Start-up funding surges to $1.5bn in Q2 – but AI isn’t drawing investors

Investing

Start-up funding has hit a six-quarter high thanks to a surge in mega-deals, but AI is not attracting as many investors as the hype would have you believe, Cut Through Venture’s latest report shows.
Start-up funding surges to $1.5bn in Q2 – but AI isn’t drawing investors. Image source: Getty Images
Key facts
  • Start-up funding for Q2 hit $1.5 billion for the first time since 2022 with the surge being driven by the return of mega-deals. (Six start-ups raised $100+ million fundiing rounds).
  • Overall, investor sentiment has improved, with 46% of investors describing the funding market as more favourable compared to last quarter.
  • Funding for female-founded start-ups slumped to its lowest level since 2019, with later-stage participation dropping significantly.
  • The AI sector achieved the highest deal count for the first time in Q2 thanks to some large rounds, but most AI companies will struggle to secure funding as 57% of investors say their firms haven’t invested in any AI-first start-ups in 2024. Just 19% showed ‘strong interest’ in the sector.
Big numbers

A total of 99 deals closed through Q2, with funding totalling $1.5 billion, according to Cut Through Venture’s Australian Venture Capital Report for Q2, 2024. Artificial intelligence and big data led in deal count, with 16 announcements from start-ups considered ‘AI-first’ – those primarily focused on developing, implementing and leveraging AI technologies to drive innovation, solve problems and create value.

Fintech topped the total funding table for the first time in over a year with $546 million raised, thanks to three $100+ million deals from Betashares, CoverGenius and HoneyInsurance.

Climate-tech followed, with $344 million raised, followed by food and beverage ($142 million) and biotech ($92 million).

What to watch for

Investors say their top priority for the quarter ahead is to invest in new start-ups, with 39% of investors hoping to close more deals than last year. Cut Through suggests a backlog of start-ups that raised $20+ million in 2021-2022 without recent rounds means larger deal announcements could follow later this year, pointing to a robust second half.

But it’s the female-founded start-ups to look out for, after funding slumped in this sector to its lowest level since 2019 with just 11% of total capital raised going to start-ups with at least one female – and 4% to female-only. Across 2024, just three female-led start-ups have raised rounds greater than $20 million.

The largest rounds this quarter went to Liquid Instruments ($15 million), Orygen ($6 million), Sumday ($5 million), Great Wrap ($5 million) and Unseen ($4 million).

Cut Through says the share of funding received by female founders will remain low until these start-ups are supported with large capital rounds at Series B and beyond.

Key quote

“There’s huge potential for technology to be a growth engine for jobs in the Australian economy, and we’re already seeing a flywheel of talent coming from this generation’s success stories like Canva, Go1, Employment Hero, Linktree and Immutable.” – Craig Blair, co-founder and partner, Airtree.

Key background

It’s a step up from total funding across Q1, which reached $703 million across 66 deals. Then, two companies (Bugcrowd and Deputy) hit unicorn status (achieved a valuation of $1 billion or more), becoming the first new additions since 2022.

In terms of sectors, cybersecurity took out the largest share of funding last quarter, but didn’t make the top 5 this time around. But the big highlight across Q1 was that funding for female-only founder teams reached its highest-ever percentage. Across the first quarter, 21% of funding flowed to female-only founder teams, while 30% flowed to start-ups with at least one female founder.

Tangent

Just last month, Elon Musk’s xAI raised US$6 billion in funding from the likes of Andreessen Horowitz and Sequoia Capital, claiming the company’s “pre-money valuation” was US$18 billion.

And the AI sector has never been more competitive, with Forbes receiving nearly 2,000 submissions – more than double 2023’s count – for its Top 50 AI companies list. The companies featured had raised a total of US$34.7 billion – with nearly a third of that total stemming from OpenAI, thanks to a US$10 billion capital injection from Microsoft.

The 10 largest deals of Q2
  • Betashares: $300 million
  • Hysata: $172 million
  • Guzman y Gomez: $135 million
  • CoverGenius: $120 million
  • HoneyInsurance: $108 million
  • Samsara Eco: $100 million
  • Omniscient Neurotechnology: $60 million
  • RayGen: $51 million
  • DataZoo: $35 million
  • Ofload: $31 million

Are you – or is someone you know -creating the next Afterpay or Canva? Nominations are open for Forbes Australia’s first 30 under 30 list. Entries close midnight, July 31, 2024.

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