If you’ve been reading the funding headlines lately and quietly wondering why they don’t match your own experience of trying to raise, you’re not imagining things. The totals look healthy. The lived experience of raising a $3 million round right now is something else entirely.

In this article we’ll unpack what Cut Through Venture’s Q2 2026 data actually shows about the Australian funding market, why investor interest isn’t turning into signed term sheets, and – the part that matters most – what your realistic funding options are if the next equity round isn’t going to land on the timeline you’d hoped. We’ll go through the R&D Tax Incentive, advance financing, grants, venture debt and a few others, and we’ll be straight with you about what each one can and can’t do.

The Headline Number Doesn’t Tell You Much

On the face of it, Q2 looked encouraging. Australian startups raised $1.7 billion across 64 venture deals, taking first-half funding to around $3.5 billion. That’s the second-strongest opening to a year on record, behind only 2022.

Then you look underneath it.

Deal count fell 21% on the previous quarter – the slowest quarter for deal-making since before 2020. Rounds under $5 million dropped to 31, the lowest level in the entire dataset, against a 2025 quarterly average of 56. Rounds between $5 million and $20 million fell to 15.

So the money is still there. It’s just going to far fewer companies.

For the founders we work with – real revenue, real customers, sensible growth plans – that gap between the headline and the reality is the whole story. It’s worth being precise about what’s happening, and then honest about where that leaves you.

Two Deals Made the Quarter

Firmus raised $725 million. Airwallex raised $460 million. Between them, those two rounds accounted for close to 70% of all capital raised in the quarter.

The single largest deal took 42% of the total on its own. The top five took 80%. The third-largest deal in the country was $70 million, so below the very top the drop-off is steep.

It’s worth saying this isn’t purely an AI story. Firmus sits in AI models and data infrastructure, but Airwallex is a fintech. What happened in Q2 was two enormous rounds landing in the same quarter, one of which happened to be AI infrastructure. The concentration is real, but the cause is a bit more specific than “AI took all the money”.

It’s Not “Be an AI Company”, It’s “Have an AI Story”

Here’s the number that should genuinely change how you think about your next raise.

Cut Through split Q2 capital by how central AI was to each business:

Look at the AI-enabled row. Companies that added AI to an existing product attracted 2% of the quarter’s capital. Bolting a feature on and updating the deck isn’t the trade investors are making.

Meanwhile, AI featured in 81% of Seed deals and 63% of Series A deals. Investors surveyed for the report described a widening valuation gap – non-AI software companies raising at under 5x ARR while early-stage AI-native businesses raise at more than 20x. One early-stage investor pointed out that companies which would once have raised $1-2 million are now coming to market asking for $5-10 million on the strength of an AI narrative, which pushes smaller funds out of their own segment.

None of which means you need to pivot into AI. It means the market is currently pricing one specific kind of story, and a half-version of that story earns you very little.

Investors Haven’t Lost Interest – They’ve Stopped Writing Cheques

This is the part that makes the quarter genuinely confusing to read from the inside.

Ask investors what excites them and the answers point away from the mega-deals. Vertical business software led net excitement at +51%, with hardware, robotics and sensors second at +43%. Nearly three-quarters of investors named vertical software a top choice, and none picked horizontal software. Several described hardware and regulatory moats as more defensible than pure software, on the reasoning that certifications and physical constraints can’t be rebuilt in a weekend with an AI coding tool.

That’s a fair description of a lot of Australian startups doing serious work. And deal flow quality wasn’t the complaint either – investors reported the pipeline was fine. The deals just weren’t getting done.

So if you’ve had a run of encouraging conversations that went nowhere, this is why. Interest isn’t the constraint. Deployment is.

The Gap You Need to Bridge Just Got Longer

One more finding worth sitting with. The median age of a company raising a Series B is now 11 years, more than double the 2021 figure. Across the whole path, the median journey from Pre-Seed to Series B has stretched to around ten years.

At the same time, companies are raising their first cheques younger than ever. The median Pre-Seed company is now around one year old.

The entry point has moved earlier and the growth-capital milestone has moved later. Whatever you’re bridging between rounds, plan for it taking longer than it would have two years ago.

So What Are Your Actual Options?

None of this is a reason to stop. It’s a reason to stop assuming the next round is the plan.

The R&D Tax Incentive. For eligible companies, this is the single largest source of non-dilutive funding in the Australian system – a refundable offset on eligible R&D expenditure for companies under the turnover threshold. It doesn’t need a pitch, a lead investor or an AI narrative. It needs eligible activity, and documentation that holds up.

R&D advance financing. The refund is annual, which is a poor match for monthly burn. Advance funding lets you draw against accrued eligible spend during the year rather than waiting on the ATO. It’s a cost rather than free money, but for a company with a substantial and predictable claim, it turns a lump sum into working capital.

Government grants. Federal and state programs run across commercialisation, manufacturing, clean energy and export. They’re slow, competitive and administratively heavy – and largely uncorrelated with whatever VCs currently find fashionable, which is exactly the point right now.

Venture debt. The Cut Through data shows this being used more. The share of investors reporting no venture debt anywhere in their portfolio fell from 62% to 51% year on year. It suits companies with predictable revenue and a clear path to the next equity event, and it comes with covenants that deserve a proper read before you sign.

Revenue-based finance and working capital facilities. These help where growth is being held back by timing rather than by the underlying business – inventory cycles, long payment terms, seasonal revenue.

Tax-advantaged angel investment. If you do go down the equity route, eligibility for early-stage investor concessions changes the after-tax maths for domestic angels quite materially, which can matter more than valuation when institutional capital is sitting on its hands.

Extending your own runway. The least exciting option on the list, and often the most powerful. Investors surveyed named making sure their existing portfolio is well capitalised as their second priority for the quarter. Recommendations to raise a bridge round fell from 31% to 19%, while the share advising companies to delay fundraising altogether rose from 5% to 11%. Some of your investors are already thinking this way about you.

Being Realistic About What Non-Dilutive Funding Does

An R&D offset is a percentage of eligible spend. It extends your runway – it doesn’t replace a Series A. If you need $15 million to build a factory, this isn’t the answer, and anyone telling you otherwise is selling something.

What it does do is buy you time. And in a market where the median company is waiting years longer for growth capital, time is the thing most likely to decide whether you’re still standing when the window reopens.

What to Do Now

1. Know your eligible R&D spend, to the dollar. Not an estimate cobbled together at year-end. If R&D funding is part of your plan, the claim needs tracking and documenting as you go.
2. Model your runway on net cash received, not gross entitlement. Refunds tend to arrive later and smaller than most forecasts assume. We’ve written separately on what the timing data actually shows.
3. Stop treating the next round as the base case. Build a plan that works if it doesn’t happen this year, and treat the round as upside.
4. Get your numbers investor-ready anyway. Non-dilutive funding decisions rest on the same forecast quality as an equity raise, and you’ll want the model ready the moment conditions shift.

Talk to Us About Your Funding Options

Disclaimer: This article is general in nature and does not constitute financial, tax or investment advice. Eligibility for the R&D Tax Incentive, grants and investor tax concessions depends on your specific circumstances – speak to your Standard Ledger advisor for guidance specific to your situation.