VC funding falls in Australia as investors head to the exits

Investor sentiment and founder optimism appear misaligned with the total amount of venture capital flowing to startups in the first quarter of the 2025 financial year, falling to a multi-quarter low of $695 million, driven primarily by a drop in mega-rounds.

The latest quarterly figures from Cut Through Venture (CVT) show that the Q3 (calendar year) reveal strong investor activity in early stage rounds, especially thanks to accelerators, alongside Seed-stage deals, which accounted for a third of all announced non-accelerator investments. All up there were 92 venture deals and 39 accelerator rounds.

Funding in the September 2024 quarter. Source: Cut Through Venture

But while the $695 million September quarter figure appears to be half of the $1.5 billion CTV accounted for in the June quarter to end FY24, it’s worth noting that number was botoxed by Singapore’s sovereign wealth fund Temasek’s $300 million investment in 15-year-old funds manager Betashares; as well as $135 million for nachos franchise Guzman y Gomez before it listed on the ASX.

In total, nearly $3 billion has been poured into Australian startups so far in 2024. Overall deal numbers rose in the September quarter, but the 3 months lacked any $100m+ raises and even those above $50m fell to a multi-year low.

Investor sentiment improved, with 49% seeing the market as more favourable, 53% reviewing more deals, and 58% rating deal quality as good or excellent. However, reporting on portfolio health worsened, as layoffs and startup closures were reported to increase compared to Q2.

Meanwhile, a vast majority of founders, 84% believe that valuations will remain at current levels, with 8% either side of that steady-as-she-goes viewpoint believing in a rise or fall. The CTV analysis found that valuations fell between 33% and 42% in the quarter, from pre-Seed to Series C+ (see below).

Enterprise/business Software and AI/big data held the top spots for investors as the “most exciting segments”, while fintech topped the funding table again, accounting for four of the 10 $20m+ deals.

Nonetheless, climate tech led deal volume, with accelerators playing a key role as 10 of the 23 announced deals.

Round sizes in Australian VC. Source: Cut Through Venture

They also did their bit when it came to backing women. Pre-Seed funding for teams with at least one female founder hit 50% for the first time, while Seed- stage participation sat at 26%. Accelerator funding backed female founders in 54% of rounds. While female participation in Series A and Series B+ rounds remained in the mid-to-high 20% range, the overall share of funding to female founders was weaker, at 20%.

Rounds above $20m for Kismet, Drift and Volt helped bolster the numbers for women in a quiet quarter.

The report also took a dive into secondary sales with David Moss from Second Quarter Ventures, who noted that demand for liquidity is high, as VC funds reach the end of 10-year lifespans.

This coincides with a time where the environment for growth is severely challenged and exit volumes remain muted. Secondaries pricing has therefore become a focal point, with discussions on “discounts” at its centre,” Moss wrote.

“It is widely understood that secondary transactions trade at discounts to a company’s last financing round. We are sometimes asked what the “right” discount is in the current environment. If you are trying to understand how secondary pricing really works, we think this is the wrong question. The last round is an imperfect reference.”

Cut Through’s Chris Gilling said in the September quarter report that the Investor Sentiment Survey found nearly half of VC firms are discussing exits more frequently than this time last year.

“The message is clear: the pressure to return capital to investors is building,” he wrote.

Traditional IPOs, particularly ASX listings, have slipped from their pedestal. While the dream of an IPO remains, it is no longer seen as the default route for achieving liquidity.
Instead, alternative exits such as private equity buyouts and secondary sell-downs are gaining ground. These methods are undeniably more practical and, crucially, faster ways to return capital to Limited Partners. As a result, VCs are focusing their efforts on these strategies.

“For funds and founders, secondary sell-downs offer flexibility: the company can continue its growth trajectory without disruption, and the founders retain control. Investors looking to exit can achieve a return on their investment without forcing a sale of the entire company.”