The latest edition of The State of Australian Startup Funding Report, jointly published by Cut Through Venture and Folklore Ventures, reveals that 2023 saw 413 reported deals bringing start-ups $3.5 billion in funding (dropping from $7.4 billion in 2022, a year-on-year decline in funding of almost 53 per cent). No unicorns emerged in the 12-month period.
2023 saw fundraising rounds becoming more challenging and valuations closely scrutinised. Later-stage deals experienced the most significant decline, with median Series B or later deals shrinking to under a third of their early 2021 sizes by the second half of 2023, driven by comparisons to publicly listed technology peers. Investors noted reduced competition beyond Series A, but almost half reported increased competitiveness at the Pre-seed and Seed stages, keeping early-stage deal sizes and valuations stable. The diminished competition was paired with improved investor behaviour, marked by a decrease in reports of pulled and re-traded term sheets by investors.
Despite the overall decline, deals at the Pre-Seed and Seed stages were less impacted than those at Series A and B. Early-stage investments experienced a reported average decrease in valuation of 33 per cent, versus a 41 per cent average decrease in valuation for Series B+. Meanwhile, the number of deals at later stages, Series B and later, decreased significantly, as did reported valuations and median deal sizes, with Series C+ valuations experiencing an average decline of 47 per cent.
The investment in Australian venture capital mirrored global patterns, experiencing a 54 per cent decrease from 2022. though this fallout was larger than the reduction witnessed globally in VC investments, which has been reported to be 38 per cent. Furthermore, 41 per cent of investors witnessed a portfolio company shut down, and 90 per cent observed layoffs within their portfolio companies.
Heading into 2024, investors are optimistic. 92 per cent of surveyed founders plan to raise capital in 2024 or 2025 – and 86 per cent are confident that they’ll be successful. And, in matching sentiment, 66 per cent of investors expect start-up funding deal flow to increase in 2024.
Furthermore, there is still noted support from international investors, with 42 per cent of all deals recorded in 2023 including at least one international investor, and 70 per cent of local investors expecting overseas investors to contribute more to Australian start-ups in 2024.
“Considering the global context, the decline in funding during 2023 was expected. However, unlike many start-up ecosystems worldwide, Australia continues to go from strength to strength,” Chris Gillings, founder of Cut Through Venture and venture capitalist at Five V Capital, said. “We have more young people entering the tech sector, more talented executives leaving their day jobs to start companies, and more investors competing to invest in the next great Australian businesses. Despite the headline fall in funding, Australia is now a mature, globally admired ecosystem.”
Folklore Ventures’ founder and managing partner Alister Coleman is excited that, despite the tighter market in 2023, Australian founders continue to punch above their weight globally.
“There’s always an appetite for big ideas and talented founding teams, and from what we’ve seen, Folklore is already expecting a stronger market for early-stage investment and a more positive year ahead,” Coleman said. “We look ahead with optimism to a third generation of Australian founders, who have now founded or worked in some of the most important Australian and global start-ups. Their familiarity with growing venture-backed companies, overcoming adversity, and harnessing their global networks should give us all great optimism for the future.”
