A recent KPMG report noted that investment in Australian startups over the first six months of 2023 fell to US$1.11 billion, compared to $3.64 billion over the same period in 2022.
The report, entitled ‘Private Enterprise Venture Pulse Report’, showed that following years of record growth, venture capital (VC) activity in Australia declined in-line with global startup investment, which dropped to $176.9 billion in the first half of 2023, down from $391.2 billion in 2022. However, certain sectors including AI and Climatetech continue to attract VC interest.
Globally, VC investment in startups fell from $86.2 billion across 10,121 deals in Q1 2023 to $77.4 billion across 7783 deals in Q2 2023. 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.
Investment in AI growing red-hot
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 $10 billion investment. AI has quickly become a target sector for VC investors looking for their next ‘home-run’ or to avoid 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 2023. Adelaide-based AI intelligence solutions venture Fivecast raised $20 million, while Melbourne-based AI for healthcare startup Eyetelligence banked $12 million from investors.
Alternative energy, energy storage, and cleantech remain attractive to VC investors
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. In Australia for example, decarbonisation startup Loam announced a AU$105 million raise led by US climate-focused VC Lowercarbon Capital. Despite the slowdown in the first of 2023, It’s worth noting that the overall investment in Australia startups has delivered considerable year-on-year growth every year between 2014 and 2022.