Australian startups are cashing bigger cheques from venture capital investors, but the money is increasingly going to a smaller group of later stage companies. 

Overall Australia’s venture capital funding in 2019 rose to US$1.145 billion, up from US$1.033 billion in 2018 according to KPMG’s latest Venture Pulse report.

Amanda Price, Head of High Growth Ventures, KPMG Enterprise. Source: KPMG

Over recent years the number of venture deals in Australia has dropped over while the average value of the amount of money raised has increased. Meaning there are fewer deals, at bigger valuations. 

That trend was especially pronounced last quarter according to the KPMG High Growth Ventures report, which had the highest total investment ($339.4 million) across the lowest quarterly number of deals (32) in the past six years. 

“Australia has bucked regional trends, which saw Asia remain the primary weak spot in the global VC market. We are seeing larger deal sizes across the board, a strong sign of the quality of venture-backed startups emerging from the local ecosystem,” said Amanda Price, Head of KPMG High Growth Ventures. 

“At the same time, the number of early stage VC deals continues to slow, perhaps indicating that the structure of early investment in Australian starts is shifting from venture capital to alternative funding sources.”

Major Australian deals for 2019 included large and record funding of later stage rounds such as those for Canva ($85 million), Culture Amp ($82 million) and Airwallex ($100 million). 

Global trends

Worldwide, Fintech remained one of the hottest areas of VC investment, in addition to autotech, biotech, mobility and logistics, and food delivery. At a technology level, artificial intelligence, automation, deeptech, and B2B solutions all received significant interest from VC investors, the report states. 

“Heading into 2020, the VC market is expected to remain relatively steady in Q1’20, with areas like AI, biotech, and fintech remaining very hot. Despite some mixed results, the IPO market could see an uptick as companies look to exit in advance of the US Presidential election. The election is likely to drive some uncertainty – particularly in the second half of the year, as well as a potential increase in global political tensions,” said Price.

The report also noted investors are more wary of startups which burn through their cash, following the rapid decline in WeWork’s valuation and prospects late last year.

“Heading into 2020, companies looking to attract attention from VC investors are expected to put more emphasis on reducing their cash flow and providing clear paths to profitability. Investors are likely to focus their investments on companies with a strong and sustainable global growth model. Logistics, education, and ecommerce are all expected to remain hot areas of growth,” said Price.

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