Last Week in Australian Startups #76, 15th July 2024
A day late with the weekly update this time, the weather was too good here in Sydney yesterday to not spend it outside with my daughter - we had a great time in Sydney Park, if you have kids I would highly recommend you check it out!
It’s that time of the quarter, Cut Through Venture has released the Q2 VC funding report for 2024. Download the full report here.
2 weeks ago, we saw an early preview of the report which was compiled for the AFR, you can read my broader observations in detail here.
Some further thoughts after reading the detailed report;
Dry Powder
The top two priorities across VCs for Q3 is to firstly invest in new startups and then ensure their current portfolio is well capitalised. It’s great to see the focus is on investing this dry powder.
Overall the sentiment is considerably more positive than Q1, with almost a 2x in deal flow being assessed and a greater belief there will be more capital invested this year than last.
Quality remains an issue however, with the quote from the June Investor Sentiment Survey stating a hope that quality picks up in H2, with top of the funnel activity increasing.
Craig Blair, co-founder of Airtree, writes that there’s an estimated ~$2.5B of dry capital in the ecosystem. Further an interesting insight is noted later in the report that a significant backlog of startups that have raised $20M+ but yet to publicly announce - this could be a for a number of reasons, but I am observing more startups looking to extend rounds by topping up their cap table as much as possible. On the other hand, they could still be waiting for the right news cycle to announce.
M&A
Other observations that now I have the data to back up is M&A activity - in a tougher economic environment, particularly coming out of ZIRP the tech consolidation is continuing. We are already at 27 deals over $10M+ compared to 35 for the full FY23, with the total value of deals more than 2x.
Diversity
Funding to female led startups continues to be the diversity metric being tracked in Australian startups.
I’ve previously written that I believe the best place to start to move the needle of diversity is to invest in women of colour - I do wonder what the percentage breakdown of female funding is to women of Colour compared to women of Caucasian heritage. If anyone has this data, I’d love to see it!
Diving into the data, funding slumped to its lowest since 2019 to female founded startups. An interesting insight is that overall deal participation did increase - hitting a record of 45% of all deals, Seed stage also reached a five-year high but later-stage participation dropped to its lowest in a year.
Cut Through Venture has previously and has again shared the astute insight that in order to bridge the gap in funding there needs to be more large rounds for female led startups at Series B and beyond - this year so far only three female led startups have raised more than $20M in a single round.
In contrast, first-time founders, especially those working on common ideas without notable resumes, find it difficult to attract investment.
Page 5
Whilst this quote was taken from the start of the report focusing specifically on AI startups, and the gap in media hype and the reality of AI investment - it sheds an important light in how VCs still think. I shared this take from X (fka Twitter) 2 weeks ago - satirical or not, I’ll let you decide.
We must remind ourselves that VCs are investors, as are their LPs. The number one metric that really matters is the financial return on investment. Bias and discrimination certainly play a part in why minority groups receive less funding, particularly those with ‘common ideas’ - how can you expect a founder to have the same ‘resume’ a Caucasian male counterpart who has been afforded privileges that they have not? We all know this to be true, yet when it comes to investing money, especially when it’s not your own but that of your LPs the right thing to do is often investing where there is the least amount of risk and highest probability of success .
In order to see greater investment in minority groups, we’ll need to see more specialist funds emerge who have the permission from their LPs to invest in specific groups - as we’ve seen with the Alice Anderson Fund leading the way in investments in female startups. We’ll need to see the more funds like these emerge for other minority groups.
Other insights I’ve been reading that are worth a look;
A handful of big raises plumped up Australian venture funding in 2024 – unless you’re a woman by Simon Thomsen from Startup Daily
".AI won't get you .Funded": Cut Through Venture quarterly has a cheeky dig amidst the hype by Matt Ogg from Business News Australia
Mega VC deals are back - but new founders face a big problem by Tess Bennet from AFR
Is Series B bouncing back? by Bronwen Clune from Capital Brief
Glimmers of hope for startups with capital raises in 2024 up 30% by Simon Crerar from SmartCompany
AUS pre-seed rounds are around 60-70% of US pre-seed rounds by Alex Scholz
There’s a scary trend I’m seeing in hashtag#Australia hashtag#fintech that I’m just not seeing anyone talking about by Brian Collins
Australian climate tech had one of the biggest funding quarters ever (raising $359m* in Q2) AND the demand for capital far, far exceeds investment by Priyanka Karunanithi
The good, the ugly and the main insights by Leila Oliveira
Top News
Applications for the latest round of NSW MVP grants worth $50,000 have opened (Startup Daily)
LaunchVic has provided $2.4M worth of grants across seven new pre-accelerator programs (Startup Daily)
Dr Kyle Turner has launched a new pre-accelerator program for First Nations entrepreneurs - Ochre (Startup Daily)
The Australian Sports Technologies Network has released a list of the 100 most powerful women in sports innovation (Startup Daily)
Just Wines has acquired rival Beer Cartel (Startup Daily)
Immutable cracks into Japanese market with strategic partnerships with DM2C and QAQA (BNA)
Advanced Navigation co-founder Xavier Orr has decided to retires as co-CEO after 13 years (Xavier Orr)
InterEarth, a climate tech startup based in Perth, has secured an $8.25M agreement with Germany’s Securing Energy for Europe (Carbon Herald)
Fluent Commerce hunts for US buyer (AFR)
Foreign start-ups swarm Australia, ‘buying time’ to show profits (AFR)
At least 100 Australian climate tech start-ups are at risk of shutting down in the next nine months without an urgent capital injection (AFR)
CBA has opened applications for its Xccelerate program, through x15ventures, with $250K up for grabs for an AI start-up whose product can help it improve its customer service and employee experience (The Australian)
The two Aussie startups with opposing plans to make cultivated meat happen - Vow and Magic Valley (Capital Brief)
Behind Eucalyptus' big bet that men will spend $1,000 a month on their health (Capital Brief)
La Trobe Uni opens $8m BioTech and AgriTech innovation hub (InnovationAus)
Federation's Sendle deal draws intense VC scrutiny as fresh terms offered (Capital Brief)
Deputy launches Deputy HR in the US - allowing business to hire, onboard and track employee engagement (Silvija Martincevic)
Remarkable Tech introduces its global cohort for 2024 (LinkedIn)
Octopus Deploy has surpassed $100M ARR (Paul Stovell)
Grow Inc kicks off $60m Series D raise; Hitachi Ventures to anchor (AFR)
Australian VCs are playing catch-up on climate tech (Capital Brief)
Funding Rounds
Jigspace, a platform that enables people without the technical skills to turn CAD models into 3D presentations, has raised $13M from Breakthrough Victoria, Rampersand, Investible, Vulpes and angel investor Hugh Bickerstaff (Startup Daily | Capital Brief)
Sircel, Australia’s largest e-waste processor, has raised $5M from Kilara Capital (Startup Daily | SmartCompany)
Fugu Carbon, an early-stage carbon dioxide removal (CDR) technology startup which is targeting a gigatonne of CO2e removal per year, has raised a $1.67M Seed round led by Investible with participation from Jelix Ventures, Electrifi and Counteract (Startup Daily | BNA | Capital Brief)
KC8 Capture Technologies, a startup developing carbon capture technology for hard-to-abate industries, has raised $10M from Woodside and the the VC arm of Mexican cement producer Cemex (Startup Daily | The Australian)
EVOS, the EV charger startup, has raised $4M out of a target of $10M Series B (Startup Daily)