Deep tech startups lead the way in both deal count and funding in Q3

A slew of accelerator rounds propelled Australian startup deal counts to their highest levels so far this year in the September quarter, with a total of more than $1 billion in venture capital raised and the highest share going to deep tech companies in hardware, robotics and the internet of things (IoT).

The latest Cut Through Quarterly prepared by Cut Through Venture shows there were 116 announced rounds in the third quarter, including 85 venture rounds and 31 accelerator rounds.

Tasmanian AI infrastructure group Firmus Technologies accounted for around a third of the total raised with its $330 million round in mid-September, while other large rounds included $88 million for semiconductor group Morse Micro and $54 million for AI concierge group Lorikeet.

The hardware/robotics/IoT raised $481 million across 12 deals - the same number of rounds recorded in the second-leading segment of biotech/medtech, which in contrast only raised $119 million, followed by climatetech/cleantech with $87 million and AI/big data with $67 million.

Cut Through Venture claims this is the first time that deep tech startups have topped both funding and deal counts.

"Non-software startups received the most funding, with hardware featuring prominently alongside biotech and other sciences," the authors wrote.

"Capital clustered around deep technical theses, with science-heavy businesses attracting a larger share of the biggest cheques than pure software.

"Investors are favouring unique IP pathways with credible regulatory or manufacturing plans."

A sentiment survey conducted for the report also revealed that only 16 per cent of investors had valuation expectations that were "no different" between AI-first startups and non-AI startups, with 46 per cent stating their expectations were "significantly higher" for startups with a primary AI focus, and "somewhat higher" 38 per cent.

The total venture capital invested was higher than the $812 million reported for Q2 and technically lower than Q1, although this is based on revised estimates with March quarter levels reported as just shy of $1 billion at the time. This means there is potential for the final Q3 figure to be inflated with time as more deals come to light.

When excluding for Firmus Technologies, rounds of $20 million or more were "broadly in line with previous quarters", and most investors expected to do more deals this year than in 2024 with a "steady" level of deal quality.

"If these conditions persist, the setup into Q4 looks constructive. The final quarter of 2025 will need to top $1.3 billion for 2025 to edge into third spot in the capital deployment hall of fame," the authors wrote.

While female founder representation fell to its lowest level in many years at the pre-seed stage with just 6 per cent of deals involving only female founders and another 6 per cent with mixed gender foundership, there was a rebound in the overall level of funding for startups with female founders.

Female-only-led startups recorded their strongest performance since early 2023, and this cohort combined with mixed gender founder teams accounted for 11 per cent of the total capital raised. The largest raises for this cohort were for robotics companies Skutopia and Andromeda, semiconductor startup Syenta, and biotechs Eclipse Ingredients and Harvest B.