The Victorian government’s controversial $2 billion venture fund has been embroiled in an unfair dismissal case launched by the co-founder of one of its portfolio companies.

Seer Medical founder Dr Dean Freestone launched Federal Court action against the company he helped launch and Breakthrough Victoria earlier this year, alleging he was forced out of the startup as part of a rescue funding package that also saw his shares diluted, in contravention of workplace laws, as the Australian Financial Review reported.

In an interlocutory hearing in the Federal Court this week, Breakthrough Victoria’s attempt to have a lawsuit against it thrown out was rejected, but Freestone was ordered to update his claims.

Freestone is arguing that Breakthrough Victoria took steps to “coerce [him] not to exercise his workplace rights” and that he was effectively required to be dismissed as part of a funding rescue package last year.

Breakthrough Victoria was established by the state government at the height of the COVID-19 pandemic in late 2020 with a commitment of $2 billion to provide funding to local businesses for research and development, adoption and commercialisation, with a focus on medical research, health and life sciences, advanced manufacturing and digital technologies.

In mid-2022 Breakthrough Victoria announced a $30 million investment in Seer Medical, which has developed in-home epilepsy diagnostic technology.

But a year later Seer Medical underwent a round of mass redundancies, with about a third of its workforce slashed as part of a restructuring deal with bridge funding.

Dismissal

Earlier this year, Freestone, the co-founder of Seer Medical, was dismissed by the company, according to his statement of claim filed with the court.

In legal action lodged with the Federal Court, Freestone is suing Seer Medical and Breakthrough Victoria, alleging multiple contraventions of the Fair Work Act in relation to his dismissal from the startup he co-founded.

Freestone is alleging that he was forced out of the company by Breakthrough Victoria as a condition of $10 million in emergency funding, and that he was “coerced” into a deal that diluted his 30 per cent stake in the firm, estimated to be valued at nearly $95 million as at December last year.

In his statement of claim, Freestone said he had lost his base salary of $320,000 per year, along with a bonus of up to 10 per cent and future opportunities, and that he had also suffered distress, hurt and humiliation.

After experiencing financial difficulties, Seer Medical’s independent shareholders and Breakthrough Victoria agreed to a $10 million rescue deal.

This deal was conditional on Freestone being removed from his role at Seer Medical, and he claims this was about the venture fund aiming to increase its “ownership and control over Seer’s business”.

In a letter to shareholders earlier this year, Freestone alleged that Breakthrough Victoria had been “exercising de facto control for an extended period” over Seer Medical, and that the fund had “impeded Seer from raising capital over the course of 2023”, the Australian Financial Review reported.

In its reply, Seer Medical hit back at these claims, and said the company experienced “severe financial difficulties” under Freestone’s leadership.

Its statement said the condition to remove Freestone was insisted upon by its independent shareholders, rather than Breakthrough Victoria.

In a hearing this week, Federal Court judge Shaun McElwaine denied Breakthrough Victoria’s request to have the case against it thrown out entirely, but did order Freestone to rewrite substantial elements of his claim as it did not comply with “basic rules of pleading”.

Embattled fund

Breakthrough Victoria has been facing criticism this year over its operations and lack of transparency.

After calls for it to be scrapped entirely amid skyrocketing debt in Victoria, the fund said it was “working to fundamentally reshape the innovation landscape”.

In the May budget, the Victorian government cut funding to Breakthrough Victoria by $360 million over four years and extended its investment profile by five years, meaning it will invest in far fewer companies each year.

Breakthrough Victoria chief executive Grant Dooley resigned from his role in August, with the independent company running the fund posting a $3 million loss in its third year of operations.

Breakthrough Victoria employs more than 50 staff and invested $73.7 million in companies in the last financial year, incurring $22 million in expenses in the process.