Startup funding raises fall to six-year low in Q1 amid spike in funds per deal, investor sentiment

Startup funding raises fall to six-year low in Q1 amid spike in funds per deal, investor sentiment

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Australian startup funding reached a six-year low in terms of the number of raises in 2024 with 66 deals, but these numbers belie a significant year-on-year improvement in investor sentiment around the health of their portfolios and a massive rise in the median amount raised beyond the pre-seed stage.

The latest report from Cut Through Venture highlights several "silver linings" for a quarter that saw startups attract $703 million in funding - a figure that is marginally up on the first quarter of 2023 - while all-female founding teams achieved a record high in funding of $147 million.

Curiously, close to $100 million of the funds raised by all-female founder companies came from biotechs specifically addressing peanut allergies - Aravax and Prota Therapeutics.

At $66 million, Aravax's funding round was the second-largest of the quarter, behind ethical hacking platform Bugcrowd and ahead of low earth orbit (LEO) satellite aspirant Gilmour Space, banking operations platform Constantinople, and software company Deputy. 

It was also noted that Bugcrowd and Deputy achieved unicorn status.

Founders of five of the companies that raised during the period were featured in the Australia's Top 100 Young Entrepreneurs list published yesterday, including renewable energy retailer Amber, next-gen vector search platform Marqo, skincare group Ultra Violette, and prop-tech ProcurePro.

Climate technology accounted for nine of the 66 deals with the National Renewable Network, Element Zero and Cauldron Ferm among the largest raises in the space, while the second-leading sector by number of deals was health-tech at seven, including Sonder and Kismet.

The Cut Through Venture investor survey revealed a whopping 39 percentage-point increase to 65 per cent believing the current state of the startup funding market was moderately favourable compared to a year ago.

Meanwhile, the percentage of investors who felt the health of their portfolios was "good" was up from 35 per cent to 50 per cent. This optimism is somewhat offset by a six percentage-point reduction in those who believed their portfolio companies' health was "excellent" at 10 per cent.

The report authors highlighted a noticeable rise in layoffs and company closures, and this is reflected in a sharp reduction in the share of investors reporting zero portfolio companies with staff cuts, down from 26 per cent to 14 per cent.

The authors report the number of sub-$5 million deals dropped to the lowest level seen in the Cut Through Venture dataset, while those valued up to $50 million were at a five-year low.

"While smaller rounds are being underreported in public channels and some founders are actively delaying funding announcements, it’s also evident that the quality threshold for investment has significantly increased, with investors showing a willingness to pay a premium for access to higher quality opportunities," the authors wrote.

"Additionally, smaller deals frequently rely on angel investors, many of whom are currently experiencing cost of living pressures, leading to angel investing dropping off the priority list, for now."

The median raise for pre-seed rounds, at $650,000, was down 68 per cent from a year ago, but there is a reversal in this trend from the seed stage onwards, with medians up 67 per cent for seed raises at $2.5 million, 85 per cent for Series A at $9.3 million, and 39 per cent for Series B at $31 million.

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