Leaked contract reveals huge payday for SA’s $50 million venture fund manager Blue Sky

The massive sum taxpayers will be slugged by the firm in charge of SA’s $50 million venture capital fund has been revealed — as its parent company falls into administration.

• SA Venture Capital Fund safe despite Blue Sky administration
• Blue Sky in administration, doubt over $50m venture capital fund

Blue Sky Alternative Investments is to be paid up to $12.5 million to manage the state’s venture capital fund over 15 years — plus potential earnings on investments it makes, contract documents leaked to The Advertiser show.

The former Weatherill Labor Government set up the $50 million fund in 2017 to manage investment in high-growth local companies and bring in co-investors.

It has since made investments in local companies Myriota and Kid Sense and is understood to be not far off making a third investment.

But Blue Sky was placed in administration on Monday, following a disastrous year in which its shares fell from around $14 to just 18.5c.

The company’s receivers have said that the administration of Blue Sky will have “no effect” on the management of the fund — which is carried out by subsidiary BSVC Pty Ltd.

However, clauses in the contract arguably present the State Government with an opportunity to exit the contract due to a “material adverse change event” or a “change of control” event.

The government has not indicated it has any intention to exit the contract and says any decisions relating to the fund are a matter for the independent committee, chaired by prominent businessman Raymond Spencer, which oversees it on behalf of the government.

“Any issues pertaining to the management of the SA Venture Capital Fund are an issue for its independent management committee, chaired by respected businessman Raymond Spencer,’’ Treasurer Rob Lucas told The Advertiser this week.

Elaine Stead of Blue Sky Venture Capital. Picture: Lyndon Mechielsen/The Australian

The Advertiser has previously asked for details of Blue Sky’s management fees, as well as copies of the annual reports it is required under the contract to present to the government.

However Mr Lucas said: “Terms of the contract between the South Australian Venture Capital Fund and Blue Sky, established under the former Labor government and then Treasurer Koutsantonis, are commercial in confidence. Their reports are also commercially confidential.’’

The Advertiser has obtained an unredacted copy of the contract.

The document contains a budget for management fees ranging from $915,751 to $1,045,568 per year for the first seven years, then $703,094 per year for the remainder of the contract.

On top of that, the independent committee chaired by Mr Spencer and including ABC board member Donny Walford, is paid another $170,500 per year, based on publicly available contracts, which are valid until July 5, 2020.

If these were to extend for the full 15 years and not be increased, this cost would total $2.56 million.

For the first year of the contract, which came into operation in July 2017, the contract contains a budget for Blue Sky including:

■ Labour costs — employees — $635,751

■ Labour costs — consultants — $70,000

■ Due diligence expenses — $60,000

■ Travel and community building — $100,000

■ Financial licensing expenses — $50,000

Raymond Spencer.

Donny Walford. Picture: Hollie Adams/The Australian

The expenses for the first seven years of the contract, the “investment period”, are broadly similar, while the amounts for “travel and community building” and external consultants drop during the “exit period”.

The contract indicates that these budgets are up for negotiation and can be changed.

The total “committed capital” from the State Government is actually $48.75 million, not $50 million, with $1.25 million going towards the management fees.

The State Government told The Advertiser last week that BSVC Pty Ltd — the manager of the SA VC Fund (SAVCF) — “has evaluated over 350 potential investment opportunities since the launch of the fund and is in various stages of due diligence with 17 opportunities. The team also continues to be actively involved in Myriota and Kid Sense, the first two investments from the fund”.

BSVC’s directors are Adelaide-based Elaine Stead, and three Queensland-based directors.

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