It is true that AI has made creating a software startup easier, but data from Cut Through Venture indicates getting funding may be another story.
Attend any startup event or conference and you will inevitably hear the claim that the power of AI makes now the best time ever to found a company. Cut Through Venture’s Australian Startup Funding Report for Q2 of 2026 indicates that may not necessarily be the case.
Dealflow for early-stage startups dried up in the three months to June 30, with just 31 sub $5 million funding rounds announced. It is the lowest early-stage deal count since Cut Through began collecting data in 2020, and is a 44 per cent drop from the quarterly average seen in 2025.
The report does not speculate on why this might be, though an anonymous investor is quoted as saying AI-native startups are seeking first cheques in excess of $5 million. That runs counter to the narrative that all a founder needs for a thriving startup is an idea and a few AI agents.
“We invest at the earlier stage, typically in rounds under $3 million,” the investor said. “We’re seeing very few of those deals at the moment . A lot of companies that would traditionally have raised $1 million or $2 million are now coming to market looking to raise $5 million to $10 million off the back of an AI narrative. That’s boxing early – stage funds like us out of the market.”
The report is the second in two months that points to a dearth of capital for early-stage companies. Side Stage Ventures’ Australian Venture & Startup Report 2026 found just 18 local VCs back startups in seed and pre-seed rounds, compared to over 500 in Europe and nearly 600 in the US.
Cut Through Venture’s Q2 data bears both good and bad news. Though dealflow has slowed across all round sizes, the amount of cash deployed is rising. A total of $1.7 billion was raised in the quarter, a 60 per cent year-on-year increase. A similar theme is seen at an early-stage. Though there were fewer deals, pre-seed and seed rounds had a median value of $1.3 million and $4 million – the highest on record.
Firmus and Airwallex both capped mega raises, at $725 million and $460 million respectively, showing Australian upstarts are able to attract big money from abroad. New York investors led both companies’ rounds. The two companies alone accounted for over 70 per cent of all funds raised.
Though the report opens with a warning about the Government’s plan to raise the capital gains tax and how badly that could impact startups, it also offers hints of a fruitful H2. Over three quarters of investors, 78 per cent, rated their portfolio health as good or excellent, up from 58 per cent in the same quarter two years ago.
Perhaps most portentously, over half of investors said they were having conversations around exits – that is, acquisitions or public listings of their investees – up from 37 per cent in Q1.
By The Numbers
Total funding
$1.7B
Raised across 64 venture deals and five accelerator rounds, taking first-half funding to roughly $3.5 billion. The second-strongest start to a year on record, behind only 2022.
Early-stage rounds
31
Sub-$5 million rounds, the lowest count on record and a 44% fall from the 2025 quarterly average. It was the quietest quarter for deal-making since before 2020.
Deal concentration
~70%
The share of all capital taken by just two deals: Firmus at $725M and Airwallex at $460M. The top five deals took 80%, and the single largest took 42% on its own.
Median Seed cheque
$4.0M
A record annual high, with Series A at $18.6M and Series B+ at $41M. Cheques have never been bigger for the companies that did raise.
AI share of capital
~75%
AI took roughly three-quarters of capital and two-thirds of deals, up from 64% of both in Q1. It featured in 81% of Seed rounds.
Age at Series B
11 yrs
The median age of a company raising a Series B, more than double 2021. Pre-Seed companies are raising younger than ever, at a median of 1.0 years.
Portfolio health
78%
Of investors rated portfolio health good or excellent, up from 58% two years ago. More than half reported a rise in exit conversations.
Source: Cut Through Venture, Australian Startup Funding Report, Q2 2026
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