Total investment in Australian startups was US$2.54 billion in 2023, compared to US$5.44 billion in 2022, according to newly released data from KPMG Australia.
2023 was a particularly difficult year for VC investment globally given the significant economic challenges, geopolitical tensions and conflicts, and ongoing concerns related to the valuations of VC-backed companies. The latest numbers from the KPMG Venture Pulse report shows a 53% drop in total deal value in Australia, with global venture capital falling to $344 billion in 2023 from $531.4 billion in 2022 – the lowest level since 2019.
KPMG Venture Pulse data tracked 482 Australian VC deals in 2023, down from 714 in 2022.
Source: KPMG Enterprise Venture Pulse
Amanda Price, Head of High Growth Ventures, KPMG, commented: “2023 was a very challenging year for the Australian VC market, as high interest rates and levels of inflation, ongoing concerns about valuations, and a challenging exit environment. A number of factors combined to drive up uncertainty and investor caution.”
Shift in focus for Australian startups as access to capital falls
The drop in funding has led to a shift in focus for startup founders. Over the course of 2023, economic conditions and increasing pressure from investors has forced startups to re-evaluate their growth plans.
VC investors have pressured companies within their portfolios to become more capital efficient, and to adjust their business plans to focus more intensely on achieving profitability rather than top-line growth.
Startup founders have also had to work hard to avoid down rounds – or raising at a lower valuation than a previous investment. This has meant undertaking significant cost-cutting measures, conducting inside rounds, or by obtaining bridge financing to extend their financial runway.
Much of this activity, initially, occurred under the radar as companies focused on raising add-ons to existing rounds.
In addition to down rounds, the last three months of 2023 also saw more startups shutting down globally — a trend that will is expected to continue as more companies are unable to secure fresh investment.
“Given how uncertainty has saturated the VC market globally over the past eighteen months, any signs of stability could lead to a sudden shift in investor sentiment. Interest rates will be a key factor to watch, as will the ongoing performance of some of Australia’s more prominent startups over the course of the year. Regardless of macro-economic trends, startups will continue to attract investment in emerging areas such as AI, cleantech, healthtech and defencetech,” she added.
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