Investors poured just $3.5bn into start-ups in 2023

Investors poured just $3.5bn into start-ups in 2023 as conditions hit the number of deals struck. Here are two of the biggest recent raises.

Folklore Ventures founder Alister Coleman. Picture: Supplied

One company is seeking $3m to go global, another dealing in carbon credits has raised $600,000 amid a bleak year for start-ups, with a new report revealing overall funding has more than halved to $3.5bn.
Here’s this week’s Capital Bytes round up of news in the start-up funding space.

It comes as funding for Australian start-ups more than halved to $3.5bn, with 413 deals struck during the past year, according to the annual State of Australian Startup Funding Report.

Locumate, Melbourne

Kavita Nadan was trying to find a locum for her pharmacy when she created Locumate at her kitchen table four years ago. Now the Melbourne-based start-up is looking to raise $3m as it launches in the US and expands into other sectors, including education.

Trying to find a replacement to run her pharmacy was a frustration for Ms Nadan, who asked close friend and Locumate co-founder Surge Singh how she could automate the process.

The result has been a platform that now bypasses costly agency fees by allowing pharmacies and other professions that rely on locums and casual replacements to create their own hiring pool.

“I asked Surge if he could find me a piece of software to automate this process t so I can have much more clarity over the locum hiring process,” Ms Nadan said.

Mr Singh said Locumate has saved pharmacies $1.3m in agency fees since January 2022 and has filled more than 4500 locum shifts. It makes its money by charging a subscription fee to use its platform rather than a loading on shifts filled.

Customers include Priceline, Amcal, TerryWhite Chemmart, Pharmacy-4-Less and Direct Chemist Outlet.

Locumate is finalising a contract with a US pharmacy group, which has about 100,000 pharmacists on its books. Mr Singh said that group has flagged interest in the $3m raising, and the company had plans to expand into other sectors.

“Obviously we don’t want to spread ourselves too thin, so for use the next three to five years is about pharmacy, allied health and education,” Mr Singh said.

CarbonHQ, Sydney

CarbonHQ, which is aiming to fix transparency issues in the carbon credit space, has raised $600,000 to continue building its platform.

The company raised the seed-stage investment in a round led by Galileo Ventures and Investible. It has built a product which can directly link carbon credits to data to provide a detailed and accurate look at how effective they are.
The start-up wants to eradicate over reliance on Excel spreadsheets, PDFs and e-mails and transform the industry which can take up to 36 months to issue credits.

Carbon HQ chief executive Allen Fan and chief technology officer Eugene Datsky. Picture: Supplied

Co-founder Allen Fan said for a carbon project to be successful, transparency was crucial.

Fellow co-founder Eugene Datsky added: “Over the course of my career, I’ve seen how technology completely transformed industries and I’m confident that the carbon market is on the cusp of major digital advancements.”

James Alexander, a partner at Galileo Ventures, said part of the reason why the firm invested was that it believed CarbonHQ would change carbon markets. “Today, more than ever we need to increase the effectiveness and integrity of carbon markets.”

Galileo co-founder James Alexander.

Funding halves

Funding for Australian start-ups has more than halved to $3.5bn, with 413 deals struck during the past year, according to the annual State of Australian Startup Funding Report.

Overall funding plunged from $7.4bn across 712 deals in 2022, but green shoots are emerging.

The report - co-published by Cut Through Ventures and Folklore Ventures with support from KPMG, HSBC and Corrs Chambers Westgarth - includes a survey of about 1000 start-up founders, venture capitalists and angel investors. It shows AI will remain a major investment theme of the next 12 months, with 30 per cent of respondents signalling their excitement about opportunities to back start-ups in the space.

A number of investment arms from international companies including Salesforce Ventures had previously fled or reduced investment in the Australian market in late 2022 and early 2023.

But many were expected to make a return this year, potentially generating multimillion dollar raises that have been missing from the market for the past year. Folklore Ventures founder and managing partner Alister Coleman said there has already been multiple deals worth more than $20m since in January.

“The early signals show that VCs that have been more familiar with the Australian market more broadly have come back,” he said.

Confidence has also returned to start-ups looking to raise fresh funding, with 82 per cent expected to open a raise over the next 12 to 24 months. Similarly, about 66 per cent of investors expect start-up funding deal flow to increase in 2024.

In line with the recent tech downturn, more than 40 per cent of investors witnessed one of their portfolio companies shut down in 2023 while 90 per cent observed lay-offs in their portfolio companies.

It appears many investors attempted to give their portfolio companies a lifeline in 2023, with one third of investors having allocated at least 40 per cent of their funding to follow-on investments. “Moreover, more than a third indicated that ensuring their current portfolio was well-capitalised constituted their primary focus for the year,” the report read.

All in all the industry could expect growth in the amount invested and the number of deals which will take place over the year ahead, Mr Coleman said.

Cut Through Venture founder Chris Gillings was similarly confident, adding that despite the decline in investment last year, he believed the report showed a maturing of the market.

“We have more young people entering the tech sector, more talented executives leaving their day jobs to start companies, and more investors competing to invest in the next great Australian businesses,” he said.