".AI won't get you .Funded": Cut Through Venture quarterly has a cheeky dig amidst the hype

".AI won't get you .Funded": Cut Through Venture quarterly has a cheeky dig amidst the hype

Image generated by Leonardo.ai. Prompt: "An entrepreneur praying nervously with their head down on the desk, and a smiling God-like AI robotics figure above them in the heavens".

Aside from being a useful repository of Australian venture capital (VC) funding knowledge, Cut Through Venture's reports on the state of the industry have also proven a useful platform to soberly discuss some of the community's sacred cows. 

For its 2023 report published earlier this year, Cut Through Ventures took aim at crowdfunding raises, claiming instances of inflated valuations, aggressive marketing tactics, confusing investor materials, and questionable affiliations with celebrity ambassadors.

In today's report released for the June quarter, which saw a six-quarter record in funding of $1.5 billion for Australian startups, Cut Through Venture has held the microscope up to the much-hyped trends around artificial intelligence (AI).

The report notes this was the first quarter that AI-first startups topped the deal count leaderboard in the Australian ecosystem at 13, but the situation isn't rosy for everyone.

Under the tongue-in-cheek headline of ".AI won't get you .Funded", Cut Through Venture pointed to a "significant gap between the AI investment hype and funding reality". As noted by one tech founder recently to Business News Australia, adding .ai to a startup's name is starting to become an anti-signal. 

"While flashy funding rounds for some global AI startups make headlines, most AI companies will struggle to secure capital," the report's authors wrote.

"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."

AI and big data startups may have tallied the most deals but the category came sixth overall for total funding at $67 million - well below the leading segment fintech at $546 million, and climate-tech and clean-tech at $344 million.

The report notes that AI deals ranged from $220,000 pre-seed to a $30 million Series A, with an average deal size of $5.2 million - this is well below the average round size of $15 million, although that figure is also skewed upwards by a minority of raises that were all $100 million-plus, including Betashares, Hysata, Guzman y Gomez (ASX: GYG), Cover Genius, Honey and Samsara Eco.

Cut Through Venture says a local investor sentiment survey highlighted a cautious approach to AI amongst Australian VCs, with 57 per cent not having invested in any AI-first startups in 2024. Half of the respondents were either not interested or neutral towards such startups, and 31 per cent were cautiously optimistic.

"Founders need to understand that the AI funding landscape is more complex and competitive than it appears," the authors wrote.

"While headlines focus on spectacular funding rounds, only a select few reap the benefits, leaving many to face a much tougher journey similar to that faced by founders across almost every other sector."

Despite the overall upward movement for the amount raised during the quarter, funding for female-founded startups reached its lowest level since 2019. Whilst startups led by women or mixed-gender teams accounted for a fifth of all deals, most were at the pre-seed and seed stages, leading to a median deal size of just $1.4 million.

"As we have stated previously, the share of funding received by female founders will remain low until these startups are supported with large capital rounds at Series B and beyond," the authors wrote. "In 2024, only
three female-led startups have raised rounds greater than $20 million."

Most of the largest raises for female-founded startups involved mixed-gender founding teams, and funding for the two largest raises - Liquid Instruments and Orygen - came from Victorian Government-affiliated entities.

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