The latest edition of The State Of Australian Startup Funding report by Cut Through Venture and Folklore Ventures is out, and the results show a surprising twist.
Despite a decline in overall Australian startup funding by 30 per cent, the report found that the Pre-Seed and Seed stages saw a record number of deals in 2022.
The report highlights that early-stage deals in these two stages are more competitive than ever, with 35 per cent of investors surveyed reporting this phenomenon. Furthermore, the report shows that more than 60 per cent of founders are optimistic about the future of funding in Australia, with plans to raise their next capital round in 2023.
📣 The State of Australian Startup Funding ’22 is here!
✅ Insights from 500+ startup founders & investors ⁰✅ Deal data from 88 VC funds
✅ 40+ investor comments
✅ 89 pages full of charts & analysis
✅ 1 resource for the whole ecosystem https://t.co/jIBoHPyL8d pic.twitter.com/zVAM2kUK7S— Folklore Ventures (@Folklorevc) February 6, 2023
These findings come as a much-needed boost to the confidence of founders and VCs in Australia, as recent market challenges have sparked doubts about the future of funding in the country.
Equity funding dropped 30 pct in 2022
The latest data on equity funding for Australian startups show a 30 per cent drop in 2022, a trend slightly behind the global decrease. This decrease was due to a lower number of large deals over $50 million and fewer outlier deals at all stages, leading to a total 30 per cent drop in funding for Aussie startups, despite the number of deals remaining relatively unchanged.
In comparison, global VC funding saw a 35 per cent decrease, according to Crunchbase data, indicating a slightly more resilient investment market in Australia.
Pre-seed and Seed stage deals surged
Despite market challenges and economic uncertainty, the early-stage funding ecosystem in Australia remained strong, leading to a surge in Pre-seed and Seed stage deals.
The diversity of this ecosystem resulted in a steady number of sub-$5 million deals and a 7 per cent increase in total funding for early-stage startups. In fact, 35 per cent of investors surveyed reported that early-stage deals were more competitive than ever.
Female-founded seed startups take in more investment
The report also showed that female-founded seed startups received more investment, although their overall share of funding dropped to a low level. Pre-seed and Seed startups founded by women saw a significant increase in funding, with 23 per cent of all deals involving companies with at least one female founder.
However, their total funding dropped to 10 per cent from 21 per cent in 2021, and the median amount raised by these startups was 39 per cent lower than that raised by all-male teams.
New channels pave the way
Angel investing continued its upward trend in 2022, with female angels showing more confidence and a higher expectation of increased investments next year compared to male angels. This led to a rise in female participation in funding rounds.
VC funds are more cautious
VC funds are full but being deployed more cautiously, with LPs now demanding a more conservative investment strategy. This has resulted in longer fundraising processes, with 88 per cent of surveyed investors reporting this and a longer time to decide on investments, with 61 per cent of VC partners reporting this.
Despite this, there remains a strong appetite for investment in this asset class, with portfolio companies being instructed to reduce costs.
Folklore Ventures’ Founder and Managing Partner Alister Coleman:
“Folklore Ventures is proud to once again jointly publish this report alongside Cut Through Venture. The ebb and flow of the last two years is a natural part of our ecosystem maturing, and we should expect funding environments to periodically expand and contract over time, as is the nature of capital markets.
“Zooming out, there are real reasons to be excited about the abundance of world-class talent and innovation in Australia’s startup ecosystem. The health of the funding environment captured in this report demonstrates just how far we have come over the last decade.
“In 2022, we saw early-stage investment reach an all-time high, and looking forward, we believe this trend will continue off the back of significant dry powder in VC funds and a natural tendency for difficult times to be a catalyst for great innovation.
“Folklore has long held that startup investing is a long-term journey beginning with a first cheque, so we begin 2023 excited and ready to support the next generation of Australian startup success stories,” Coleman added.
Chris Gillings, Founder of Cut Through Venture and venture capitalist at Five V Capital
“We are thrilled to launch the second edition of this report. Existing and new partners are joining Cut Through Venture in our important mission, providing free and reliable Australian startup funding data.
“Given the global environment, it is no surprise that funding was down in 2022. What is encouraging, though, is the market’s resilience: it’s a testament to the breadth, depth and maturity of the startup ecosystem.”
“The annual report will remain a free and accessible resource for the entire ecosystem and aims to chart progress during benchmarking areas for improvement, such as diversity and inclusion.”
Sara Rona, Market Lead for Australia & New Zealand at Silicon Valley Bank
“Despite the macroeconomic headwinds, we are still very optimistic about Australia as a maturing startup ecosystem. The funding data from the State of Australian Startup Funding report shows that Australia’s ecosystem has remained resilient, with significant opportunities for growth in some sectors in 2023 included in its unique strengths like SaaS companies and climate tech.”
Alex Nikov, Executive Director, Technology Investment Banking, Australia and New Zealand, J.P. Morgan
“As clarity around the macroeconomic outlook emerges, we see positive signs for merger and acquisition deal activity to continue. There is also the beginning of a cautious but accelerating recovery in equity capital markets activity in Asia Pacific as issuers and vendors look to tap opportunistic windows.”
Annabelle Mooney, Head of Commercial Banking, Australia and New Zealand, J.P. Morgan,
“We have seen a greater focus from technology companies on operational efficiency, debt funding, liquidity management and exchange rate risk mitigation. We meet a range of fantastic companies that are growing globally. Helping them gain a competitive advantage by navigating these challenges has been a key focus for J.P. Morgan, especially in the current environment.”
