This Week in Australian Startups #40, 8th October 2023

This week we saw the end of the inaugural Techstars Sydney program, which I had the pleasure of being apart of as a mentor. It was incredible to see all 10 startups share their progress and future plans as they graduate from the program.

Cut Through Angels announced a new Angel Syndicate where angels can invest as little as $2,500 in one, multiple, or all of the fundraising Techstars Startups - you can learn more about each startup and express your interest to invest here.

That’s not all the team at Cut Through Angels did this week - with the release of the Cut Through Quarterly report as well, providing a detailed analysis of the state of Australian Venture Capital for the previous quarter.

Q3 2023 provided some really interesting data points and trends.

There were five snippets that I found most thought provoking and worth going deeper into;

1

Due to a rise in smaller internal rounds, startups and funds are underreporting funding events. We believe this underreporting accounts for 10-15% of the total funding volume.

That’s about $73-110M of funding that hasn’t been reported this quarter.

There could be many reasons for this, the report states the rise in smaller internal rounds. As we see course correction from the ‘grow at all costs’ thesis to ‘profitability’ it makes strategic sense both for founders and existing investors to work together in steering the ship.

It isn’t necessarily what you want to put out to the market if that’s the basis for an internal round. And then there’s always valid strategic timing for announcements ie a new rebrand, senior exec hires, geo expansion, product releases etc…

2

“In the past few months, we've seen our fellow VCs actively re-engaging in the market.

The shift from defence to offence makes a lot of sense - as mentioned above this year so far has been about course correction, now we are starting to get out of the fog and can focus on what’s ahead. Internal rounds also are an indication of existing investor confidence that their portfolio companies have a clear path and plan to profitability.

Investor confidence has gone up considerably, with the majority (57%) of investors believing the market is more favourable than Q2.

We’re seeing less layoffs, 84% of investors seeing between less than 20% of their portfolio companies making layoffs compared to Q2 where 67% of investors saw between 20-80% of their portfolio companies making layoffs.

And also less shutdowns, 19% of investors had one or more shutdowns in Q2 compared to only 6% in Q3.

These are very positive signs - Q3 may very well be transition quarter, this may also bleed into Q4. But there is good reason to believe that as we head into 2024 the market should continue to look even more favourable.

3

“Deal multiples have come off substantially. We’re finally seeing the valuation expectation gap between founders and investors converge. Deal term negotiations are quicker than they were early this year” Investor, Investor Sentiment Survey September 2023 Page 17

Multiples have certainly tanked from highs we saw in 2020, below is the SaaS Capital Index - which is a proprietary model developed by SaaS Capital profiling private B2B SaaS companies.

In Australia we’ve seen valuations drop an average of 32% in Seed, 36% in Series A/B and 41% in Series C rounds.

Another positive signal that we are out of the worst, is investor confidence increasing significantly quarter on quarter - 72% expect valuations to remain the same (up from 35% in Q2) and 28% expect them to fall (down from 61% in Q2) for the remainder of the year.

4

Female only founding teams grabbed their highest percentage share of funding since 4Q20, though 80% of those funds flowed to just two female led startups. For the first time in our recorded data, median deal sizes for female-founded startups edged above all-male teams during the quarter

This quarter we saw a significant increase in female only founders receiving funding

Similar to Q2, there was concentration in a few rounds taking the lions share 87% ($152M) of this quarter’s funding went to 3 female founders. Deal participation also increased hitting peaks across all stages except for Series A rounds which fell to its lowest level in 5 years.

And for the first time since the Cut Through Ventures started collecting data, the median deal size for female-founded startups was higher than that of all-male founding teams.

That feels like good progress since last quarter, but still a long way to go. Like anything that requires significant improvement, it takes time to see the downstream impact of important initiatives. After the Q2 report we saw Lisa Fedorenko (Alberts), Samar McHeileh (Scale Investors) and Rachel Yang (Giant Leap) initiate a program leading to most Australian funds releasing data on the number of women-led and mixed teams they conduct due-diligence and invest in - a few weeks ago we started to see this in action with Claire Bristow sharing Skalata’s gender diversity stats on how their money is being allocated.

5

Mega deals were elusive, with no announcements of funding rounds exceeding $100M. Although we know several large deals are lined up for strategically timed announcements, the pressing question for us is whether we'll witness an uptick in acquisitions of mature startups lacking venture-style growth, an increase in startups shutting down, or a resurgence of massive funding rounds needed to sustain their operations. Solid cash flow management has its limits, especially when companies must deliver the high growth that investors

As Chris Gillings has put it - it’s certainly been the pressing question for everyone in the startup world, not only here at home in Australia.

