¶ Intro / Opening
🎵 Music
I'm James Riley. Welcome to the Commercial Disco. Join me on a voyage of commercial discovery where we uncover great ideas in deep tech and research. The Commercial Disco is your window.
Innovation.
¶ National Reconstruction Fund's Core Mission
Welcome to the Commercial Disco, I'm James Riley. I'm talking today to David Gall, Chief Executive at the National Reconstruction Fund Corporation. Hey David, how you going?
Right James. Thanks for having me on today.
So we got a bit to get through. You've had a busy year. From the outset I want to ask you started the role in January. Here we are in November. How's the year been? It'd have to be a different kind of pace and a different kind of role to your sixteen years at the National Australia Bank beforehand.
James, it is different and I wanted different so it's certainly living up to that expectation. But it really has been enjoyable, it's been really fulfilling. It's got plenty of challenges. as well. But I've got to say what I really love doing and where I get my oxygen is talking to founders, talking to owners of businesses and understanding ways that the NRF and those that we work with
can really help their businesses grow and flourish and scale. So just speaking to these businesses and in areas of the economy too that are so critical to our future and areas of the economy where actually I think Australia's got some real comparative advantage.
All right. Well let's get into that. One of the investments that you've made is into Synchron, the brain computer interface company that uh originally came out of I think Melbourne University. So let's talk a little bit about that. Synchron is an amazing company, Nicholas Opie, an incredible researcher, but as one of the founders. Let me ask you this. They are now a New York based company. So obviously it was founded by Australians
It's foundational years were here, a lot of the research still gets done here, but it's an American company. So how does that work?
Look, I think a few things there. As you quite rightly say, it's come out of originally research out of the Australian University system and in this case Melbourne Uni. I imagine the team would have loved to have commercialised all of that research here in Australia? and they felt the need obviously to go offshore. We've tapped them on the shoulder and you know, what I'm really excited about is it is a story of trying to really bring great Australian innovation
Back to Australia and yes, they are New York Domicile. However, they've committed through the commitment they've made to us. And accepting our funding to build out a commercial hub here in Australia, that'll see them then once they're finished, US FDA, clinical trials, etc. look to do clinical trials.
Here in Australia I'm hopeful that they see that then as a gateway, not just to Australia but to Asia as well. So I think it's a great story of trying to really bring this great Australian innovation back home again and of course would love to keep more of these companies here for all of their commercialisation phase and Australia being the hub for the whole world, so that's certainly the um plan.
But having said that, it's great that they've chosen to work with us and and put a plan in place that I think would be great for Australia.
Right. Yeah, and as I say, an amazing company. Nicholas Opie was a prize winner at uh Innovation Oz a couple of years ago as Innovator of the Year. So as an example, I'm sort of very interested in this one because The goal to bring these guys back or to further their work here in Australia is obviously a good one.
But it's odd for the National Reconstruction Fund, I would have thought, given you have a specific mandate around the two percent, three percent above bond rates as a return. And although the whole fund has been set up for industry development purposes, bringing companies back, that is part of that mandate, you see?
I definitely see that. We're trying to transform and diversify industrial capability in all of the seven priority areas that we've been set up to support. Now, one of those areas is medical science. I think some advantage of Synchron bringing more of their activities back here and doing more here and of course. Let's not forget they've got their IP here in the first place, is that we'll start to see more of an ecosystem built in and around that as well, and these companies actually feed off.
each other, it does create not just the immediate job, but it creates that opportunity for other businesses to emerge. out of that uh ecosystem as well. So I think that's one of the exciting aspects and I do see that being totally consistent with the NRS mandate.
Right. And then Australia, my understanding, has a a competitive advantage is is around clinical trials of some of med tech and uh medical devices. So I guess that's the next stage for them.
Yes, it is. And you're right, James. You know, Australia punches well above its weight in terms of clinical trials relative to the size of our population and that's one of those, I suppose, competitive advantages that we should be looking to exploit as a nation.
