Australian start-ups have experienced a significant drop in external funding, reaching a six-year low in the first quarter of the year.
According to Cut Through Venture's latest data, Australian start-ups raised A$703.1 million in capital in the March quarter — down 45% from the A$1.3 billion raised in the previous quarter.
The quarter saw only 66 deals, the fewest in the six years that the data has been tracked, with a notable lack of lead investors slowing the investment process.
During the pandemic, start-ups enjoyed a surge in fundraising but the scenario shifted in early 2022 with increasing interest rates affecting venture capital investments.
Many deals not closing
While there remains a strong deal pipeline, many are not closing, reflecting the cautious approach of investors.
Adam Gilmour of Gilmour Space highlighted the Australian venture capital (VC) market's reluctance to lead investment rounds, a trend impacting the funding landscape.
“There’s this funny thing in the Australian VC market where no one likes to lead a round more than once,” he said.
While deal frequency has declined, average and median investment values increased, indicating a focus on fewer but potentially more promising companies. But that trend does not extend to the earliest investment stages, where the median value dropped significantly.
Leading the funding rounds during the March quarter was cybersecurity firm Bugcrowd which raised $156 million and achieved unicorn status — at a value in excess of $1 billion. Software company Deputy also achieved this feat.
Female-led teams secured 21% of capital raised, a record high, though they faced lower median deal sizes compared to all-male counterparts. The report also highlighted a rise in layoffs and company closures within investor portfolios, underscoring the challenging environment for Australian start-ups.