Carta released stats on its startup customers, with the key stat being that 543 Carta startups have shut down so far in 2023, more than the 467 that shut down all of last year.

Peter Walker, Head of Insights at Carta shares more details in his post on LinkedIn - but some key lowlights he shared;

• About half of the startups that closed shop did so without raising any VC rounds. The other half had at least one priced round in their history
• Within the cohort that had raised from VCs, 90% of the shutdown were either Seed or Series A startups
• 34 startups that raised a Series B or later have shut down so far this year - that's higher than the 25 in 2022
• 87 startups that raised at least $10 million have shut down this year. That's nearly 2x the total from last year.

We haven’t seen quite as a major an impact here in Australia - which in general has been the case with Australia not feeling as big an impact locally whenever there is a global macroeconomic trend.

Read the full report here.

Top News

Australia

• Software logistics giant WiseTech acquires shipping container marketplace MatchBox Exchange (Startup Daily)
• Early-stage investor Antler lands $60 million 2nd fund as Uber Australia OG Mike Abbott signs on as partner (Startup Daily)
• A new angel investment syndicate is backing Australia’s Techstars founders (Startup Daily)
• LaunchVic has opened expressions of interest for a third cohort of its 30X30 program to support potential tech unicorns scale up their operational side (Startup Daily)
• SXSW Sydney: Every startup panel you’ll want to see (SmartCompany)
• Canva launches a suite of 10 new AI tools called Magic Studio, and they don’t cost extra (SmartCompany)
• WA VC firm Purpose Ventures tops up fund to $45m, closes third investment (BNA)
• Li-S Technology, V-TOL Aerospace and Halocell team up to develop high-altitude drones (BNA)
• Melbourne healthtech Pharmachal set for Canadian listing in reverse takeover (BNA)
• Property transaction powerhouse PEXA to buy UK tech business Smoove for $59M (BNA)
• Cleantech startup Greener partners with Origin, ARA, Sendle and more to launch new platform (BNA)
• XTEK secures support contract with Defence worth up to $110M over a decade (BNA)
• Canva’s AI products power revenue jump to $2.7B (AFR)
• Canva’s new revenue number supports $39b valuation, IPO the real test (AFR)
• Inside the ultra-high-pressure world of Airwallex (AFR)
• Eucalyptus, which sells weight-loss drug Ozempic, raised $8M more than first thought in its latest capital raising (AFR)
• Canva rolls out AI for companies alongside a $200m creator fund (The Australian)
• Australia’s $12 billion space mission – and the companies joining the journey (Forbes)

Around the World

• Greylock announces: Greylock 17, our newest early-stage fund, and Greylock Edge, a bespoke program to help founders initiate new companies from idea to early revenue and product market fit (Greylock)
• Zapier launches Canvas, an AI-powered flowchart tool (TechCrunch)
• Spotify is giving paid subscribers 15 hours of audiobook listening per month (The Verge)
• Meta has proposed an ad-free subscription option where users could choose to fund a paywall to prevent personalised ads (TheStreet)
• Anthropic, is looking to raise an additional $2 billion in funding (TheStreet)
• Zoom Docs arrives to take on Google Docs, Notion (VentureBeat)

Australian Funding Rounds

• Apollo Secure, the automated platform for startups and SMEs to achieve and maintain security compliance, has raised a $600K pre-Seed round led by Sydney Angels (Startup Daily)
• Renewable Metals, a battery recycling startup, has raised $8M in Seed funding by Virescent Ventures and Grantham Foundation for the Protection of the Environment (Startup Daily)
• Eden Brew, the startup creating a dairy alternative through a fermentation process to brew the same casein proteins found in cow’s milk to mimic its texture and nutrition, has raised $24.4M Series A backed by Breakthrough Victoria, Main Sequence, Orkla, Balmoral Blue, Digitalis Ventures, Possible Ventures and Radar Ventures (SmartCompany)
• Techni Ice, a high-performance thermal products brand that supplies reusable dry ice packs, ice boxes, and other cooling solutions, has raised $979K though a Birchal equity crowdfunding campaign (SmartCompany)
• AutoGrab, the startup which has built a live ledger of online car listings, has raised $7M from EVP and Ten13 to double down on its international markets (AFR)

International Funding Highlights

• AI-powered parking platform Metropolis raises $1.7B to acquire SP Plus (TechCrunch)
• US mental health startup Headway raises $125 million at $1 billion valuation (Reuters)
• Stoke Space raises $100M Series B as it looks to reach orbit by 2025 (TechCrunch)

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