¶ NRF's Diverse Investment Strategy
So the NRF has made fourteen investments since it was set up. I'm looking through the list now and there's some pretty different companies there, software and hardware and resources and quantum and we're covering a lot of ground. So it's a little hard looking at that list to really get a feel for investment philosophy or whether there's a particular flavor or or direction. How do you describe it looking at those?
Yeah, so I think importantly and I think particularly over the next six to twelve months you'll start to see some more of the thematics rise up where we've looked at particular areas where we're seeing that sort of more of a build out of an ecosystem around a particular industry segment. So that
takes a little bit of time to emerge'cause there'll be multiple investments in particular areas that'll paint the picture in and around that. But as you quite rightly point out, James, we cover a vast array of businesses and it's not just the breadth of the seven priority areas, you know, all the way from defence capability to medical science and enabling capabilities and transport and agri and resources value added. All in there, amongst a couple of others.
But it's actually the size differential. So we're they're helping companies at the quite early stages and you know, we've done a a few investments now that have been in that sort of series A not seed, but sort of more series late series A. And then to series B and series C. Right through to the larger SMEs that need growth capital through to large companies that are really doing major capital work, structured finance, or embarking on major projects that
the role of the NRFC can help crowd in, if you like, get private capital to invest alongside it. So that's sort of one of the common thematics is to try and not be just doing it ourselves, but actually looking to crowded private capital that can follow us in. We do want to be patient capital though. And I think one of the common thematics and one of the reasons that I think we've already been able to make a difference is whether it's a small company or large company.
They like the fact that we're not a closed in fund, meaning it's gotta be out within, say, five years. They like the fact that we can be a longer term patient investor. And if you look at some of these industry segments. And again, uh medical science is probably a classic here because the period between innovation being created and the full commercialization, in medical science that's often fourteen, fifteen years.
They're long periods of time and they need capital investors that can help to bridge that as well.
¶ Critical Minerals Investment: Arafura
So there's a couple here that really stand out to me that I'd like to have a little bit of a closer look at. Aurafura rare earth. As you'd expect though, you are looking at rare earths, mining and processing. So two hundred million dollars there. Now Arafura That was one of the companies that featured in the Prime Minister's visit to the White House recently and some of those announcements around critical minerals.
So kind of wondering, you obviously didn't have visibility of that specific relationship with the US, but when you talk about crowding in other investment, that's part of the thesis or that was part of the philosophy of that particular investment.
Yeah, look absolutely, and just a little bit of detail on our affair of rariness. That's what's called an NDPR deposit and will be an NDPR mine up in the Northern Territory. Our commitment there was an equity commitment to invest into Arafero Praerus. It's got a lot of other investment going in too and it really did need a lot of Firstly Australian government support through the various agencies. Now we've gone into the equity element of that or equity stack.
Some other agencies are in the death stack of that as well. And then there are offshore government agencies that are involved, as well as private capital involved in that one. So it's taken the combination of all of that. to get the deal really moving ahead. Now, why this is important and why it's important for Australia, I think there's two elements That make a lot of sense from the NRS perspective. The first is this mine is expected to produce something like four percent of the globes
production over its thirty-five year life of NDPR. Now, NDPR is important because that's key ingredient to magnets. going into, say, the turbines of wind farms, going into EVs, etcetera. So critical as it sounds, a critical mineral rare earth, but uh really important for the transition.
to a low carbon economy as well. So that's definitely one element of why we want it to be there. The other is really around some of the downstream processing. So that priority area of ours is resources value added, and this will be the first time in Australia that that furthered downstream processing of the NDPR actually occurs, so it's turning it into an oxide.
before it's actually shipped off and that's great. I think that value added bit is exactly where we want to be heading as a country, certainly in resources, but actually in uh more of our product like our agricultural products as well.
And good to see that supply chain that if not locked in, certainly identified and partnerships signed with the US makes a huge difference as well. I would think, okay, let me ask you about pipeline.
¶ Scaling NRF Investment Pipeline
Looking at your annual report to me, and we spoke just earlier on this, to me it looked like less money has gone out the door than had been envisaged and you talked through that. I wonder if you can do that again,'cause I'm wondering Are you at a point now at the NRFC where this is about the steady drumbeat of investments that will happen or are you now at full capacity and they'll be flying out the door? What's it look like?
