- Startup funding was $7.4 billion in 2022
- It’s a 30% drop from 2021, but less than a 35% global drop
- Investors closed 712 deals
- Female founders receive more deals, but less money
- Investments have grown 5x in 5 years
It’s a great time to be a budding founder, a new analysis of Australian start-up funding for 2022 has found, with a record number of founders supported over the past year.
The second annual edition of The State of Australian start-up funding report of Cut through enterprise And Folkloric enterprisesreveals that Pre-Seed and Seed stages will reach record levels in 2022, despite a drop in total investment of approximately 30% – $3.2 billion – to $7.4 billion last year.
To put it in perspective, the numbers for 2022 continue an amazing growth story for local investment in such a short time. The $7.4 billion of 2022 is still five times the $1.4 billion of 2018, three times the pre-pandemic level of $2.7 billion in 2019 and more than double the $3.1 billion by 2020.
Fintech again attracted the lion’s share of funding with $1.3 billion, but enterprise and enterprise software is growing strongly to reach $1.2 billion in 2022, and with fintech a bit on the nose with investors after massive drops in value for BNPLs like Klarna , and the failure of ASX-listed Openpay, business SaaS looks set to become the favorite in 2023.
Australian investments outperformed their global peers – VC funding fell 35% globally – and in the context of public markets and valuations, it has remained remarkably bullish over the past 12 months, with investors still eager to support the next potential unicorn.
The number of deals in 2022 rose above 700 for the second year in a row to 712 – just 19 fewer than the 731 in 2021. But no doubt to the relief of investors and VC teams in due diligence, the frantic pace of the overheated market 2021 off.
Cut Through Venture’s funding report found that 88% of investors surveyed reported longer fundraising processes, with 61% taking longer to decide on investments even when strong investment readiness remained.
Investing remains competitive
More than a third (35%) of investors surveyed reported that early deals were more competitive than ever.
The incredible vote of confidence comes at the right time for Australia’s founders and VCs, as recent market challenges prompted many to question the future of funding in Australia.
But the big difference last year is a drop of mega rounds above $50 million and outliers at every stage. Sub-$5 million investments held steady amid broader declines, while total funding for early-stage startups increased 7%.
And there will be no shortage of capital available to the right founders for years to come, given that the top three funds, Airtree, Blackbird and Square Peg raised a whopping $2.4 billion in new funds last year, with Blackbird the raised Australia’s first $1 billion. VC fund. All three have committed to continuing to support early stage portfolio companies in the later stages.
Report co-author Chris Gillings, founder of Cut Through Venture and partner in later-stage VC fund Five V Capital, said that while there is plenty of dry powder in VC portfolios for years to come, it is being deployed more cautiously.
“Given the global environment, it is no surprise that funding fell in 2022. What is encouraging, however, is the resilience the market showed: it is a testament to the breadth, depth and maturity of the startup ecosystem,” he said.
Limited Partners (LPs) in VC funds are now demanding a more conservative investment cadence, portfolio companies have been told to cut costs, and 60% of VC partners reported reduced LP appetite, the report found. At the same time, more than 60% of founders said they plan to raise their next round of capital in 2023.
The good news for early stage founders is oneangel investing continued its upward trajectory in 2022, with female angels remaining confident throughout the year, and more optimistic about 2023 than their male counterparts. Nearly twice as many female angel investors (83% versus 42% for male angel investors) expect to increase their angel investments next year.
It was a mixed result for female founders, with their involvement in raises increasing but the size of investments and their overall share of the capital pie falling.
Deals for women up, amounts down
Female founder participation reached an all-time high in 2022, but their share of funding fell to the lowest level in recent years.
Pre-Seed and Seed startups founded by women raised significantly more funding, and 23% of all deals included companies with at least one female founder. However, overall funding fell to 10% – from 21% in 2021 – and they raised a median amount that was 39% lower than for all-male teams.
Folklore Ventures Founder and Managing Partner Alister Coleman said 2022 was a case of the new normal returning to the old normal.
“The ebb and flow of the past two years is a natural part of our ecosystem maturing, and we should expect financing environments to expand and contract periodically over time, as is the nature of capital markets,” he said. .
“As we zoom out, there are real reasons to be excited about the abundance of world-class talent and innovation in Australia’s startup ecosystem, and the health of the funding environment captured in this report is a demonstration of how far we have come have come in the past decade.”
Amid the uncertainty of the past 12 months, which saw the pace of deals continue from 2021 before a major slowdown in the second half of the year, Coleman believes momentum will remain strong when it comes to supporting new startups.
“In 2022, we saw early-stage investment hit a record high, and looking to the future, we believe this trend will continue thanks to significant dry powder in venture capital funds and a natural tendency of tough times to catalyst for great innovation,” he said.
“Folklore has long believed that investing in startups is a long-term journey that starts with a first check, so we are starting 2023 excited and ready to support the next generation of Australian startup success stories.”
Cut Through Venture uses data collected from over 80 venture capital funds, alongside media and founder reporting to build the most accurate picture of the local investment industry. Everything finished, survey data from over 500 Australian founders, venture and angel investors helped build the most comprehensive picture of local startup investment
And those behind the The State Of Australian Startup Funding Report JP Morgan, Silicon Valley Bank and Deloitte.
Sara Rona, Silicon Valley Bank ANZ market leader, said she “are still very optimistic” about Australia as a mature startup ecosystem, despite the current macroeconomic headwinds.
“The funding data from the State of Australian Startup Funding report shows that Australia’s ecosystem has remained resilient, with significant growth opportunities in some sectors in 2023, including in its unique strengths such as SaaS businesses and climate technology,” she said.
The full report is available for free at australianstartupfunding.com