Australian Startup Ecosystem Funding Analysis — For Founders!!!
**2024 Update: I now publish Aussie capital raising content on Substack here **
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This is an analysis of startup funding activity in Australia from FY15 to FY20.
This series was created for Australian startup founders who are thinking of or are currently raising capital.
I recently started a new role at a visionary and impactful MedTech startup called Nutromics whilst also undertaking a Master of Analytics at UNSW and therefore have decided to release this analysis as a series of Medium blogs rather than a formal PDF report.
If you are currently raising capital or thinking about it then make sure you checkout my website Startup-Funding.com.au which is completely free for founders and has detailed Australian startup investor and lender profiles as well as links to some great learning resources.
Click ‘Follow’ to get future funding reports for Aussie founders
TL;DR
- Seed/0 to 3 year old company funding is getting harder to obtain with Seed deal count down 29% from FY17 highs
- But total $ volume of funding is up 117% across the board — meaning deal sizes are growing in size (less deals but more money)
- Pre-seed to Seed round funding size is sitting at approximately 15 times Pre-seed amount ($100k to $1.5m)
- Startups raise capital approximately every 18 months to 2 years
Background
I have worked on three early-stage capital raises so far in 2020 and each raise we have had the discussion on funding round sizes. Each time I get frustrated by the lack of founder friendly funding data available, so I decided to stop complaining and produce it myself.
This report is my attempt to use public data to generalise a very diverse, complex and opaque market that is the early-stage innovation capital markets. I have used a data sourced from Crunchbase to attempt to infer patterns within the market and therefore a healthy amount of scepticism should be exercised when interpreting the results as Crunchbase only captures publicly announced deals.
There are many exceptions to the findings in this analysis and a lot of important data points are not available for analysis such as individual company financials/traction and founder track record. I also haven’t attempted to analyse data points such as the type of tech, sector and company location.
I hope that the many interesting insights in this analysis will stir up some conversations. I would like to invite well-resourced industry players to interrogate and challenge my findings and publish their own interpretations of Australia’s innovation capital markets data so that together we can better arm founders with the information they need to just get on with it.
Let’s make better founders.
Better founders need better information.
Enjoy!
Australian Market Summary
Less deals are happening but there is more money than ever being invested into Australian startups. This means that it is getting harder to get funding but if you are successful in obtaining funding then you are likely to raise a lot more than 5 years ago.
As shown in Figure 1, 260 early-stage transactions were publicly announced and captured by Crunchbase in FY20 compared to the peak of 364 in FY17. The drop in deal count was completely driven by the decline in Seed stage transactions.
Seed fell from a peak of 286 transactions in FY17 to 128 in FY20.
COVID Observation: Interestingly, Series A was the only stage that suffered a year on year decline in deal activity for the 4th quarter of 2020, with the other three stages (Pre-seed, Seed and Series B) seeing an increase from Q4 2019.
As shown in Figure 2, the decline seen in Seed stage transactions is also evident when we ignore the transaction stage names and just assess deals based on company age at announcement. One, two and three-year-old company deal count all fell from their FY17 peaks of 83, 121 and 87 transactions respectively to 48, 60 and 48 in FY20. Their proportional counts also fell.
We can see that more deals are being completed for older companies with 4 to 6-year-old companies receiving between 10% to 15% of total transaction volume.
Deal Volume ($)
While transaction count has fallen, transaction dollar volume has grown significantly, our sample recorded $1.48 billion of early-stage transactions completed in FY20 across 193 transactions. However, the proportional allocation of capital shows Seed and Series A rounds receiving proportionally less and less capital as show in Figure 3.
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Some positive news though, Pre-seed has remained reasonably constant at approximately 0.5% allocation (not in graph as too small). However, I suspect most Pre-seed transactions go unreported and are therefore not accurately captured in this dataset.
Again, if we look at the transaction volume in Figure 4 purely from a company age perspective then second and third year companies are again receiving lower capital allocations, having fallen to just 13% and 9% of the total $ volume respectively in FY20 whilst fourth (40%), fifth (25%) and sixth (10%) year companies have picked up additional allocations.
Over the coming weeks, I will release a detailed analysis for each round stage but in the meantime, here is a quick comparison of each stage.
Median round sizes saw significant volatility during the COVID-19 period however I have attempted to smooth the data and as you can see in Figure 5, the steps between each stage are significant. As expected, as companies progress through the various stages and reduce their risk level, the round-on-round $ transaction size multiple decreases rapidly, with Pre-seed to Seed seeing a 15x multiple whilst Series A to Series B only seeing a 2.5x multiple.
If we ignore the round names (Pre-seed, Seed etc) and just look at median deal size by company age in FY20 then we see more clearly how the capital requirements of companies grow year-on-year. 6 and 7 year old companies appear to be an anomaly in this trend and interestingly they repeat similar decreases in FY18 and FY19 too.
As seen in Figure 7, the average company age at each round is approximately 2 years between Seed, Series A and Series B. When we analyse time between funding rounds it is currently sitting at approximately 1.5 years which indicates that companies tend to raise enough funding to cover approximately 18 months to 2 years’ worth of runway.
In Figure 8, we can see that as round stages progress then the average investor count also increases. However, I suspect many angel investors are not publicly named in very early-stage (Pre-seed and Seed) rounds and therefore these averages are likely higher.
The more investors participating in a round typically results in larger $ round sizes (except for Pre-seed which is nearly always 1 investor). Interestingly, this relationship appears to peak at 4 investors and then the deal size declines significantly (except for Series B).
Number of Founders: The average number of founders consistently sits at 2 per company with Series B seeing a larger bias towards 2+ founders than earlier rounds which typically see larger bias toward 1–2 founders.
Whilst there is more money available than ever before to fund early-stage startups in Australia, it is concerning to see such large declines in the number of transactions for Seed/0 to 3 year old companies. It makes me wonder what impact this will have on the startup ecosystem in the years to follow.
There is however some comfort in the fact that investors remained extremely active during COVID.
Over the coming weeks I plan to release further analysis on each funding stage to further help founders formulate fundraising strategies.
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Founders, Investors and Startup Newbies: Feel free to add me on LinkedIn, I love meeting interesting new people
Raising Capital? Check out Startup-Funding.com.au, if you need a hand navigating the VC world then add me on LinkedIn
I’m the Aussie Startup Capital Nerd… My name is Warwick Donaldson and I specialise in Australian DeepTech and FinTech Seed and Series A capital raisings. To date I’ve worked on over 150 Pre-seed, Seed, and Series A fundraises. Hit me up if you’d like to chat.
Analysis Notes
- All data sourced from Crunchbase
- FY = Financial Year — runs from 1-July the previous year to 30-June the current year
- A total of 1,827 publicly announced transactions make up this analysis with 1,366 publicly disclosing the $ value of the transaction
- Early-stage is defined as pre-seed, angel, seed, convertible notes, series A, series B
- Seed is classified as angel, seed and convertible note transactions
