Fund focus: Main Sequence differentiates by going deep

Main Sequence Ventures has always benefited from its close ties to CSIRO, Australia’s national science agency. This support manifested itself most visibly in a A$100 million ($77 million) anchor commitment to the VC’s debut fund from CSIRO and other government organizations. After securing additional private capital, a final close of A$240 million was achieved on target in 2018.

Fund II had no such luxury. The entire corpus had to be raised from outside sources, and with Fund I still a relatively fresh vintage in its own right, there was little to shop around in terms of track record. Still, Fund II has hit its A$250 million target oversubscribed, with all existing LPs re-upping and a number of maybes from the Fund I roadshow now comfortable enough to commit.

Part of this response can be attributed to performance, at least on paper; Main Sequence claims that Fund I ranks in the top quartile for its vintage of VC funds globally based on total value to paid-in (TVPI). The greater LP motivator, however, appears to have been a differentiating deep tech focus, which has seen the firm delve into areas as arcane as underground autonomous drones and 3D bio-printing.

“It’s a bit about timing, ironically,” says Mike Zimmerman, a partner at Main Sequence. “During the pandemic, all of us are a little bit more aware of the ability of science and engineering to solve big challenges, whether that’s the rise of telehealth or digitizing supply chains and creating vaccines in record time. That has fed the appetite for solutions to the challenges facing the world, and we exist for that.”

Fund II’s problem-solving mission will include an intensified emphasis on decarbonization efforts, including fields such as plant-based meats, carbon capture, and agronomy. This shift was said to be a significant factor in attracting new LPs, particularly family offices but also larger organizations looking to marry impact with a commercial opportunity.

“We are seeing alignments where you have governments, corporates, and institutional investors, all lined up saying ‘we need low carbon solutions,’” Zimmerman says. “For the first time, there’s commercial demand for this.”

Ultimately, the key to the enterprise was reinforcing Main Sequence’s credentials as a financial investor when so much of its value proposition is wrapped up in its relationship with CSIRO. To be clear, the CSIRO connection is indispensable. Main Sequence has access to 3,500 scientists for due diligence purposes and a broader network of government bodies and universities for its various business building and R&D programs.

About half of portfolio companies to date have some kind of partnership or cross-over with CSIRO. There have been five spinouts from CSIRO, not including companies co-incubated with the agency such as rapidly commercializing vegetarian meats start-up V2 Foods. Other collaborations cover support with licensing and accessing technical facilities.

On the government side, there is clearly a strategic national interest at heart but also a concerted agenda to commercialize a local science and engineering ecosystem that has been invisibly punching above its weight for decades without much return on investment. For its part, Main Sequence has secured independence in operations via a standard and comfort-inspiring local limited partnership structure (ESVCLP).

Furthermore, there is an eight-strong investment committee with only one vote from CSIRO and no veto. Decisions need not be unanimous, giving Main Sequence’s five partners majority sway on calling deals as well as access to massive government innovation resources. As Zimmerman puts it: “The fund structure is actually plain vanilla, but the situation is not.”

In the end, a unique public-private format may be the only way to make investments thrive in some of the deep-tech rabbit holes that Main Sequences explores. Fund II has approved six investments to date in areas including space, circular economy, clean hydrogen energy, and synthetic biology food production. These will not be easy to turn into profitable businesses.

“This is not just creating a website over a long weekend. You actually have to build. There’s advanced manufacturing and specialized jobs,” Zimmerman says. “We’re hiring people here and bringing in people from overseas – that’s why we say we’re creating new industries. We’ve created 700-odd jobs in these new deep tech companies.”

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• Topics
• Australasia
• Technology
• Fundraising
• GPs
• Main Sequence Ventures
• Australia
• Venture