AI, Climatetech Sectors in Australia Defy Slowdown in Venture Capital Activity: Report

Investment in Australian startups over the first six months of 2023 “fell to US$1.11 billion, compared to US$3.64 billion over the corresponding period in 2022,” according to newly released data from KPMG.

The latest numbers from the KPMG Private Enterprise Venture Pulse report shows that following years of record growth, VC activity in Australia “declined in-line with global startup investment, which dropped to US$176.9 billion in the first half of 2023 from US$391.2 billion in 2022.” However, certain sectors “including AI and Climatetech continue to attract venture capital interest.”

Globally, venture capital investment in startups “fell from $86.2 billion across 10,121 deals in Q1’23 to $77.4 billion across 7783 deals in Q2’23.” Factors driving the fall in global startup investment include “increasing interest rates, stubbornly high inflation, domestic and geopolitical challenges, the protracted war in Ukraine, and ongoing concerns about the stability of the global banking system.”

Amanda Price, Head of High Growth Ventures, KPMG Australia, commented:

“VC funding in Australia has returned to pre-COVID levels, with a decline in both deal sizes and overall deal count relative to the sector’s peak in the first half of 2022. Across the board, we’re seeing heightened levels of caution and a slower pace of deals, as due diligence and defensibility come to the fore. There is still capital to be deployed, but founders should expect an even more rigorous process with investors to secure investment.”

Defying the drop in investment, global VC interest in AI has “continued to surge in the wake of OpenAI’s introduction of ChatGPT in late 2022 and the announcement of Microsoft’s US$10 billion investment.”

This year Google made “a US$450 million investment in Anthropic, while Amazon announced that it would make two language models available through its Amazon Web Services to support the building of bots by its customers.”

Microsoft-backed AI firm Inflection also “had a massive US$1.3 billion deal.”

AI has quickly become “a target sector for VC investors looking for their next home run or to avoid the fear-of-missing-out (FOMO), in part because of the multiplier effect that AI offerings could have in driving widespread disruption across industries.”

Australian AI startups also successfully “raised capital in the first half of the year.”

Adelaide-based AI intelligence solutions venture Fivecast “raised US$20 million from US fund Ten Eleven Ventures, while Melbourne-based AI for healthcare startup Eyetelligence banked US$12 million from a New York-based investor.”

Ongoing concerns about energy availability and energy costs, and growing commitment to, and funding for, cleantech innovation in many countries “has driven significant interest in the energy sector.”

VC investors are showing broadening interest “across a growing diversity of energy solutions – from solar power technologies, offshore wind farms, and hydrogen and atomic energy applications to EV infrastructure, decarbonization solutions, and green finance focused offerings.”

Germany led the way with the largest deals of the quarter “including a US$232 million raise by climate-tech startup Komma5 and a US$165 million raise by Electric Vehicle charge station company Jolt Energy.”

In Australia, decarbonization startup Loam announced “a AU$105 million raise led by US climate-focused VC Lowercarbon Capital.”

Amanda Price said:

“Despite the slowdown in the first of 2023, it is worth noting that overall investment in Australia startups has delivered year-on-year growth every year between 2014 and 2022. As we move into the second half of the year, VCs are increasingly looking for startups that are efficient, responsible with capital, and focused on revenue. When they find them, they’re just as willing to invest as they were before, if not more,”

She added:

“Key sectors of interest, including AI and Climatetech, have remained resilient – showing there is still a healthy appetite amongst investors for Australian startups tackling the planet’s most pressing issues. For AI in particular, we are seeing VCs increasingly looking for startups that have integrated AI into their existing processes to improve efficiency, in addition to seeking to invest in AI-specific startups.”


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