Surge in Mega Deals Masks Struggles for Australian Early-Stage Startups
Australian startups enjoyed a banner second quarter in 2024, according to a new report by Cut Through Venture. The data revealed a total of $1.5 billion raised across 99 deals, marking the strongest performance in 18 months. This positive trend was driven by the return of large venture capital (VC) investments.
Mega Deals Dominate
The report highlights a significant shift towards mega deals, with six local startups securing over $100 million each, collectively raising $935 million. Among the high-profile investments were a $300 million infusion into Betashares from Singapore’s Temasek, clean technology firm Hysata’s $172 million raise, and $120 million secured by insurtech startup Cover Genius. Samsara Eco also joined the club with a $100 million investment.
Early-Stage Woes Persist
Despite the headline-grabbing mega deals, the report paints a concerning picture for early-stage startups. Local VCs remain cautious following a sharp decline in tech investments, creating a challenging fundraising environment. The data shows a decline in deals within the $20 million to $50 million range compared to 2023. Additionally, angel investors have become more selective, and pre-seed and seed funds are demanding greater progress before investing.
Surge Singh and Kavita Nadan, founders of workforce startup Locumate.ai, exemplify the struggles faced by early-stage ventures. Since February, they have approached 30 local VCs, with only seven advancing to the investment committee stage. Singh expressed shock at the high funding thresholds, stating that VCs expect pre-seed and seed-stage companies to have at least $1 million in recurring revenue.
Limited Resources Hinder Growth
Locumate.ai, despite achieving break-even status and gaining traction overseas, is hindered by a lack of resources. Singh, the sole salesperson, and Nadan, who still works part-time at her pharmacy, struggle to keep up with growing demand. They envisioned using VC funds to hire additional staff, service larger clients, and expand into new sectors like education.
The Cut Through Venture report also sheds light on investor sentiment. An anonymous investor described a market dividing into “haves” and “have-nots.” While there’s increased activity at the top of the funding funnel, a smaller percentage of deals progress beyond the initial review stage compared to previous years. This investor further noted competitive scenarios where numerous VCs vie for allocation in promising deals.
Another anonymous source revealed a shift in investor priorities, with a preference for ventures offering a high likelihood of solid returns over those with a potential for exceptional but less certain gains.
AI Funding Sees Uptick, But Lags Behind
The report indicates a rise in AI-powered startups securing funding. However, the funding amounts remain relatively modest compared to other sectors. AI startups saw 16 deals ranging from $220,000 to $30 million, with an average deal size of $5.2 million, significantly lower than the overall average of $15 million for the quarter.
The report paints a grim picture for female-led startups, with funding slumping to its lowest level since 2019. While female-founded or mixed-gender teams secured one-fifth of all deals last quarter, most were at the pre-seed and seed stages, with a median deal size of just $1.4 million. The report identified only three female-led startups raising over $20 million so far this year.
