Australian venture capital funding surges 12pc to $1.8bn but ‘remains subdued’: KMPG

Green shoots are emerging among venture capital-led raisings, with artificial intelligence creating new investment opportunities.

The Titanium Ventures team at Times Square, New York, celebrating reaching 100 investments. Picture: Vanja Savic

Venture capital investment has rebounded 12 per cent in the past six months, but KPMG warns that, while green shoots are emerging, the capital raising environment remains subdued.

Australian venture capital ­investment increased from $US1.2bn to $US1.4bn ($2.1bn) in the half year to June 30, according to KPMG’s latest VC Pulse report.

But the industry lost steam in the past three months, easing to $US727.3m, from $US723.1m in the same period last year. But it’s a mixed bag, with two of the ­nation’s biggest VC firms, Blackbird and Titanium Ventures, saying deal flow is strong, particularly as artificial intelligence presents new opportunities.

KMPG head of high-growth ventures Amanda Price said she was cautiously optimistic but that, overall, VC-led raising was yet to roar back following the slump after the pandemic-fuelled boom.

KMPG head of high growth ventures Amanda Price.

“We speak to founders every day who are raising and it’s still tough,” Ms Price said.

“While we saw that investment increased 12 per cent for the first half of this year and this is a really good sign, I don’t think it’s going to come roaring back.

“If you take Covid out and the numbers around that, where is the natural point for investment in Australia to sit?”

Globally, venture capital investment soared 25 per cent to $US94.3bn, fuelled by nine $US1bn deals, which KPMG said was the largest ever in a single quarter.

But overall volumes were weak, falling to 7691 – the lowest level since the third quarter of 2016.

Titanium Ventures managing partner Matthew Koertge.

Titanium Ventures managing partner Matthew Koertge was upbeat, saying that, while the climate was tough, venture capital was a “long-term game”.

“It’s not about months and quarters but years and decades,” Mr Koertge said, after Titanium Ventures’ team celebrated its 100th investment in New York, a milestone featured on the Nasdaq billboard in Times Square.

“The industry goes in cycles. Our team has a lot of experience in both the peaks and troughs of these market fluctuations. Since the market correction in 2022, the environment has improved significantly, but there is still a long way to go.”

Titanium, formerly Telstra Ventures, last week led a $US20m raising for logistics operating platform Alys. Days later, it exited Nasuni after the enterprise data platform was taken over by private equity firm Vista in a $US1.2bn deal.

“On the liquidity side, we are having a great year with six liquidity events so far, including exiting OpenGov for $US1.8bn and Nasuni,” Mr Koertge said.

“There are lots of interesting companies emerging. Valuations are a tale of two cities. The best opportunities continue to raise money on fully priced valuations and other companies are struggling to close their rounds

Blackbird general partner Phoebe Harrop.

Similarly, Blackbird general partner Phoebe Harrop said the firm had “never been busier”.

She said in its current fund, Blackbird was investing in companies “tackling the trillion-dollar opportunities”, from quantum computing or nuclear fusion to climate-related challenges such as electricity grid management and efficient passenger transport.

“Besides this new wave of AI-enabled business-to-business software, we are continuing to see world-leading deep technology start-ups in Australia and New Zealand,” Ms Harrop said.

“In our current fund, we’ve invested into local teams across a range of deep tech applications. In the first six months of 2024 we made seven new investments, compared to four in the same six months last year.

“At Blackbird we invest right at the very beginning of a company’s life, and it’s an amazing time to be doing this sort of investing.”

Ms Harrop said this was fuelling a “huge boon for teams building from Australia” because there was no need for a sales force.

­“Geography is therefore no barrier to rapid global adoption,” she said.

“The lowering costs and growing capability of generative AI models are helping even tiny start-up teams iterate and ship impactful products very quickly. At the same time, we’re seeing a ‘ChatGPT-ification’ of business software, where enterprise customers – everyone from lawyers to ad agencies, security monitoring firms to general practitioners – are actually going looking for software in a way they never did previously.

“We’re more bullish than ever on the ability of Aussies and Kiwis to build world-changing com­panies.”