A survey of Australian start-ups and investors indicates second-quarter fund-raising deal volumes and values remain well down on last year, however, the market mood is less melancholy.
Cut Through Venture says its numbers show A$810 million of Q2 start-up funding was more than 20% higher than the first quarter, albeit the circa-$1.5 billion of first-half funding was only about one-third of what it was in the same period last year and at its “slowest rate since 2019”. Underreporting of funding events by start-ups and funds meant the Cut Through total could be 10-15% below the actual total funded volume, it said.
The 30 largest deals in the first half of 2023, worth $695 million, included only three of $50 million or more – led by biotech firm Saluda Medical’s $150m raise – while 13 companies raised more than $20m.
Adelaide mineral discovery and space tech firm, Fleet Space Technologies, raised $50m during the period to continue its global expansion.
Cut Through quoted one unnamed investor as observing: “The era of colossal deals is on pause. Start-ups that brought in $100 million-plus in recent years are now expected to stretch those funds until their growth and size matches their valuations.”
The report author said its latest investor sentiment survey indicated a “significant mood shift within the ecosystem in the past few months”.
“The fog of fear and uncertainty looming over local and global markets in the latter half of 2022 and Q1 2023 appears to have lifted,” Five V Venture Capital’s Chris Gillings said.
“That being said, the macroeconomic headwinds surfacing across many pockets of the global economy are now undeniable, and start-ups won’t be immune to these challenging business conditions.”
Another unnamed investor said: “Market activity continues to be slow, but the overall sentiment has improved since Q1. Most investors and founders seemed aligned on where valuations sit, and there is an overall reduction in uncertainties about market direction.”
The report noted that for the second straight quarter, “investors remain giddy with excitement over AI, but that has yet to translate to large fund flow into pure-play AI start-ups”.
“Globally, AI start-ups are defying the downward valuation trend, in many instances achieving what some might call bubble-territory valuations.
“Many investors are navigating this space indirectly, focusing on companies that, although not exclusively AI-based, are strategically leveraging AI tools to boost productivity and performance. Adopting and integrating these AI tools into their operations signal a long-term wager on the trend, even if these firms are not solely dedicated to AI.”