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Credit: Josh Appel

623 deals drive Australia’s venture capital investment to a new record in 2022

As per the latest report from KPMG Australia, the investment in Australian startups increased by 2 per cent in 2022, reaching US$5.84 billion. 

Despite a decrease in global venture capital from $730.5 billion in 2021 to $493.6 billion in 2022, Australian startups still managed to attract substantial investments.

According to the KPMG Private Enterprise Venture Pulse report, 623 venture capital deals took place in Australia in 2022, a decrease from the 735 deals recorded in the previous year. Despite this, several startups in the country managed to secure investments of over US$100 million in 2022, including Airwallex, Immutable, and Scala Pay, which underscores Australia’s potential as a hub for venture capital investment.

Amanda Price, Head of High Growth Ventures, KPMG, commented: “It was another record year for VC investment in Australia. Despite the economic cooldown, deal value maintained its momentum in what was a standout result in 2021, although the volume of deals has decreased. This shows that dry powder is still being deployed – how it’s being invested is changing.

“To put this into context, overall investment in Australian startups has leapt 194% since 2019 – and has delivered year-on-year growth every year since 2014. As we move into 2023, VCs are increasingly looking for startups that are efficient, responsible with capital, and focused on revenue. When they find them, they’re willing to invest just as much as they have before, if not more.”

In the fourth quarter of 2022, global venture capital (VC) investment experienced a continuous decline for the fourth consecutive quarter, decreasing from $102.2 billion in 9,767 deals to $75.6 billion in 7,641 deals. This represents the lowest level of investment since the second quarter of 2019.

Despite the decline, the energy sector saw large deals, as governments aim to become energy independent and fulfil their climate commitments through investments in alternative energy vehicles, battery technologies, and alternative power generation and distribution technologies.

During the quarter, the largest VC deals were recorded in the Americas and Asia, accounting for the majority of global investment. The United States recorded the largest proportion of investment, followed by Asia, despite attracting three mega-deals worth over $500 million. The top deals in China included GAC Aion ($2.56 billion) and SHEIN ($1 billion), while the largest deals in the US included Anduril ($1.48 billion) and TerraPower ($830 million).

For the first quarter of 2023, the outlook for global venture capital investment is expected to be uncertain and subdued. Consumer-focused businesses are expected to be the hardest hit, with pressure on valuations continuing to impact the market. The IPO market, particularly in the United States, is expected to remain closed well into 2023, with little indication of a full reopening in the year’s first half.

As companies’ cash reserves dwindle, there is expected to be a rise in down rounds, where a company raises capital at a lower valuation than its previous round and an increase in mergers and acquisitions activity. Companies may delay their fundraising efforts in the hope of more favourable conditions in the future, but as their cash reserves run out, they will be forced to take action.

According to Amanda Price, “Globally, the trend of downward pressure on valuations is expected to persist in early 2023, causing many companies to delay their fundraising efforts. However, as cash reserves run low, we anticipate an increase in down rounds during the first half of 2023 as companies are compelled to raise capital.”

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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