While venture capital markets contracted globally in 2023 and 2024, a quiet revolution was taking place in Australia’s startup ecosystem.
Impact ventures: those tackling climate change, health challenges, and social issues, weren’t just surviving the downturn, they were gaining ground.
The newly released Impact Startups Benchmark Report 2025, produced by Giant Leap in collaboration with Cut Through Venture, reveals a striking narrative of resilience. Drawing on analysis of more than 2,800 startup deals over three years and a cumulative 10,000 companies, the report shows that while total startup funding volumes dipped across the broader ecosystem, impact sectors steadily grew their share of early-stage investment.
The numbers tell a compelling story: startups solving social and environmental challenges comprised 41.5% of all early-stage investment in 2024, up from 38.9% in 2022, with a peak of 55.6% in 2023.
“The fact that impact startups have steadily grown their share of early-stage investment signals strong and sustained investor conviction in the impact sector,” Rachel Yang, Partner at Giant Leap said. “This resilience is a clear sign that backing startups solving social and environmental problems is more than a trend, it’s a long-term shift in capital priorities.”
Climate tech leads the charge
Climate-focused startups emerged as the dominant force, receiving $1 billion in 2024: more than double the investment in health and five times that of people-related ventures. This surge reflects a confluence of factors: strong corporate demand, regulatory tailwinds, and maturing technologies in areas such as carbon sequestration, energy storage, and climate adaptation.
The sector’s evolution is particularly notable in its shift beyond traditional renewables. While wind and solar have matured into established asset classes, investor appetite has pivoted toward next-generation solutions. Carbon reduction and sequestration technologies attracted the most funding in 2024, with energy storage and grid resilience experiencing significant growth.
Sophie Purdom, Managing Partner at Planeteer Capital and Co-founder of CTVC, offers a global perspective on this transformation: “Climate transformation stems from two forces: transition and disruption, both transformative in distinct ways. Transition retools massive existing industries, making commodities cheaper, faster, and cleaner with fewer externalities, think low-carbon cement, grid-enhancing tech, and heat pumps.”
The report identifies a critical shift in climate investing philosophy. “The biggest breakout sectors in climate will be those positioned to thrive in a 3.0°C+ warmer world,” Purdom notes, highlighting AI-driven Earth observation, climate insurance, supply chain risk management, and grid resilience as emerging opportunities.
Health sector: Steady amid headwinds
Health investment in Australia remained steady in 2024, though the sector showed divergent trends. Biotech maintained strong momentum, fueled by advances in drug discovery and AI-driven innovation. The sector attracted sustained investment, reflecting demand for new therapies and strong return potential from breakthrough innovations.
Digital health, however, faced headwinds. Investors recalibrated around commercialization pathways, regulatory complexity, and the need for clearer payer models. Despite these challenges, long-term drivers: including the increasing prevalence of chronic disease, an aging population, and growing demand for value-based care continue to position the sector for future growth.
The health sector’s resilience is underpinned by AI’s transformative impact. Foundation models are accelerating drug discovery, supporting earlier and more accurate diagnoses, and democratizing access to medical expertise. As the report notes: “AI systems can analyse vast medical data to identify promising drug candidates, detect diseases earlier and provide decision support to practitioners.”
People-focused sectors face headwinds
In contrast to climate and health, people-focused sectors experienced significant challenges. EdTech and HR Tech saw sharp declines in investment, reflecting a combination of structural and macroeconomic pressures including long sales cycles, customer acquisition challenges, and broader economic uncertainty.
Funding into EdTech and HR Tech declined significantly since 2022, with the report noting that “many businesses have struggled to scale sustainably with long sales cycles, customer acquisition challenges and economic pressures exposing weaknesses in the underlying business models.”
However, AI presents a potential revival opportunity. AI tutors are delivering differentiated, curriculum-aligned learning to millions of students at a fraction of the cost of traditional interventions, providing personalized lessons, instant feedback, and adaptive pacing.
The Series A bottleneck
One of the report’s most significant findings concerns the Series A funding gap. Series A activity has contracted for two consecutive years, with both deal count and median deal size declining. As early-stage activity increases, the gap between pre-seed momentum and Series A conversion is widening, creating a critical pressure point in the funding pipeline.
Seed-stage funding has seen robust activity, particularly in impact-driven verticals, due to increased availability of grant funding, angel capital, and early-stage accelerators. However, the pipeline is outpacing Series A readiness, resulting in a bottleneck where many startups struggle to transition beyond proof-of-concept phases into the scale-readiness expected at Series A.
