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The second quarter of 2023 saw Australian venture capital funding hold relatively steady compared to the previous quarter, but the overall picture reveals a market adapting to new realities. Cut Through Venture's Q2 2023 Australian Venture Capital Funding Report provides crucial data and analysis for navigating this evolving ecosystem.
Australian startups announced $810 million in funding across 90 deals in Q2 2023. While this marked a slight increase from Q1, the first half of 2023 ($1.5B total) represented the slowest start to a year for startup funding since 2019, reaching only one-third of the capital raised in the same period of 2022.
Investor Sentiment: From Uncertainty to Measured Prudence:
While funding levels remained subdued compared to peaks, a notable shift in investor mood occurred.
Fear Fades: The uncertainty that marked late 2022 and Q1 2023 lessened, replaced by a more measured and prudent investment approach.
Diligence Deepens: Investors are focusing on rigorous due diligence, including deeper dives into management teams, customer feedback, and financials, leading to a slower deal-making pace.
Improved Outlook: Only 29% of investors found funding conditions unfavorable, a decrease from 40% in Q1. Most (64%) indicated recession predictions wouldn't alter their investment pace.
Funding Dynamics: Pre-Seed Soars, Later Stages Lag:
Different funding stages experienced contrasting trends.
Pre-Seed Strength: Bucking the overall trend, Pre-Seed median and average deal sizes increased consistently over five quarters, potentially driven by VCs moving earlier due to fewer later-stage opportunities.
Valuation Realignment: Valuations continued to adjust downwards from 2021/22 highs, with significant drops observed, particularly at Series C+. Most investors (61%) anticipated further falls in the latter half of 2023.
SAFEs Gain Traction: The Simple Agreement for Future Equity (SAFE) saw increased use, particularly for bridge rounds, allowing startups to defer setting valuations in a challenging climate.
Sector Focus: AI Hype vs. Funding Reality:
Investor interest and actual funding flows showed divergences.
AI Excitement High: Investors remained highly interested in AI, but this hadn't yet translated into large funding rounds for pure-play AI startups locally. Many focused on companies leveraging AI rather than building foundational models.
Consistent Leaders: Fintech, Healthtech, and Climate/CleanTech consistently ranked among the top five most-funded sectors for five consecutive quarters. Biotech led total funding in Q2 ($185M).
Cooling Sectors: Blockchain/Web3 and E-commerce/Retail saw low investor excitement and funding.
Female Founders: Record Participation, Persistent Gaps:
While more female founders participated in deals, significant challenges remained.
Participation Peak (with Caveats): Deal participation reached record highs across all stages except Series A, which hit a five-year low.
Funding Share Normalises: Funding share slipped from Q1's peak but aligned with the four-yearaverage.
Deal Size Disparity: Median deal sizes for female-founded startups continued to trend significantly lower than those for all-male teams across all stages.
Fewer Deals Overall: Fewer deals overall meant the absolute number of funded female founders was lower than during the 2021-22 market peak.
Large Deals Remain on Pause:
The era of frequent mega-deals showed no signs of returning in Q2.
Mega-Deal Scarcity: Only one deal exceeded $100M (Saluda Medical, $150M). Larger dealsremained subdued overall.
Cash Conservation: Many later-stage startups focused on conserving cash raised in previous years, postponing further fundraising efforts.
Why Download the Full Report?
This summary highlights key trends, but the full Cut Through Quarterly Q2 2023 report provides essential granular detail, including:
Comprehensive breakdowns of funding by stage, sector, and geography.
Deeper analysis of valuation trends and investor sentiment surveyresults.
The complete list of the 30 largest deals of the quarter.
Detailed insights on female founder funding dynamics.
Partner insights on utilizing SAFEs effectively.
Full methodology and data sources.
