Australia’s Growth Economy drives an outsized share of the nation’s prosperity: they represent only 6% of all businesses, yet account for 42% of employment, 47% of R&D investment, and 26% of GDP.
Despite its importance, the Growth Economy faces a persistent barrier: scarce fit-for-purpose equity funding. The result is a $38 billion equity funding gap.
Commissioned by the Australian Business Growth Fund (ABGF), Powering the Growth Economy is Australia’s first report on this crucial segment – established businesses with revenues between $2 million and $100 million.
Based on interviews with over 3,500 SMEs, ATO and ABS customised data sets, and economic modelling, the report highlights the size and impact of Growth Economy businesses, the rising demand for equity funding, and the potential economic gains if the funding gap is addressed.
Importantly, the report reveals that institutional capital mostly flows to large buyouts or venture-backed startups, leaving the Growth Economy underfunded and over-reliant on debt or personal networks.
As Anthony Healy, ABGF’s CEO and Managing Director, explains: “This report provides the most comprehensive analysis of Australia’s Growth Economy to date. These businesses are essential not only to our nation’s economic success but also to building sovereign capabilities in areas like manufacturing, defence, and renewable energy. By addressing the equity funding gap and offering purpose-built patient capital, we can help these businesses reach their full potential, driving innovation and long-term prosperity.”
Below are some of the main findings from the report.
Growth Economy businesses are uniquely positioned to drive Australia’s future economic growth and build sovereign capabilities. Though they make up only 6% of all companies, their contribution is outsized—responsible for 42% of employment, a quarter of the nation’s economic output, and nearly half of all R&D spending.
These businesses are the driving force of Australia’s economy. They’ve grown faster than the rest of the economy, with an annual revenue growth rate of 5.7% from FY18 to FY22, outpacing the broader economy 4.3% growth. Employment has surged too, with these businesses achieving 14% growth from FY20 to FY22, nearly double the rate of larger companies and five times that of micro businesses.
Despite their strong performance, 79% of Growth Economy businesses cite access to funding as a key barrier to growth. The funding landscape is skewed heavily towards debt, which becomes less viable as businesses scale. Patient, long-term equity capital is what’s needed. For many, that remains out of reach – leaving them trapped in a cycle of debt that limits growth and flexibility.
Although 35% of Growth Economy businesses have sought external equity funding in the past three years, more than half were unsuccessful. The mismatch between demand and supply is stark. Only 2% of private equity and 0.4% of venture capital is directed towards growth capital. This lack of growth equity funding represents a $38 billion gap, leaving many of these businesses stuck in neutral, unable to capitalise on opportunities or scale at the rate they could.
Closing the $38 billion equity gap is not just about injecting capital. It’s about unlocking the full potential of Growth Economy businesses. With access to adequate equity funding, these businesses could achieve 24.5% higher revenue growth and significantly contribute to sovereign capabilities in key sectors like manufacturing and renewable energy. Closing this gap will lay the groundwork for sustainable, long-term economic growth.
Traditional investors have largely overlooked Growth Economy businesses, focusing on large deals and requiring control. This has left 90% of funding for these businesses coming from family and friends, not from institutional investors who can also provide strategic guidance and expertise needed to scale.
ABGF was established through a unique public-private partnership and is based on a proven model from the United Kingdom and Canada. This model is designed to overcome the limitations of the traditional investment model and demonstrate the commercial viability of investing in Growth Economy businesses, so further investors will follow.
ABGF is Australia’s only purpose-built growth capital fund dedicated to the SME sector. We have over $500 million of capital to deploy, with initial investments of $5 million to $15 million in each business. ABGF brings together capital, capability, and connections, while only taking a minority stake in the business. Our unique public private partnership model, facilitated by a powerful alliance between the Federal Government and six leading banks, bridges a critical gap in the market.
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