The report suggests this reflects a fundamental shift in investor expectations. Startups that previously advanced on strong narrative or momentum now face more rigorous benchmarks, with investors demanding clearer unit economics and proven revenue models.
AI: The great disruptor and enabler
Perhaps no trend is more significant than AI’s rapid transformation of every vertical. The report reveals that companies mentioning AI in their pitch increased from 5% in 2021–2022 to 19% in 2023–2024, with this proportion expected to continue rising.
AI is no longer optional, it’s redefining the baseline for innovation. The report categorizes AI startups using the makers, shapers, takers framework: makers build foundational models, shapers specialize or fine-tune these models creating differentiated products, and takers layer existing AI tools into existing offerings.
“What makes this moment distinct is not just the breadth of use cases, but the pace of progress,” the report notes. “The performance ceiling has shifted so quickly that what felt ambitious 12 months ago is now expected.”
Corporate commitments under pressure
While investment flows tell one story, the corporate landscape reveals another layer of complexity. The report notes that initial climate ambitions are softening under the weight of economic pressure, political pushback, and implementation complexity, signaling a more fragmented path to net zero.
Despite these challenges, corporations continue to embrace impact initiatives. Nestlé Purina aims to source 50% of its European pet-care ingredients through regenerative farming by 2030, McCain Foods is advancing regenerative potato farming worldwide, and PepsiCo plans to transition 7 million acres to regenerative practices by the end of the decade.
International perspectives
The Australian market doesn’t exist in isolation. Willemijn Verloop, Managing Partner at Rubio Impact Ventures, provides European context: “Thanks to solution-based, intentional, outcomes-focused regulatory frameworks in Europe, impact funds here generally benefit from greater credibility in claiming genuine impact. However this is not without cost and effort, EU Taxonomy and SFDR raise standards but create compliance challenges for smaller funds.”
The contrast with the US market is instructive. “Meanwhile, the US features stronger venture capital infrastructure and more philanthropic capital for experimentation. Europe excels in rigorous impact measurement while the US demonstrates better entrepreneurial scaling,” Verloop notes.
Family offices and institutional capital
The report highlights evolving capital sources, particularly the growing role of family offices in impact investing. Roger Allen AM, Chairman of Patagorang Group, emphasizes the importance of portfolio approaches: “Early-stage investing in start-ups requires significant capital. You must take a portfolio approach. You need at least 20 companies because it doesn’t matter how experienced you are, it’s hard to determine which ones will succeed.”
Institutional investors are also embedding impact into their mandates. Ainsley Lee, Head of Investments at the NRMA, explains: “We find from a risk adjusted return perspective, our edge is in forming strong long term relationships with thematic fund managers that seek to drive long term value by investing in impact businesses.”
Looking forward, the report identifies several key trends reshaping the impact investment landscape:
Fund manager specialization: An increasing number of fund managers in Australia are organizing their strategies around defined themes such as climate, agriculture, health, and deep tech, reflecting a move away from generalist approaches toward more targeted, thesis-driven investment.
Capital discipline: The capital environment has shifted decisively toward disciplined deployment. Startups that may have previously advanced on strong narrative now face more rigorous benchmarks, with investors placing greater scrutiny on traction, operational efficiency, and scalability.
Policy momentum: Yang notes optimism about future climate tech investment: “With greater policy certainty following the recent federal election, we expect climate tech investment to continue gaining momentum. The government’s ongoing commitment to long-term clean energy targets and public funding is set to attract more institutional capital into climate-aligned assets.”
A quiet revolution
Chris Gillings, Founder of Cut Through Venture and Venture Capitalist at Five V Capital, captures the broader significance: “At Cut Through Venture, we’re passionate about providing clear, data-driven insights into the startup landscape. It’s incredibly encouraging to see our broader market data corroborate Giant Leap’s findings, painting a robust picture of resilience and growing investor commitment within the Australian impact sector. This report captures a quiet but powerful signal: even as markets pull back, impact-led founders continue to attract support. It’s a vote of confidence in businesses solving the world’s hardest problems.”
In an era where market volatility has become the norm, impact startups have proven that solving the world’s biggest problems isn’t just morally imperative, it’s increasingly profitable. And that, perhaps, is the most encouraging signal of all.
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