Main Sequence to plough $450m into climate, AI start-ups

CSIRO-linked venture capital firm Main Sequence has closed its third fund and passed $1bn in funds under management, defying the deepening ‘tech wreck’.

Main Sequence partner Mike Zimmerman.

CSIRO-linked technology venture capital firm Main Sequence has bagged $450m for its third fund, passing $1bn in funds under management as it tackles challenges spanning climate change, cyber security, food scarcity, artificial intelligence and outer space.

Main Sequence has defied the ongoing ‘‘tech wreck’’ to close its third fund, raising capital from new and returning investors including CSIRO, Hostplus, LGT Crestone, Morgan Stanley Wealth Management, NGS Super, Australian Ethical Investment, Daiwa Securities Group and The Grantham Foundation.

It previously raised $240m for its original fund and $330m for a second fund. “This is just a fantastic milestone for the industry and the sector, given where Australia is and what we’re trying to do as a country,” Main Sequence partner Mike Zimmerman said.

“Hopefully it’s a bit of an endorsement of the idea behind the fund, of being able to turn the great research we do here into very valuable companies.

“We’re super excited.”

The tough economic climate meant Main Sequence’s investors were more cautious than previously, Mr Zimmerman said, and they took a longer look at the portfolio companies and their underlying financials.

Start-ups that have received Main Sequence backing include drone logistics platform Swoop Aero, artificial intelligence robotics company Advanced Navigation, semiconductor chipmaker Morse Micro and Sydney-based quantum computing start-up Q-CTRL.

Swoop Aero chief executive Eric Peck. Picture: Aaron Francis

“If companies are developing real solutions that are solving real problems like decarbonisation or climate issues, or are building hardware-based solutions like semiconductors, I think despite the economic headwinds we’re facing there’s a little bit of resilience there in those sectors,” Mr Zimmerman said.

“We’re separating the wheat from the chaff at this point. And companies that are making progress and satisfying customers are still getting capital and still being magnets for capital. The impacted companies are ones that are not making as much tangible progress. You have to have real concrete performance.”

Main Sequence’s third fund includes both capital for new investments through its core fund, and expansion capital for start-ups from its previous funds. Main Sequence says its portfolio companies have created more than 2100 jobs and the market value of those companies has grown to over $6.8bn.

“That’s one the reasons this the fund is the size that it is – we wanted to make sure we had adequate capital to back those companies that are really accel­erating,” Mr Zimmerman said.

“This whole concept of venture science is something we feel is very unique for Main Sequence. What we’re doing is looking for a market problem to be solved, and then world class research that we think has the ability to tackle the problem, and bringing the parties together that are needed to start a company.

“We think it’s a super-powerful thing to not just necessarily wait for the companies to emerge but instead say ‘hey, the research is here, the problem is here, let’s get after it’.”

Daiwa Capital Markets Australia CEO Susumu Handa said: “We are very excited to be the first Japanese investor of this excellent venture capital fund.

“Through the collaboration with Main Sequence, we are confident to be a bridge between two countries’ start-up ecosystems to leverage our bilateral relationships for creating shared values.”