A handful of big raises plumped up Australian venture funding in 2024 - unless you're a woman

A single deal that saw Singapore’s sovereign wealth fund sling $300 million at 15-year-old exchange traded funds (ETFs) manager Betashares in mid-June has plumped up Australia’s venture capital turkey in the final quarter of the 2024 financial year, hiding an otherwise disappointing three months for local startups.

Data compiler Cut Through Venture included government-backed Temasek’s investment in the 15-year-old funds manager as part of its Q2 2024 figures, along with $135 million for nachos franchise Guzman y Gomez in April ahead of its public listing on the ASX last month.

The Betashares investment alone accounts for 20% of the $1.5 billion recorded for the June quarter, while the fast food chain represents 9% meaning nearly a third of the total funding sits with two companies many would not consider part of the scaleup tech sector.

Halfway through 2024, the total funding deployed sits at $2.3 billion, which is mid-range between the highs of 2021-22, and above the six-month figures for 2020 and 2023.

Funding round sizes by quarter from Cut Through Venture. Source: CTV June 2024 quarterly report

There were some significant 9-figure deals in the last three months, including a $120 million Series E for e xpat insurtech Cover Genius, the record $172 million Series B for Wollongong g reen hydrogen startup Hysata and $100 million Series A+ pocketed by plastics recycling venture Samsara Eco plus a $108 million Series A for Honey Insurance.

CTV recorded six $100m+ “mega deals” in Q2 – the highest number since Q1 in 2022. Between them, they represent nearly two-thirds of the capital deployed in the June quarter.

Also notable was that among 99 deals recorded by Cut Through Venture, 18 were for eight-figure sums, led by Sydney neuroscience startup Ominscient, which Gina Rinehart backed in an $89 million Series C last month. The company uses artificial intelligence (AI) to map the brain in the hope of treating diseases such as Alzheimers and depression.

AI disparities

Unsurprisingly, AI startups topped the sector deal count table for the first time. The quarter saw 16 rounds for startups considered “AI-first” and CTV found that 37% of the total rounds went to startups that mention AI on their website.

But whacking an AI sticker on your pitch deck won’t necessarily provoke a Pavlovian response from investors, with the Cut Through Venture noting a “significant gap” between the hype and funding reality, with most AI companies struggling to raise.

It’s AI companies led by experienced serial entrepreneurs or highly technical founders with impressive track records scoring the lion’s share of capital funding.

“This disparity misleads many new founders who see the large funding rounds and believe they will apply to them,” the report notes.

“As the AI space becomes more saturated, investors are increasingly cautious.”

Tellingly, the June Investor Sentiment Survey of Australian VCs, found that 57% of firms haven’t invested in any “AI-first” startups in 2024, and only 19% showed strong interest in them.

Climate/clean tech, bio/medtech and fintech remained the most consistently supported sectors by investors, and among the best-funded segments
list, although it was notable that all but one investment in the climate/clean tech and Bio/medtech space were Series A or later.

Chris Gillings from Cut Through Venture said investor sentiment is clearly on the rise in the June quarter, with reports of an improved funding market, higher quality deal flow, and better portfolio health, but no everything is rosy.

“It was incredibly encouraging to see deals bounce back from a spookily slow first quarter of 2024. While the volume of funding was largely driven by a small handful of very large deals, the re-emergence of mega deals is a very positive sign for the entire funding ecosystem, with the largely dormant late-stage funding markets showing signs of being open for business once more,” he said.

“There was a high number of deals across all stages, from Pre-Seed through to Series B and later, which is a telling sign that investors’ confidence has returned and they are actively deploying at all stages.”

Small deals bounce back

Gillings noted that after falling to their lowest level on record in Q1, deals under $5 million bounced back, reaching their highest level since 2022 when Accelerator cohorts are omitted from the data. But he added that it’s still a tough raising environment for early-stage startups, with a noticeable pullback from angel investors alongside higher progress expectations from specialist pre-Seed and Seed funds.

Investments in the Rounds of $5-20 million bracket remained steady since the pullback in late 2022.

Startup valuations by Cut Through Venture. Source: CTV June 2024 quarterly report

Speaking to investors, Gillings found that sentiment continued to improve in Q2 2024, with 46% of investors describing the funding market as more favourable compared to Q1, while 42% reported assessing more deals, and 30% rated the quality of deal flow as good or excellent.

“Portfolio health showed mixed signals: reported layoffs fell significantly, yet there was a marginal uptick in startup closures, indicating ongoing market adjustments,” he said.

Another notable data point in CTV’s investor sentiment survey was that 68% expect startup valuations to stay the same in 2024, with 17% in a bear mindset for falls and 15% at the bull end expecting rises before the year is out

And despite the prominence of the issue, and pledges by VCs to do better, the growth in larger and later-stage rounds meant that while pre-seed deals hit all-time high for women founders, their overall share of funding fell to a five-year low.

“While female-founded startups hitting a record-high share of funding at the pre-Seed stage is undoubtedly something to be pleased about, it’s hard to bust out the party poppers when that was paired with a plummet in overall funding for female-led startups,” Gillings said.