Well, I think the f first thing, James, is we only announced our first investment in November last year, so it's just coming up to twelve months. So it hasn't been long, and there'll always be some lumpiness to that as you move things through the pipelines.
Some of that's in our control. Often it's not in our control. It's got a lot to do with the businesses that we're investing in and the timing there. But the reality is That's at the end of June, so our annual report, we have commitments in place of uh five hundred and eighty four million dollars. against a plan, a budget, if you like, of five hundred and fifty. So just a little bit ahead of where we expected to be, but let's call that roughly on target, which was pleasing.
We did have and do have a significant pipeline and of course we draw down into that as we need it. But to cover that pipeline, we have drawn down a reasonable chunk of money from the government. to fund the next series of investments. And we wanted to really step up this year.
So what we said was well for done five hundred and eighty follow in twenty twenty five in the twenty sixth financial year, this financial year, we wanted to step that up to one and a half billion dollars. And we've got the pipeline there. to support that. That is a lot of activity, it's a lot of work to get there on that. And hence the material drawdown that's occurred and there is money in the balance sheet, but we're very clear about what that is going towards.
And just on that pipeline, the investments are going to get larger or there's going to be a mix of large and small, like what does that mix look like?
Yeah. So the average at the moment and you sort of talked about it before, just in terms of the flooring deals, the average is probably around fifty million dollars. That's not the median, that is like an average. And it's not the medium because there will be a real range. Our smallest investment to date we only announced very, very recently, which was hypersonics, which is a ten million dollar investment. But that's at a much earlier stage of its
journey as well, and I'm sure we'll be back for further investments in the future. Our largest, you've mentioned it, Arafura, at two hundred million dollars. So I expect most to be in that band. The average might end up still being fifty. I expect us to do a lot between say fifteen and thirty, that kinda range.
And right now, how many companies would you be talking to? I mean I'm trying to get a sense firstly of how they come through the front door. Do they knock on your door? And then at any one moment, how many companies are you talking to?
¶ Engaging and Qualifying Businesses
Yeah, look, we're probably talking to, I'm gonna say, about sixty companies at any one time, and some of those conversations go on for quite some time, and it might be because they're not ready yet. For our investment it might be because we're in our discussions. they might actually qualify for or be better suited to a grant rather than commercial equity or debt investment and will look to try and introduce them to the right place.
Often the industry grants program or something equivalent could be arena as well, depending on the industry segment. But making sure we're finding the right opportunity for that business. And for some of them it's a case of, look, we like what you're doing, but we would like to see More certainty on the demand side or certain milestones in terms of your progress breached before in a position.
to invest. And so those conversations occur. And really pleasingly, uh you know, some were talking to you said before James arrived sort of this year, which I didn't like January. Some that were just talking to in February and March. are now very close to not just re engaging, but actually finalising our investment in them because
those preconditions, what we asked them to go away and do, have actually been met and there'll be quite a few of those. So, that was the long answer your question. The short answer is probably sixty or so, at any one time. Since commencing, we actually have reviewed a bit over a thousand proposals.
I've got a couple of questions here, but one would be of the ones that get put in the discard pile for one of a better word, is it because they're not large enough, not mature enough? I'm assuming NRF doesn't want to get down into the weeds of what would be early stage VC, so if you're discarding companies, typically what would it be that's a hindered?
I think we want to look at everything on its own merits. So we haven't said, no, that's definitely too small. Having said that, if you look at a sector like medical science, you do get a number of Smaller investments quite early stage. research just starting out on commercialization stage come across our disk. We have got relationships, the relationship with Brandon, for instance, and part of the investment we made into their fund six.
was to fund that to then help brand and provide access some of these smaller, earlier stage companies as well. Over time I do see us having more of those kinds of partnerships in place, just to make it a bit more scalable. what we do and that we can get to more of those smaller, great business opportunities of the future.
