Australia-Backed VC Firm Wants in on Critical Minerals Boom — Interview

By Rhiannon Hoyle

A venture-capital firm founded by Australia's national science agency intends to step up its bets on critical minerals, as trade tensions and rising demand spark a scramble to expand supply chains for materials essential to modern technologies.

The firm, Main Sequence Ventures, is adding a new investment thesis dedicated to critical minerals, said principal Jun Qu in an interview, pointing to the rapid build out of metals-intensive infrastructure for artificial intelligence and an ongoing transition to renewable energy.

It marks a shift for Main Sequence, which has roughly $666 million in funds under management and, like many venture capitalists, has historically found it tough to unearth attractive investments in the mining sector.

The time and cash needed to develop new mines has long made the sector unattractive to many venture firms. Mining projects can take a decade or two to develop, and require many millions if not billions of dollars of investment. Miners are also typically conservative and slow to adopt new technologies, while commodity markets can be opaque, adding to uncertainty about future returns.

Yet Qu predicts a paradigm shift for venture capital, fueled by fast-growing demand and supply constraints.

"With the huge demand growth that we're expecting to see and the volumes of production that we need, that's where these commodities become potentially a venture market," he said.

Main Sequence's new thesis coincides with a surge in interest in critical minerals from investors more broadly, as the U.S. and its allies strike deals to support the build out of non-Chinese supply chains.

Today, China dominates the supply of many minerals designated as critical by policymakers, and recent export controls announced by Beijing have sparked concerns about shortages of commodities needed for defense and other advanced technologies.

According to the International Energy Agency, critical minerals have emerged "as a major area of interest" for venture capitalists.

Early and growth-stage investment into critical mineral startups surged to a record-high $2.6 billion in 2023, from negligible levels at the end of last decade, the IEA said in a May report. To be sure, that halved to about $1.3 billion last year amid a wider pullback in venture-capital funding, the IEA said.

"It's now become clearer that there is a venture market there for a lot of these commodities," said Qu. "I think the whole world starts to realize that: Hey, there is a huge shortage of this, right? It's now a matter of what are the technologies that can help to unlock it."

Main Sequence has looked at roughly as many potential deals in critical minerals in the past 12 months as it did in the prior three years combined, said Qu.

"This new thesis is a more deliberate and structured focus on the entire critical minerals value chain," he said. "We are actively looking for companies that fit this thesis and are prepared to allocate capital to them."

To date across its funds, Main Sequence has only invested roughly $13 million or so in the sector.

The firm hasn't set a cap for how much it might invest in critical minerals in the future. It wants to be "flexible and opportunistic based on the quality of the companies we find," Qu said.

The venture firm's last new investment thesis was on AI, launched in April.

In critical minerals, Main Sequence is considering investments spanning exploration to processing technologies, he said. It is most focused on copper--key for electrical wiring, electronics and more--and battery ingredient lithium. "We're looking for commodities with large systemic shortages," said Qu.

While Qu reckons more minerals-focused entrepreneurs are finding ways to overcome traditional barriers to venture investment--proposing capital-light projects with faster potential returns--obstacles remain.

Western critical-mineral companies have oftentimes struggled to compete with China's state-backed mineral giants, known for flooding the world with low-cost materials.

"I think the thing that has to ring true is: Is this a technology that's objectively better and more competitive than the others," said Qu. Is it "better than what might be being done in China at scale? Otherwise, it makes it really challenging."

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com