Australian start-up venture capital funding hit A$1.5 billion for the first time since 2022 in the June quarter, with nearly 100 deals and six $100 million-plus funding rounds driving activity levels up.
The latest Cut Through Venture Australian venture capital funding report said it was too early to call the strongest three-month total since Q4 2022 an upward trend but it did reflect “improved investor sentiment and sets up the potential continuation of this positive shift in the coming months”.
“A significant backlog of start-ups that raised $20 million-plus in 2021-2022 without recent rounds suggests more large deal announcements could occur later this year, pointing to a potentially robust H2,” the report said.
Fintech ($546m), cleantech ($344m) and bio/med tech ($92m) were the strongest Q2 segments, while the “globally hyped AI sector achieved the highest deal count for the first time in Q2 2024, with 16 AI-first start-ups securing funding”.
Hardware/robotics/IoT start-ups secured $79m of funding, and new AI/big data firms netted $67m.
Cut Through Venture said its research indicated that while “flashy funding rounds” for a handful of global AI start-ups made headlines, “most AI companies will struggle to secure capital”.
“There is a significant gap between the AI investment hype and funding reality,” it said.
“The investment landscape shows a clear division.
“AI companies led by experienced serial entrepreneurs or highly technical founders with impressive track records receive the majority of the funding. In contrast, first-time founders, especially those working on common ideas without notable resumes, find it difficult to attract investment.
“Investors often prefer to allocate their funds to other, less crowded sectors.
“This disparity misleads many new founders who see the large funding rounds and believe they will apply to them. However, as the AI space becomes more saturated, investors are increasingly cautious.
“This hesitation is evident in the June Investor Sentiment Survey of Australian VCs, which revealed that 57% of firms haven’t invested in any AI-first start-ups in 2024, and only 19% showed strong interest.”
Cut Through Venture said 108 venture capital firms, angel syndicate leads and family offices provided survey data.
Meanwhile, Airtree Ventures partner and co-founded Craig Blair said the firm continued to believe in the potential of the Australian and New Zealand market to produce $1 billion software and tech firms in the Atlassian, Afterpay, Canva, Wisetech and Seequent vein.
“If we do some back-of-the-napkin maths, local VC funds have roughly $2.5 billion of dry powder,” Blair said.
“To deliver the returns expected of us – three-times – we will need to deliver $7.5 billion in capital back to our investor, meaning we’ll need to see $100 billion in enterprise value generated, assuming about 7% exit stake.
“Currently, we see 30-40 companies each year reaching valuations of over $100 million, with one or two of these becoming billion-dollar companies.
“This is a significant increase from 10 years ago thanks to the growth in talent, capital and ambition.
“We’ve got every reason to believe this trend will continue and potentially grow tenfold over the next decade.”
Blair said the circa-$100 billion EV marker could mean at least 100,000 new tech jobs.
