The Victorian government has cut funding to its controversial venture capital fund by $360 million over the coming four years and extended its investment profile by five years.

Treasurer Tim Pallas handed down the state budget on Tuesday, revealing a $15.2 billion deficit.

The budget also predicted net debt to grow to $156 billion in 2025 and to $188 billion by 2028.

In the face of this rising debt and sustained criticism over the state government’s sovereign venture capital fund Breakthrough Victoria, the budget revealed that the Victorian government would be slashing its funding by an average of $90 million annually over the next four years.

Breakthrough Victoria was announced in late 2020 during the heights of the COVID pandemic and established the following year with $2 billion to invest over a decade.

Operated by an independent investment company, Breakthrough Victoria provides 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 technology.

But Pallas announced during his budget speech that in a move which “reprofiles funding”, Breakthrough Victoria will face a significant funding cut and will have its investment profile shifted from 10 to 15 years.

“Breakthrough Victoria was set up to help the economy recover and grow jobs after the pandemic – but with those tasks well underway, we will extend the fund’s investment profile from 10 to 15 years, giving Breakthrough Victoria more time to review and be selective about quality investments,” Pallas said in his budget speech.

Because of this, the VC fund will invest in about half the number of companies next year as it has in 2023-24.

Breakthrough Victoria provided support to 13 companies in 2022-23 and 19 in 2023-24, but the budget predicts this number will drop to 10 in 2024-25.

Criticism of the state VC fund

Some in the local tech sector have been critical of Breakthrough Victoria, with concerns raised this year centring on transparency, its operations, and its very existence while the state battles rising debts.

This criticism has been led by prominent tech investor and Catapult executive chair Adir Shiffman, who labelled Breakthrough Victoria as “poorly conceived, suspiciously political, huge, opaque, using the wrong KPIs, an overly broad and unclear mandate, poor governance and reporting that is slower than expected and provides little clarity”.

Breakthrough Victoria had operating costs of $24 million in the 28 months from March 2021 to June 2023, covering company establishment costs, professional services and salaries.

In response, Breakthrough Victoria said in a statement that it is “working to fundamentally reshape the innovation landscape” and that it is “more than just a venture capital firm”.

Breakthrough Victoria has now deployed more than $330 million, including investments in 24 companies.

Support for LaunchVic

The state budget did provide support for Victoria’s startup support body, LaunchVic, with $40 million provided for its continued activities.

This will allow LaunchVic to continue to “support founders and startups to develop critical skills, access mentorship and networks, as well as enhance startups’ access to capital by developing the sophistication of Victoria’s investor networks and leveraging government co-investment”, the budget stated.

The cash boost was welcomed by LaunchVic chair Leigh Jasper.

“The Victorian government should be commended for its commitment to the local startup sector through the refunding of LaunchVic for a further four years,” Jasper said.

“This is a great vote of confidence in LaunchVic and the role it has played in driving massive growth for Victoria’s startup sector.”