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A report released today on Australia's impact investing climate shows a precipitous fall in funding for startups focused on ed-tech, the future of work, and technologies around human relations and diversity, equity and inclusion (DEI), with total investments in these areas plunging by 76 per cent in the past two years.
The finding is one sore point in an otherwise healthy environment for the 'impact' category overall, as revealed by the The Impact Startup Benchmark Report prepared by Giant Leap and Cut Through Venture.
Based on the two companies' compilation and analysis of large data sets, it was found that impact investing accounted for 41.5 per cent of all early-stage investment in 2024, down from 55.6 per cent in 2023 but above the share of 38.9 per cent recorded for 2022.
Giant Leap defines impact along three categories:
- Climate: Reducing carbon emissions and restoring nature
- Health: Improving clinical outcomes and access to quality care
- People: Improving education and empowering social change
Investments in climate-focused startups increased last year to $1 billion, which is more than double the investment in health and five times that of people-related ventures.
The surge in climate investing was attributed to strong corporate demand, regulatory tailwinds, and maturing technologies in areas such as carbon sequestration, energy storage and climate adaptation.
Health-related investments held steady at $513 million but the composition of startups attracting funds was quite different in 2024, with a jump in interest for biotech and therapeutics while most other sub-sectors - including digital health, wellness and medtech - saw declines.
When it comes to people-focused startups, investment fell from $879 million in 2022 to $586 million, and a sharper annual drop of almost two thirds to $209 million in 2024.
"Investments in people have seen lower investor appetite, in line with global cooling across edtech and HR tech," the report authors wrote.
"While both sectors attracted significant interest during the pandemic, many businesses have struggled to scale sustainably with long sales cycles, customer acquisition challenges and economic pressures exposing weaknesses in the underlying business models."
This is a trend that has been seen globally, with HolonIQ reporting that total investment in edtech had fallen to US$2.4 billion ($3.7 billion), the lowest level in a decade.
The deal count in edtech/future of work startups fell from 10 in 2022 to just two last year, and the median deal size fell in half to around $1 million.
Over the same period, the number of deals in HR tech/DEI tech fell by more than half from 27 to 13, and the median deal size plummeted from $14 million to $1 million.
"HR-tech has faced a number of challenges over the last 2 years as businesses have cut budgets and spending. However we have seen an uptake of solutions which can improve employee outcomes and reduce risks as shown by our recent investment in Foremind," says Giant Leap partner Rachel Yang.
"Whilst edtech has historically received lower funding we are seeing increased interest in the sector as AI is opening new opportunities and tools for personalised education.
"These periods, when funding tightens and sentiment weakens, often present the best opportunities to invest."
This decline coincides with the VC community's increased preference for companies utilising AI, which the authors claim has "has shifted from experimental use to a core operational enabler, significantly reshaping innovation" in impact startups.
"This cross-sector adoption is not only accelerating innovation timelines but also raising the bar for what constitutes defensibility," the authors wrote.
"Increasingly, the strongest startups are those that pair AI capability with proprietary data, clear use-case depth and measurable real-world outcomes."
The report points to a promising wave of AI solutions that is emerging in edtech, offering a "glimpse of transformative change in how students learn".
"Increasingly, the strongest startups are those that pair AI capability with proprietary data, clear use-case depth and measurable real-world outcomes," the authors wrote, highlighting such companies as Edexia, Cadmus and Mark My Words. One company mentioned in the report, Sindy Labs which was accepted into the Berkeley SkyDeck accelerator, has since been dissolved.
Giant Leap adds that for the past three years impact startups have represented 60 per cent of its top-of-funnel deal flow, representing 63 per cent last year - up from 54 per cent in 2023.
Of that impact deal flow, 52 per cent was for climate, 30 per cent was for health, 8 per cent was for people, and 10 per cent was mixed - a category including dispersed segments ranging from gaming to adtech to construction.
"The fact that impact startups have steadily grown their share of early-stage investment, signals strong and sustained investor conviction in the impact sector," says Yang.
"This resilience is a clear sign that backing startups solving social and environmental problems is more than a trend; it's a long-term shift in capital priorities."
The authors state that policy and social sentiment are moving in multiple directions. There may be growing support for climate action and equity, but cost of living pressures and global political shifts are "reshaping public priorities and creating uncertainty around what will be sustained or scaled".
"With greater policy certainty following the recent federal election, we expect climate tech investment to continue gaining momentum," Yang adds.
"The government’s ongoing commitment to long-term clean energy targets and public funding is set to attract more institutional capital into climate-aligned assets, strengthening the sector and driving green jobs and innovation.
"We’re also excited for the potential of AI in tackling real human challenges. Today’s capital is flowing rapidly toward AI that monetises attention, often with little discernment between fleeting novelties and genuine solutions. But over time, we believe this trend will correct, and lead to some truly innovative and groundbreaking businesses."
Cut Through Venture founder Chris Gillings says the report captures a "quiet but powerful signal" that even as markets pull back, impact-led founders continue to attract support.
"It’s a vote of confidence in businesses solving the world’s hardest problems," sayings Gillings, who is also a venture capitalist at Five V Capital.
"At Cut Through Venture, we're passionate about providing clear, data-driven insights into the startup landscape. It's incredibly encouraging to see our broader market data corroborate Giant Leap's findings, painting a robust picture of resilience and growing investor commitment within the Australian impact sector."
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