In 2023, Australian start-ups received a total investment of US$2.54 billion, marking a decrease from the US$5.44 billion recorded in 2022, as reported by KPMG Australia.
The global venture capital landscape faced challenges in 2023 due to economic uncertainties, geopolitical tensions, conflicts, and ongoing concerns about the valuations of VC-backed companies. KPMG’s Private Enterprise Venture Pulse report indicates a 53% decline in Australia’s total deal value, with global venture capital dropping from $531.4 billion in 2022 to $344 billion in 2024 – the lowest since 2019. The data from KPMG Venture Pulse reveals a reduction in Australian VC deals from 714 in 2022 to 482 in 2023.
Amanda Price, Head of High Growth Ventures, KPMG, commented: “2023 was a very challenging year for Australian VC market, as high interest rates and levels of inflation, ongoing concerns about valuations, and a challenging exit environment number of factors combined to drive up uncertainty and investor caution.”
“VC investment globally is expected to remain relatively depressed given the ongoing conflicts in the Ukraine and the Middle East, the stubbornly high inflation and interest rates, and the expectation of three major elections during 2024, including the European Union parliamentary election, the US presidential election, and the UK general election,” said Price.
YearDeal value ($B)Deal count2020$2.395542021$5.628112022$5.377142023$2.54482
Source: KPMG Private Enterprise Venture Pulse
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, however, any signs of economic 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,” Price added.
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