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🌏 #9 | What’s the current state of startup funding in Australia?

What’s the current state of startup funding in Australia?

Fortunately for us, Chris GillingsCut Through Venture has for some years been assembling a startup funding dataset. These data underly the findings in The State of Australian Startup Funding 2023 report co-authored by Cut Through  and Folklore Ventures.

💰 Capital raised and number of deals in 2023

In 2023, total startup funding reached $3.5B across 413 deals.

Compared to 2022, startup funding was down 53% from $7.4B and the number of deals was down 42% from 712. This is an acceleration of the decline from the peak funding of the “ZIRP” (“zero interest rate phenomena”) era and deal volumes seen in 2021, $10.6B across 731 deals, which decreased 30% and 3%, respectively, from 2021 to 2022.

The decline in funding has been led by a slowdown in mega-deals as investors have pulled back and focussed on advising later-stage companies.

In 2023, there was only 15 $50M-plus deals, compared to 29 in 2022 and 54 in 2021. None of the deals in 2023 involved new $1B-plus “unicorn” valuations, compared to 6 deals in 2022. The largest deal in 2023 was the $263M raise by Employment Hero. In 2022, the 3 largest deals surpassed this figure, with the largest raise by Cyara reaching $499M.

This marks a return to funding and deal levels seen in 2019 pre-Covid ($2.7B across 377 deals) and 2020 early-Covid ($3.1B across 399 deals) market conditions.

Australian startup funding and deal volumes from 2018 to 2023

⬇️ Industry breakdown

Reflective of Australia’s enduring strengths, the top 4 sectors by capital raised in 2023 were enterprise and business software ($505M), fintech ($331M), hardware and robotics ($301M), and biotech and medtech ($269M). These sectors were also among the top 5 in 2022, with capital raised reaching $1.2B, $1.3B, $554M and $387M respectively.

In 2023, climate tech and cleantech and space, aviation and defence also attracted significant investment, with levels reaching $268M and $202M respectively. Blockchain and cryptocurrency funding reached $147M, falling substantially from the $510M raised in 2022.

👀 2024 and beyond

In 2024, investors identified AI and big data as the sector they’re most excited about, buoyed by advances in generative AI. This is followed by enterprise and business software — attractive due to its capital efficiency strong track record — and climate tech and cleantech, which will play a key role in the global energy transformation.

In 2024 and beyond, it’ll be interesting to see what the answers to the following questions — prompted by commentary in the report — emerge to be:

📌 Will ZIRP-era investment rounds with high valuations and deal sizes help or hinder funded startups?

📌 What does it mean for the tech ecosystem that funds raised are concentrated in NSW (61% in 2023 and and 57% in 2022)?

📌 What are the implications of the mega funds raised in 2022 by Blackbird ($1B), AirTree ($700M) and Square Peg ($550M) for the tech ecosystem?

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