)
A dearth of mega-deals led to a massive dive in venture capital investments for Australian startups in the September quarter with the latest Cut Through Venture report comparing the pullback to the slump of 2023.
And in a sign that startups are being urged to target profitability sooner, Cut Through Venture also warns that exits have become “front of mind” among venture capitalists looking to cash in their investments in the current environment.
After hitting $1.5 billion in the June quarter, investments in startups fell to $695 million in the third quarter of this year with the massive fall blamed entirely on a lack of deals above $100 million.
Capital raises of more than $50 million also plumbed “multi-year lows”, although Cut Through Venture has raised hopes of an upturn in the final quarter.
The Australian Venture Capital Funding Report released today points to a “significant backlog” of startups that have raised at least $20 million but have yet to announce a funding round since 2021 or 2022.
“This backlog suggests there is still substantial potential for larger deal announcements in the final quarter of the year,” says the report.
“Last quarter, we mentioned that we weren’t ready to declare the end of the mega-deal hiatus – this quarter, we remain cautiously optimistic about signs of a potential comeback.”
However, Cut Through Venture has warned that in the final quarter of 2024, many venture capital funds are becoming “laser focused on delivering cash returns”.
“For years, exits were a noticeably absent part of the conversation in Australia’s venture capital landscape,” says Cut Through Ventures in its latest report.
“Most funds focused on growth, essentially avoiding discussions of liquidity. This has shifted and exits have now moved front of mind.
“This month’s Cut Through Quarterly Investor Sentiment Survey found nearly half of VC firms are discussing exits more frequently than this time last year. The message is clear: the pressure to return capital to investors is building.”
Despite the fall in capital raised over the September quarter, Cut Through Venture says there has been an encouraging spike in the number of deals demonstrating sustained investor appetite “particularly at the early stages”.
“Seed-stage deals were particularly active, accounting for a third of all announced non-accelerator investments,” says the report.
“Deals under $50 million remained near the highest levels since late 2022, and accelerator announcements approached an all-time high.”
The $695 million total invested in the September quarter comprised 92 venture deals and 39 accelerator rounds.
Apart from accelerator announcements, the most deals occurred at the seed stage, accounting for a third of all announcements, while Series A and Series B+ deals combined comprised an additional third.
Enterprise software group SafetyCulture secured the biggest funding round of the quarter at $75 million in primary capital and $90 million in secondaries for existing investors.
Among the top five raises by value, fintechs were the best represented with Grow Inc raising $60 million, followed by InDebted at $50 million and Shift at $35 million. Fintechs accounted for four of the 10 deals of $20 million or more during the quarter.
Healthtech, transport/logistics and blockchain/crypto, led by Drift’s $25 million Series B, also featured strongly in terms of value.
“The surprise round of the quarter came from Kismet, which announced a topped-up seed round of $32.5 million, making it the fifth-largest seed round in our records, and the largest since 2021,” says Cut Through Venture.
Artificial intelligence and big data deals fell to fourth place in terms of deal volume and 10th in total funding after leading the deal count in the second quarter.
Climate Tech dominated deal volume, although 10 of the 23 deals in this segment were accelerator rounds.
In positive news for female-only founded teams, funding rebounded in the third quarter after a slump in the second quarter, with the trend aligning with the three-year average.
“Pre-seed participation by teams with at least one female founder reached 50 per cent for the first time, while seed-stage participation hit 26 per cent,” says Cut Through Venture.
The report found that 54 per cent of accelerator funding rounds included female founders.
Despite a weaker showing in venture capital investments during the September quarter, the massive spike in deals to $1.5 billion in the June quarter has positioned the 2024 total so far at about $3 billion.
This has led Cut Through Venture to forecast that 2024 could still finish as the third-largest funding year on record.
The final quarter needs just under $500 million to beat 2023, although this will still be some way off the $10.6 billion record achieved in 2021.
)
