“Unlike many start-up ecosystems worldwide, Australia continues to go from strength to strength. 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,” Gillings said.

Cut Through Venture produced the report with Folklore Ventures. Folklore founder and managing partner Alister Coleman said on many measures Australia performed slightly better than global counterparts as the focus on durability, financial prudence and accountability swung back to more traditional investor expectations.

“For those who have only experienced venture investment at its peak, the adjustment was chilling,” he said.

“Folklore holds as much optimism in the year ahead as founders surveyed, with 82 per cent believing they’ll successfully raise in the next one to two years, along with an expectation that many VCs will also top up with new funds in 2024.”

There are green shoots. Investors tipped artificial intelligence as the most anticipated sector for the coming year, but interest in blockchain and medtech start-ups has cratered.

Enterprise software and climate tech were the two winners of 2023 and are set to remain popular investment targets this year.

Signs are also slightly encouraging for female founders, with share of total capital raised by all-female or mixed-gender teams recovering from low levels in 2022.

“In 2024, the new normal will look a lot more like the old normal. The funding levels of 2021 and 2022 were anomalous,” AirTree Ventures partner Elicia McDonald said.

“The downtrend since then isn’t all bad; it’s a healthy reset to find the balance between too much and not enough capital because both scenarios are detrimental to start-ups.”

“We saw the best companies, like Employment Hero, Go1 and Pet Circle, running counter to the narrative of big deals falling off a cliff by raising rounds at or above their previous unicorn valuations. And after a period of focus on business fundamentals and efficiency, we’re excited to see many start-ups return to the markets to raise [funding] with a more robust and compelling proposition than ever before,” McDonald said.

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Blackbird Ventures partner Rick Baker said that after two years of resetting from the peaks of the zero interest-rate period, investment optimism is beginning to rise again. A year ago Blackbird raised Australia’s largest venture capital fund, raking in more than $1 billion from the nation’s largest superannuation funds.

“We’re seeing optimism in our portfolio, with a number of early-stage companies coming back to market and getting good interest from domestic and overseas investors,” Baker said.

Dan Krasnostein, partner at rival venture capital outfit Square Peg, said 2023 was “the year of AI” after ChatGPT’s explosion in popularity put AI into everyone’s pockets, lounge rooms and dinner conversations.

“There is significant hype and attention around AI, and we are big believers that this is justified, with the potential for its impact to be on a similar scale to other technological paradigm shifts like the birth of the internet or the rise of the mobile era,” he said.

”Whilst the hype is massive, AI and machine learning techniques have been building and developing for decades and we’ve been investing in AI businesses since 2014. We expect this to continue for Square Peg throughout 2024, alongside our other key areas of focus on finding and backing early-stage companies in our other core investment themes of fintech, software as a service and climate tech.”

The next year will likely see a continued decline in start-up valuations and fewer cheques signed, according to Paul Naphtali, co-founder of venture capital firm Rampersand, with investors seeking out high-quality founders with big visions.

“While on the one hand, this could mean fewer investors, on the other it means better investors with the right abilities and motivations in the market to build a more healthy and positive ecosystem,” he said.

“As a mid-sized fund, we’re primed for this trend by finding a good match between founders and investors, and giving investors the opportunity to invest material dollars and effort in the very best Australian companies.”

“For investors, there will be more exciting investment opportunities beyond artificial intelligence. The new spatial computing market is opening up, with some of the most exciting enterprise software and marketplaces in recent decades being built. The underlying computing platforms are evolving and there will be some huge winners, and Australian start-ups are well positioned to be at the forefront,” Rampersand said.

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