Australian startups are grappling with a challenging funding environment. Even with venture capital investment rebounding 12 per cent in the first six months of 2024, capital raising remains subdued. Australian venture capital investment increased from $US1.2bn in H1 2023 to $US1.4bn in H1 2024, according to KPMG’s latest Venture Pulse report.
However, despite the overall rise so far this year, investment levels are significantly down from the heights reached during the COVID pandemic. The first half of 2022, which saw US$3.2 billion invested in Australian startups, paints a different picture to the Australian investment levels facing founders today. Overall, whilst we saw that investment increased for the first half of this year which is a good sign, we remain cautiously optimistic with VC-led raising yet to roar back following the slump after the pandemic-fuelled boom.
The reality is that new climate technologies often require significant investment before they can compete with more mature ones. Even before they get to the pilot testing stage, they need targeted efforts to encourage innovation, support entrepreneurship and facilitate access to seed and early-stage risk capital.
This challenge is borne out by this report. Nearly half of Australian companies (40%)cite access to funding as their key challenge and a quarter cite access to customers as a major hurdle in their climate tech journey. Despite this, Australian startup founders remain optimistic about harnessing the climate tech momentum, with 80% planning to raise funding in the next 12 months.
Does this indicate that the industry has perhaps turned a corner?
Globally, climate tech is highly valued but the sector is still maturing in Australia. With many deals still in pre-seed and seed stage, angel investment remains the largest funding source. Securing investment for high-growth ventures is critical to fuel business expansion and innovation in climate tech, especially in sectors like agtech.
Australia’s booming agtech sector is being showcased on the international stage, with agrifood tech startups raising US$146 million in funding, putting Australia in fourth place globally in terms of VC investment (behind China, India and Hong Kong) in H1 2023.
Meanwhile, Goterra – a food waste start-up based out of Canberra that converts food waste into sustainable protein and fertilizer – successfully raised a $6.5 million bridge round in 2023, bringing its total funding to $20 million. Despite the multi-faceted challenges facing climate tech startup founders in Australia, Goterra shows that it is possible to scale successfully, growing from three sites to six sites across four states.
There are similar success stories across the country, an indication that Australian startups can develop and deploy new green technologies at scale. The challenge is to secure funding, find industrial partners to test and pilot new products, and to rapidly commercialize.
Coming off a period of constrained funding, there is a big focus on securing customers. However, capital is still the main driver of growth with data showing that just fewer than 15% of climate tech startups are self-funded. While bootstrapping can result in slower growth, it can also result in founders building solid sustainable businesses with a robust commercial plan.
Addressing the barriers and risks to climate technology investments requires understanding of the capacity constraints and the finance gaps that prevent investment, including engineering challenges and dependencies on regulation and policy.
For a climate tech startup looking to get their foot in the door, networking with potential investors, advisors, and industry peers can lead to valuable connections and opportunities. Equally, trust, transparency, and long-term engagement are vital for the relationship to mature. Startups must also make the time to understand the types of investments available to them, including VentureCapital (VC), Grants/Non-dilutive funding, and family offices, among others.
Investors, on their part, expect to see a clearly articulated strategy and a solid financial growth model with forecasts that clearly define the commercial opportunity. Increasingly, inventors also expect an ESG impact model, and a clean data room with accurate and up-to-date information is a given.
Preparing for a capital raise involves in-depth financial preparation, including having detailed financial projections, clear use of funds, and a strong understanding of the company’s financial health. It also involves ensuring that all legal documents, intellectual property, and compliance requirements are in order.
Raising funds can be incredibly time consuming. Founders would do well to prepare for investor due diligence well in advance by organising key documents, customer references, and any other relevant information. It is also vital to use the power of storytelling to connect with investors on an emotional level and differentiate the venture from others. As a founder, leveraging all available resources and seeking guidance from experts will improve the chances of securing investment.
KPMG has witnessed many founders struggling through the fundraising process. In response, we have developed a program to support founders through the process. The Strategic Growth Program leverages our team’s experience working with both founders and investors to ensure founders are putting their best foot forward.
In a tight funding environment, the startups that will win are those who can tell their story, show they can grow their company efficiently, and articulate a clear pathway to profitability. With KPMG’s Strategic Growth offering, founders can successfully demonstrate to investors how their company scales commercially and confidently navigate their capital raising process.
It isn’t easy – and in many ways – the challenges faced by capital-intensive climate tech businesses are much larger and infinitely more complex than ordinary tech companies. However, by leveraging government assistance and focused fundraising strategy, businesses can scale up operations and navigate the hurdles that lie ahead.
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KPMG High Growth Ventures now boasts a portfolio of over 70 Climate Tech companies, offering valuable insights into the fundraising and scaling experiences within this sector. To explore how our team can support your journey, connect with Kylie Little, HGV Climate Tech Lead, on LinkedIn.
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Thanks to KPMG High Growth Ventures for their support of the 2024 Australian Climate Tech Industry Report. Download it here.
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