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Tech start-ups on fire in record-breaking $3.6b quarter

While the year has started strong, Mr Gillings said the billion-dollar question was how the rest of the year plays out, given the listed tech sell-off.

“Most local and US venture capitalists I’ve spoken to believe that the public market price correction will trickle into the private markets,” he said.

“Consensus seems to be that later-stage startups, which, in theory, are closer to an exit via acquisition or by going public, will be hit hardest.

“There’s considerable local VC dry powder which needs deploying, and the international funds’ appetite for Australian start-ups appears to be holding up … I’d say we’ll see the number of deals done in Q2 stay steady or even rise slightly, but we’ll see valuations soften.”

The Cut Through Venture figures showed the average deal size for start-ups completing seed funding rounds had surged 93.3 per cent this year already, rising from $3.5 million in 2021 to $7.5 million in the first quarter.

But, the biggest leap in average size was in Series B deals, with the value of these rounds in the first three months of 2022 hitting $100.3 million – up 180 per cent on 2021’s $35.8 million average.

The largest deal in the quarter was Scalapay’s $692 million round, which was a combination of debt and equity. Cyara was the largest pure equity round, scoring $US350 million ($466 million) from K1 Investment Management.

Other companies to raise more than $100 million included Immutable, Employment Hero, Linktree and Zeller.

Investors interviewed by The Australian Financial Review agreed the pipeline of deals remained strong.

“It’s never been a better time to be a founder. The weight of dry powder – literally hundreds of billions of dollars – that had been raised globally is dollars that’s committed and has to be deployed under almost fixed term deployment schedules,” EVP partner Justin Lipman said.

“It’s a supply and demand thing, so I’d be surprised if there’s any major re-tracing.”

Likewise, Our Innovation Fund general partner Laurence Schwartz said the pipeline of deals was still expanding and the quality of companies was “exceptionally strong”.

“The good companies will always attract a fair valuation … and typically the experienced founders aren’t optimising for valuation.”

Square Peg Capital’s Paul Bassat said he expected deal volumes to remain high, but said Australia was not removed from the rest of the world, and he tipped there would be a decline in average investment values.

“We are seeing a sea change in the level of start-up activity and that’s a trend that’s inextricable and irreversible,” he said.

“[But] the expectation is that 2022 does see a bit of a reversion of the mean, and possibly some Q1 numbers, reflected deals, were already in the work last year.”