Early-Stage Investments Flourishing Although Australian Startup Funding Plummeted By 30%

Last year, The State of Australian Startup Funding report from Cut Through Venture and Folklore Ventures saw a record high in the Pre-Seed and Seed stages, despite an overall decrease in investments by 30%, amounting to $3.2 billion or $7.4 billion total for 2022.

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To illustrate the magnitude of growth, local investment in 2022 is estimated at a remarkable $7.4 billion – five times bigger than 2018’s $1.4 billion, three times higher than 2019’s pre-pandemic figure of $2.7bn, and over double 2020’s size of $3.1billion.

In the world of investments, Fintech has always been at the forefront with $1.3 billion in funding. But Enterprise and Business Software are also making a significant impact, having secured $1.2 bn in 2022 alone. With investors becoming warier of BNPLs such as Klarna and Openpay’s failure on ASX, business SaaS will take over for 2023.

Although venture capital investments dropped by 35% worldwide, Australian startup investment climate remained strong in comparison to other global peers. In particular, public market valuations and investors’ enthusiasm for the next unicorn were remarkably bullish over the past year.

The Cut Through Venture funding report discovered that the majority of surveyed investors experienced longer fundraising processes, with more than half taking additional time to make decisions regardless of their strong desire to invest.

“Given the global environment, it is no surprise that funding was down in 2022. What is encouraging, though, is the resilience that the market showed: it’s a testament to the breadth, depth and maturity of the startup ecosystem,” Chris Gillings, founder of Cut Through Venture, said.

VC funds are seeing a decrease in Limited Partner (LP) enthusiasm due to their desire for a more conservative investment cadence, prompting portfolio companies to reduce costs. 60% of founders anticipate that they will need to raise capital in 2023, while the same percentage of VC partners reported an LP appetite decline, according to the report.