New data shows early signs that the tech funding winter is thawing, as the amount of capital raised by Australian start-ups this year is up 30 per cent on the same period last year. However, fewer deals are being done, suggesting a two-speed tech sector is emerging.

Local start-ups banked $1.7 billion in the first five months of 2024, outpacing the $1.3 billion raised in the same period last year. The amount is less than half of the $4.1 billion raised in the corresponding period in 2022, the peak of the pandemic-era tech boom.

Data compiled exclusively for The Australian Financial Review by Cut Through Venture showed the number of deals declined to 144 during the period to May 31, compared with 151 and 243 in the corresponding periods in 2023 and 2022.

The figures show VCs are making fewer, more targeted bets to give companies enough cash to hit their milestones. At the same time, there has been a slow and steady return of mega deals, which dried up in last year, including Honey Insurance raising $108 million, and cybersecurity firm Bugcrowd raising $156 million.

The figures were released ahead of The Australian Financial Review Entrepreneur Summit on Tuesday, where investors from Airtree Ventures, Square Peg Capital and Flying Fox Ventures, and founders from Employment Hero, Gilmour Space and Me&U will dissect the state of the local start-up scene.

Investor interest in artificial intelligence is also helping to revive fundraising, with AI and big data start-ups raising $75 million, or 5 per cent of the funding, across 11 deals.

“They [AI start-ups] need to raise larger rounds to invest in the latest technology to stay competitive with their US counterparts and the capital they have access to,” said Zeb Rice, managing partner at King River Capital, which led Relevance AI’s $15 million series A round.

“Investors have become a lot more discerning, with high-quality companies reaching series A and beyond attracting a lot of interest from Australian and global investors who are willing to write larger cheques but for fewer companies.”

Gender imbalance

All-male founding teams claimed 85 per cent of the capital raised in the first five months of the year. While all-female founding teams raised 5 per cent of the capital, and companies with at least one woman founder banked 10 per cent.

Activity has picked up throughout the year after deals fell to a six-year low in the first quarter of the year, while the average and median value of investments from the seed stage onwards increased significantly year-over-year.

Rachael Neumann, of Flying Fox Ventures, tipped 2024 to be a “solid, well-considered, well-balanced year for investing”.

“Great companies will surface and get funded. Companies without a clear product-market fit or go-to-market strategy will struggle and possibly fail,” she said.

“Investor and founder expectations around valuations and milestones are mostly aligned. Things feel stabilised and performing in a healthy way.”

Normalcy returning

Bevin Shields, partner at ASX-listed fund Bailador, said bridging rounds which dominated the market over the past couple of years to help start-ups avoid a “down round” were now giving way to more traditional investment rounds to fund growth.

“Many of the better quality companies which raised at peak valuation multiples during the COVID period have, in a way, grown into their valuations, which has alleviated some of the concern around raising at lower valuations than previously achieved,” he said.

“We feel conditions have improved, and with a significant amount of ‘dry powder’ in the market, should ensure funding support for high-quality businesses seeking to raise from the local market.”

Matthew Koertge, managing partner of Titanium Ventures (formerly Telstra Ventures), said the market environment was more favourable than 2021, when start-ups landed huge valuations.

“Deal volumes are significantly lower and valuations are significantly better,” he said.

“When you’ve got a whole lot of people just throwing around money like drunken sailors, it’s really not ideal because prices are just too high.

“We are seeing tons of really exciting companies right now with reasonable financing terms, which, we think, will end up being some really great deals over the coming years.”

Excluding start-up accelerators (which place large numbers of small investments in very early-stage companies), the most active investors so far this year were seed stage investor Skalata Ventures, which participated in 13 raises, Blackbird Ventures with 10, and Investible with eight.