)
Despite venture capital funding falling by a third for Australian startups in 2022, a new report reveals conditions remained ripe for early-stage founders as raises under $5 million hit a record high.
Folklore Ventures and Cut Through Venture’s State of Australian Startup Funding report found that companies raised $7.4 billion across 712 deals, down from $10.6 billion raised in 2021.
But even with the drop off, a record 428 early-stage deals totalling $530 million were made last year – a welcome 13 per cent boost in disclosed agreements compared to 2021.
The report also found that the number of active investors remained at a steady 827, which failed to match 2021’s high of 899 but was up 77 per cent on 2020.
“The ebb and flow of the last two years is a natural part of our ecosystem maturing, and we should expect funding environments to periodically expand and contract over time, as is the nature of capital markets,” Folklore Ventures founder and managing partner Alister Coleman said.
“Zooming out, there are real reasons to be excited about the abundance of world-class talent and innovation in Australia's startup ecosystem, and the health of the funding environment captured in this report is a demonstration of just how far we have come over the last decade.”
The report also found that mega-deals above $50 million experienced a rollercoaster ride, with the first quarter starting at an all-time high of 11 announcements – a trend that would quickly drop off as the second and third quarter collectively saw only eight deals.
In Q3 Gold Coast-based vertical farming startup Stacked Farm raised above $50 million, securing funding from a combination of local and US investors. According to the report, it was the only company to have raised capital in that quarter, with researchers opting to categorise Morse Micro's $140 million Series B raise from September 2022 under Q4 since the funding round did not formally finalise until two months later, when it raised an additional $30 million.
The last quarter recorded a considerable uptick, with nine capital raises announced, including Advanced Navigation’s mammoth $108 million Series B.
In total, the 28 mega-deals raised more than $3.4 billion, and reflect a 48 per cent drop off from the 54 deals recorded in 2021.
Australia’s 2022 startup capital raises above $50 million:
- Cyara ($499M)
- Scalapay ($355M)
- Immutable ($280M)
- Employment Hero ($181M)
- Morse Micro ($170M)
- Airwallex ($160M)
- Linktree ($152M)
- Go1 ($145M)
- Synchron ($110M)
- Advanced Navigation ($108M)
- Zeller ($100M)
- Cover Genius ($100M)
- Karbon ($92M)
- MILKRUN ($75M)
- Performio ($75M)
- Carma ($75M)
- Vow ($74M)
- Happy Co ($72M)
- Shippit ($65M)
- Dovetail ($63M)
- Eucalyptus ($60M)
- Stacked Farm (56M)
- Viridios Capital ($55M)
- Catheon ($55M)
- Samsara Eco ($54M)
- Tic:Toc ($54M)
- Regrow Agriculture ($50M)
- Stake ($50M)
Across all funding rounds, the top sector to raise capital was fintech ($1.3 billion), followed by enterprise/business software ($1.2 billion), hardware/robotics/IoT ($554 million), blockchain/crypto/web3 ($510 million) and biotech/medtech (387 million).
“We have seen a greater focus from technology companies on operational efficiency, debt funding, liquidity management and exchange rate risk mitigation,” J.P. Morgan Australia and New Zealand head of commercial banking Annabelle Mooney said.
“We meet a range of fantastic companies that are growing globally and helping them to gain a competitive advantage by navigating these challenges has been a key focus for J.P. Morgan, especially in the current environment.”
Investors slow down, valuations sink
While valuation data is not publicly available, more than half of the 117 investors surveyed believe valuations fell by at least 30 per cent compared to 2021.
In addition, 17 per cent of respondents also believed valuations dropped by more than 50 per cent. A vast majority (80 per cent) also reported doing at least one internal or bridging round that went unannounced.
Other changes investors noted include longer funding processes (88 per cent), slower decision-making (61 per cent), more extensive due diligence (50 per cent) and increased failure rates (25 per cent).
While six new unicorns were welcomed into the ecosystem, 34 per cent of investors saw at least one portfolio company collapse.
“Overall, investors slowed their investment cadence and shifted to prioritise the wellbeing of their current portfolios,” the report said.
“More than half of respondents reported making more than half of their 2022 investments in startups they were already invested in. 17 per cent reported that at least 70 per cent of their investments were into their current portfolio.”
Mixed bag for female founders
While the participation of female founders reached record levels last year, the share of total funding for women-led startups dropped to 10 per cent – a level not seen in many years and significantly below the global average.
The report notes the fall is almost entirely due to a small number of record-breaking deals conducted by all-male teams at the start of 2022.
Roughly 33 per cent of angel and seed-stage funding went to startups with female founders, while only eight per cent of Series B and later funding was received by women - down from 20 per cent in 2021.
“We are seeing an increase in women stepping up to found their own companies and with the various ecosystem initiatives, including LaunchVic’s own Alice Anderson Fund, more women are being supported,” LaunchVic CEO Dr Kate Cornick said.
“However, there is more work to be done including seeing this translate into later stage investments and more women-led scaleups.”
2023 outlook
Founders are more conservative heading into 2023, with 16 per cent of the 225 entrepreneurs surveyed saying they are not confident they will successfully raise capital in their next funding round compared to six per cent in 2022.
Roughly 61 per cent of respondents plan to raise capital within the next 12 months – a sharp 25 percentage drop from a year prior.
“It has been proven that Australia has both product and technical talent that is globally competitive. Market cycles don’t mean this talent all of a sudden disappears, or that large, global problems don’t still remain,” TEN13 co-founder and partner Stew Glynn said.
“If anything, the best talent comes to the fore to solve those problems when markets are tough (which they are right now) and more creativity emerges when there are further constraints.”
Get our daily business news
Sign up to our free email news updates.
)
)
)
)
)
