Venture capital deals stall for Australian start-ups


“But, cyclically, we’re in the early stages of what will be a significant market correction, so we may well see the numbers go down before they go up.”

May’s funding figures still demonstrate the staggering growth in the local ecosystem in the last few years.

Even with the sell-off, the value of deals in the month almost matched the $465 million raised by Australian start-ups across the entirety of 2016.

The first five months of 2022 are also comfortably up on 2021 ($4.4 billion compared to $2.7 billion), thanks to a healthy first quarter of deals, in which $3.6 billion of capital was deployed.

“The reality is we’ve been through a very good cycle, and now we’re in a tougher period, but the story isn’t about if the cycle is tough this year… it’s that what we’re seeing with more and more amazing companies,” Mr Bassat said.

The Cut Through Venture statistics revealed that once again male founders attracted the majority of funds, with only 12 out of 52 companies that raised capital having a mixed founding team or female-only founders.

The bulk of the deals were early-stage seed, angel or crowdfunding rounds, with only 14 deals above $10 million.

Only seven days into the month, June looks likely to be a healthier month for venture capital-backed companies, with Go1 and Edrolo already closing substantial new rounds.

Square Peg Capital’s Paul Bassat says there are structural and cyclical forces at play in the tech market. Arsineh Houspian

Main Sequence Ventures partner Mike Nicholls said he believed the effects of the tech crash would be felt less in Australia than in the US.

“I don’t think Australia got as carried away with valuations as the US market,” he said.

“Yes, there was still competition, but it was not as fierce. We’ve seen in the last 12 months US funds coming to Australia because it looked like good value. I think that continues to be the same.

“[The valuation crunch] doesn’t seem as sharp or as nasty as the US.”

At the end of 2021, Tiger Global participated in almost every major Australian start-up funding deal, while funds like Index Ventures and Insight Partners have also been active.

CEO of fintech Zai, Paul Byrne, said strong companies continued to attract interest, but there has been a definite slowdown in the market.

“The US market sets valuation benchmarks for the rest of the world generally, so non-US investors will watch the evolution of valuation multiples,” he said.

“This focus on lower-risk usually means US investors reduce foreign investments – which they perceive as higher risk than the US domestic market.

“Founders will be more focused on the underlying economics as there will be less interest in business models, which do not have a high gross margin and path to profitability. Profit doesn’t need to be very short term if you are growing quickly, but investors will need to understand the unit economics, so founders should expect a deeper level of due diligence in funding rounds.”


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