The Australian venture capital market continued its recalibration in the third quarter of 2023. While headlines might suggest a slowdown, a deeper dive reveals a complex and nuanced environment. Cut Through Venture's comprehensive Q3 2023 Australian Venture Capital Funding Report provides essential data and analysis for founders, investors, and industry stakeholders navigating this dynamic landscape.
This quarter saw Australian startups raise $739 million across 77 deals. While funding and deal volume decreased compared to the previous quarter, year-to-date funding slightly edged past the first nine months of 2020, hinting at underlying resilience.
Investor Sentiment Shows Marked Improvement:
Despite lower deal volume, investor outlook turned notably positive this quarter.
Over half of surveyed investors perceived an improved investment climate compared to Q2.
VCs reported being more open to exploring new startup opportunities.
The advice for portfolio companies shifted, with a threefold increase infunds recommending companies raise capital as usual compared to Q2.
Portfolio health saw positive signs, with 94% of funds reporting noportfolio company closures, up from 81% in Q2.
Funding Trends: A Shift Towards Smaller Rounds & Sector Focus:
The market dynamics showed significant shifts in funding stages and sector preferences.
Early-Stage Squeeze: Funding rounds under $5 million decreased significantly, reaching levelsnot seen since 2019.
Mega-Deals Missing: No deals over $100 million were announced in Q3, raising questions aboutlate-stage funding availability and potential exits.
Climate Tech Leads: For the first time, Climate Tech & CleanTech dominated both funding($116M) and deal count (8 deals), signalling strong investor interest insustainability solutions.
Fintech Falters: After a long reign, Fintech dropped out of the top five most fundedsectors.
Steady Activity: HealthTech, Biotech, MedTech, and EdTech saw consistent deal flow, primarily focused on smaller, early-stage investments.
International Investment: A Nuanced Picture:
Contrary to some narratives, international interest in Australian startups remains significant.
The percentage of deals involving at least one international investor reached a record high in 2023 across all funding round sizes.
While some large global funds known for mega-deals were less active locally in 2023, overall international participation persisted.
Nearly half (46%) of surveyed Australian VCs reported co-investing with international funds in the past six months.
Female Founders Gain Ground (Relatively):
Female entrepreneurs saw positiveshifts in funding dynamics during the quarter.
Teams with only female founders secured their highest percentage share oftotal funding since Q4 2020. However, 87% of this funding went to just three startups.
For the first time in our records, the median deal size for female-founded startups ($3.0M) surpassed that of all-male teams ($2.3M) in Q3.
Overall female founder deal participation remains high, though Series Arepresentation dipped.
Evolving Deal Terms:
The current market environment is influencing negotiation dynamics.
Increased use of bridge rounds via SAFEs or convertible notes to defer valuation setting.
Investors often hold more leverage, leading to more demanding terms suchas multiple or participating liquidation preferences, full ratchetanti-dilution, and founder revesting clauses.
Why Download the Full Report?
This summary provides a high-level overview, but the full Cut Through Quarterly Q3 2023 report offers unparalleled depth and context, including:
Detailed breakdowns of funding by stage, sector, and geography.
Analysis of valuation trends and investor predictions.
Comprehensive lists of the quarter's largest deals.
In-depth partner insights on deal terms, capturing the climate techopportunity, venture debt, and the rise of secondaries.
Full methodology and data sources.
