIFF program.
 
Eligibility
 
13                To be eligible to apply for funding under the IIFF program, applicants must be either:
 
(a)        licensed under the IIF program (Rounds 1 or 2), the PSF program or the REEF program; or
(b)        an ICT Incubator.
 
14                Funding is available only for follow-on investment in eligible investee companies approved by the Program Delegate.  For an investee company to be an eligible investee company, it must be:
 
(a)        an existing investee company under an eligible Commonwealth program, other than an existing investee company:
 
(i)                  in which the initial investment of funding under the eligible Commonwealth program was made on or after 18 March 2009; or
 
(ii)                which is, or is in a class of companies, determined by the Program Delegate from time to time to be ineligible for IIFF program funding (including during a selection round).
 
In the case of an ICT Incubator, this will include a company in which the ICT Incubator has invested (or caused to be invested) funding received by it under the ICTI program, and from which the Program Delegate is satisfied the ICT Incubator has not exited;
 
(b)        commercialising R&D activities; and
 
(c)        providing all of the goods and services it produces through commercialising R&D activities to persons who are not associates (as defined in the documentation constituting the relevant licensed fund),
 
but in any event it must not be a company in respect of which this direction provides that funding will not be available.
 
PART 3 – MERIT ASSESSMENT OF APPLICATIONS
 
Assessment of applications
 
15                The Program Delegate may refer any application for funding to the IIFF Committee for merit assessment, but may elect not to refer to the IIFF Committee an application that does not meet the eligibility requirements set out in the IIFF Guidelines. 
16                The IIFF Committee must assess each application referred to it by the Program Delegate on its merit according to the extent to which the application meets the merit criteria and, subject to clause 17 provide a technical assessment to the Program Delegate.
17                Having assessed an application according to clause 16, the IIFF Committee may decline to provide a technical assessment if it is not satisfied with the level of merit of the application in relation to one or more of the merit criteria.
18                The IIFF Committee may attribute a higher or lower level of relative importance to one or more of the merit criteria when assessing applications.  It need not notify applicants of the relative importance of merit criteria.
19                The IIFF Committee may request additional information from, or interview, an applicant after the lodgement of an application, or do both.
20                The IIFF Committee or the Program Delegate may have regard to additional information and undertake other enquiries in order to consider the suitability of applicants and the suitability and eligibility of portfolio investee companies.
21                The IIFF Committee may advise the Program Delegate to approve an application:
(a)            in respect of the applicant’s portfolio investee companies, consistently with the applicant’s prioritisation; and/or
(b)           for an amount of funding less than that for which the applicant has applied,
and may recommend a limit on the maximum level of investment in a portfolio investee company.
 
Merit criteria
 
22                 The merit criteria are:
 
A   In respect of the Applicant
 
(a)        demonstrated willingness to operate within the intent of the IIFF program and previous Commonwealth programs in which it has participated;
(b)       demonstrated capacity, experience, skills and track record in early-stage equity investing and managing an investment portfolio; and
(c)        relevantly qualified and skilled personnel to ensure the capacity to continue to operate and to be able to make and to manage the proposed follow-on investments in the nominated existing investee companies.
 
B   In respect of the Follow-on Funding Proposal
 
(a)        the quality and commercial prospects of the portfolio investee companies for which funding is sought;
(b)        the financial status of each portfolio investee company;
(c)        the amount of funding proposed by the applicant and over what period;
(d)        how the funding sought will assist each portfolio investee company in achieving identified milestones and its business goals;
(e)        the attempts made to raise the funding required;
(f)          the amount of private/other funding the applicant has secured or is able to attract to the agreed portfolio investee companies;
(g)        the anticipated business development timetable and exit strategy;
(h)        the wider impact on the Australian economy, including employment, domestic and export sales, and the commercialisation of Australian research and development;
(i)          where a companion fund is to be established, the applicant’s proposal for the distribution of earnings and proceeds from the realisation of the companion fund’s investments;
(j)          the level and content of the applicant’s proposed recoverable expenses; and
(k)        the overall funding proposal.

 
PART 4           BOARD TO PROVIDE ADVICE ON POLICIES AND OPERATION OF THE PROGRAM
23                The Board may advise the Minister, or the Minister may request advice from the Board, on non-financial administration matters relating to the IIFF program, including the extent to which the IIFF program is meeting its objectives.
24                The Board may collect and analyse data on the performance of the IIFF program and provide advice to the Minister on that performance, and must cooperate with any independent evaluation of the IIFF program. 
25                Where the Board advises the Program Delegate on a matter in respect of which the Program Delegate is to advise the Minister, the Program Delegate must consider the Board’s advice and, in his advice to the Minister, disclose the advice received from the Board.