The ongoing El Nino drought of startup funding in Australia has continued in the first quarter of the new financial year, with total funding down 42% on 12 months ago, and falling by 9% on the previous quarter according to new analysis from Cut Through Ventures.
The September quarter saw A$739 million invested across 77 deals, and while the good news is that total funding in the first nine months of 2023, securing a cumulative $2.3 billion, is marginally ahead of 2020’s investment levels, a range of parameters, from round sizes to valuations and deal numbers finalised, have seen a drop off. But nearly half (46%) of the 160-plus investors surveyed for the report said said more deals were coming across their desks in Q3 of 2023, compared to Q2.
In other good news, 94% reported that they hadn’t lost any portfolio startups to closure, up from 81% in Q2.
Rounds below $5 million fell to 2019 levels during the three months and an absence of nine-figure ($100m+) “mega-rounds” in the quarter also stands in contrast to an average of three per quarter in 2022.
The report also notes the importance of Startmate, the prolific early-stage investor and accelerator program backed by Atlassian’s Mike Cannon-Brookes and VC Blackbird, which puts $120,000 into each startup it selects, to the overall figure because when the 13 startups in its winter cohort are removed from the quarterly total, “the number [of] announced deals slid back to levels not seen since 2018”.
Startmate’s biannual Demo Day is coming up in Sydney later this month as part of SXSW.
Total funding raised in recent years, per quarter, alongside the number of investment deals done. Source: Cut Through Ventures
The biggest deal to land in the last three months was for Airtree-backed online retailer Pet Circle, which held its $1.125 billon valuation when raised $75 million in a single buy-in from existing US backer Prysm Capital for a Series D.
It no doubt helped salve the pain of a $26,640 fine for Pet Circle from competition regulator the ACCC for misleading customers over discounts offered when shopping online. Pet Circle has around 45% of Australia’s online pet retail market.
The silver medal went to cybersecurity edtech Secure Code Warrior with its $72 million Series C while Queensland expat HR startup One Model landed Q3’s funding bronze with a $64 million drop Series B, thanks, in part, to the state government-backed QIC.
The only other startup to cross the $50m threshold was Silicon Quantum Computing with $50 million Series A after setting out to raise $100m+.
Further down the ladder, a dozen startups topped the $20 million mark, including Infravision’s $36m Series A, documentary maker Luke Annear’s SafetyCulture pocketing $34m as shareholders looked offload around $500m in equity and non-alcoholic spirits maker Lyre’s raising a glass to European investors after a $34m Series B.
For investors buying in during Q3 there was some joy – at the expense of founders – with seed valuations falling 32%, alongside a 36% drop in Series A and B valuations, and a 41% plunge for Series C and later.
When it comes to women running startups, the larger deals for Secure Code Warrior and Silicon Quantum Computing (representing 80% of the funding to women) alongside food waste recycler Olympia Yarger’s Goterra, which topped up with a $10 million bridging round, helped bolster the numbers to above the median average for bloke startups, and give women their highest percentage share of funding since 4Q CY20 at $152 million in total.
There’s still a long way to go though, especially after 2022, when 10% of startups receiving investment had at least one female founder, with 3% women-only.
So far in 2023, women scored 23% of the capital, with 5% allocated to women-only-led startups. That’s still behind 2020’s 25% and 6% women-only figures.
Speaking of bridge rounds like Goterra’s Cut Through Ventures reports that 43% of the investors it asked told their portfolio companies to opt for a bridge round from existing investors to avoid a down round, protecting the interests of their own investments, LPs and partners as much as the startups chasing funding.
Climate and clean tech led the funding and deal count this quarter, in a rebound to the top five investor favourites after a post-2022 dip. Health/bio/medtech, saw numerous smaller, early-stage deals, while consumer products, social networking, media, gaming and sports are investment lepers. Fintech dropped out of the top five funded sectors for the first time in two years.
Capital raised per annum over the last four years Source: Cut Through Ventures
Cut Through Ventures founder Chris Gillings said in the opening remarks to his report that the data suggests that contrary to some commentary, international investors have not walked away from Australia’s startup sector.
“A closer look at the data reveals a more nuanced situation, indicating sustained and possibly even intensified – in the scheme of things – international interest in Australian startup,” he said.
“In 2023, the percentage of deals that included at least one international investor reached an unprecedented high across all funding rounds. While this represents a relatively lower total investment in Australian startups (given the overall slowdown), the data challenges the perception that global investors have retreated any more than their domestic counterparts.”
That said, high profile and prolific offshore investors such Tiger Global, Sequoia, A16Z, and January Capital, have yet to announce local deals in 2023. But they may also have some more pressing issues closer to home. You’ll find some of those names on crytpo clusterf%^k formerly known as FTX. The trial of founder Sam Bankman-Fried on fraud and conspiracy charges got underway in New York this week.
Chris Gillings said locals remain a key part of rounds with international counterparts, with 46% saying they co-invested with offshore VCs in the past six months, while a quarter observed foreign backers bypassing a follow-on investment in jointly-owned
portfolio company.
“The question that now looms large is whether the post-Zoom-deal-doing world will provide fertile terrain for overseas investors with minimal local presence to allocate substantial capital on foreign,” he said.
The good news for local founders hoping for USD capital is that 51% of investors anticipate an uptick in activities from international players in the next six months.
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