I guess my next question was going to be on are you running out of targets? Are you running out of investment opportunities? And I only asked that because Australia is almost notorious that we don't have a lot of these scale up. companies. We have a lot of small companies, but we don't have that mid tier. So I guess that is helpful.
¶ Patient Capital and NRF Impact
Yeah, it's interesting. Is that a demand side issue or a supply side issue? Because I think, first of all, to answer your question, is we're not anywhere near running out of opportunities at the moment. There is a lot of opportunities out there. quite a few are not yet necessarily investment ready. We need to work with them. They need the advisors to work with them to get them to that position. Then why some of it's not emerging is because some of the supply side dynamics
It's capital, but it's capital at the right point in time for them in their life cycle. So there is a lot of capital out there, but it's not necessarily there at the point in time that Some of these founders and businesses really need it. And it's the nature of that capital as well. So it's one thing to have money available, but is it the money that can be patient, that can go through the full commercialization phase? with the company, and is the returns it's asking for reasonable, do they have
sufficient understanding of the risks involved as well. And I think what we've already started to see in some of our investments is a bit of a changing of some of the shareholder basis of these companies. So they start with great founder money, high net worth money, some family office money, which you know often seeds these things and gets them really going, and they need to move a bit more towards institutional capital, including
some of the strategic investors out there that can really help them through the growth phase of their business as well. And one of the things I'm quite excited about is I can see us co-investing, investing alongside, superannuation funds. as well. So I think the maturity of that investment universe is a great opportunity for Australia.
All right. I want to ask you about just measuring the impact of your investments. I think if I've read some of your reporting properly, I think you don't start reporting until five years after the original investment. Does that sound right? So there is a lead time and obviously most of the or a lot of these kind of deep tech companies that have long lead times anyway, but that's when we'll start to see publicly the performance of the NRF.
So I think you'll see it before then and what you'll see is you'll see us have to make sure we've got the right carrying value, holding value of our investments at each balance date. So when you're looking at the twenty six And a report, you'll see it in there, you'll see it in aggregate rather than necessarily at a deal by deal level. But it's not just the financial performance of the fund. You use the word James impact.
And we want to in the future be able to talk more the impact that these investments are having, you know, what does it mean for local well paid jobs where those businesses are and the ecosystem that sort of sits around it, you know, how are we supporting not just the big cities, but regional areas and rural areas in Australia as well. How are we supporting
underrepresented groups. And so there is an important element, an important story to be told around the the reason for being that broader impact that the NRF is hopefully having over time. Yes, it will take a few years for that story really to emerge, but picking the right data sets to start talking about that much, much sooner will be important.
¶ How to Approach the NRF
All right, David Gall, Chief Executive of the National Reconstruction Fund, thanks for talking to me. I have one more well, it's not really a question, but I guess I would ask you if I'm a uh scale up company coming through looking for an investment from the NRF, what do you want to see? from me. Whose door do I knock on? But what do you want to see from me?
Thanks James. Look, we have got a front door. The front door is our website. We encourage people to go and have a look. Firstly, to look at the mandate. We've got like our investment criteria there and to be able to go through that and tick off the boxes that you understand that you actually
qualify at a high level for a proposal to be submitted. So that's the first thing to really look for there. Now, I've got to say apply online, but we want to be human as well. And we have a front door that has Some great investment professionals leading it in Frank and Cooper, and they're the first port a call. They'll get back to you, ask you more about the business.
and sort of go through that. They're wanting to understand more about your market you're in, the areas of comparative advantage, how you're going about accessing that market, what your competitor positioning is. Some specifics around both the industry but company risks that are being faced there. But most importantly, if you think you meet that criteria, come and have a chat. We'd love to have a chat to you about your business.
Alright, well, your success is our success in terms of industry development. So, um we wish you well. Thanks David Gore for joining us on the commercial disco.
🎵 Music
Thanks for tuning in to the Commercial Disco, a podcast from InnovationOz.com. Produced by Corey McLeod and Natasha David. Freeman. Don't forget to subscribe, leave us a review, and join us next time as we explore more stories shaping Australia's innovation economy.
🎵 Music