After a bruising couple of years, Australia’s startup funding market is finally showing signs of life. Capital is moving again, investors are cautiously optimistic and there’s a palpable sense that the worst is behind us. But if you’re a founder heading into 2026, don’t mistake this recovery for a return to the frothy days of 2021.

In a recent panel webinar, we brought together three investors at the coalface of Australian venture – Kieran O’Neill from Tidal Ventures, Dan Gavel from Black Sheep Capital and Jodie Imam from Tractor Ventures – to understand what’s really happening in the market and what founders should be doing now to prepare for the year ahead.

We’ve captured all the key insights, candid observations and practical advice below. Here’s what you need to know.

Key takeaways for founders

Short on time? Focus on these five realities:

• Capital is concentrated at the top – Q3 2025 saw $1 billion raised, but the top 10 deals took 70% of it. Just 17 deals cleared $10m. If you’re not exceptional, you’re competing for what’s left.
• Fewer funds means less choice – Only a handful of Australian funds closed in 2024, and the big three now control 80-90% of local capital. International funds are filling the gap, but you’re competing globally from day one.
• AI is table stakes, not a differentiator – Every investable business needs AI woven throughout the platform. If you’re not AI-native, you need proprietary data and proven use cases or you’ll struggle to keep up.
• The bar for “good” has shifted dramatically – Hypergrowth now means quadruple, quadruple, triple, triple, triple (not the old triple, triple, double, double). US investors are screening for 500% growth rates. Even strong companies are being advised to take bridge rounds (34% of investors) to hit better metrics before raising.
• Start preparing 6 months early – The companies getting funded show up with slick deal rooms, clear narratives and investment-grade materials. Nail your story in 4 slides and have a 12-month plan mapped across product, GTM and team.

Now, let’s break down exactly what’s happening in the market and what you should do about it.

The Stop-Start Recovery

The numbers tell an interesting story. According to the latest Cut Through Quarterly report, Q3 2025 saw roughly $1 billion flow through the Australian ecosystem across 116 announced rounds (85 venture rounds and 31 accelerator rounds). But scratch beneath the surface and you’ll find something revealing: the top 10 deals accounted for around 70% of that capital. One company alone – whose name keeps appearing in headlines – raised $330 million, and Firmos recently closed another $500 million round.

“Looks can be pretty deceiving,” warns Dan Gavel. “Great in Australia is getting closer and closer to average in the US. The disparity between companies that go hypergrowth and everyone else is getting bigger and bigger.”

This concentration isn’t necessarily bad news – it’s just the new reality. The capital is there, but it’s flowing to a smaller number of exceptional companies with proven traction and world-class teams. Cut Through’s data shows just 17 deals in Q3 cleared the $10 million mark, with mega-rounds remaining rare.

What Happened in 2023 and 2024?

To understand where we’re headed, it helps to look at how we got here.

“2023 was like, hardly anything happened,” recalls Kieran O’Neill. “ChatGPT had launched in November 2022, everything was moving so fast, and there was the app layer that no one thought had defensibility, infrastructure was obviously going to be owned by the big guys, and everyone was asking: where the hell do we invest?“

Most VCs who’d raised funds in late 2021 and 2022 hit pause. They had dry powder but weren’t deploying it. By mid-2024, confidence started returning, particularly around AI applications that were slightly below the surface level – focused on specific verticals with defensible distribution.

For alternative lenders like Tractor Ventures, the trajectory looked different. “In 2023, when there were no other options, we grew over 1,000% in top-line results,” says Jodie Imam. “Founders were like, ‘how do I get this?’ It was huge.” But 2024 brought its own challenges as uncertainty around elections and economic conditions ground activity to a halt.

Now, heading into 2026, momentum is building again across the board.

The Fund Squeeze: Less Choice for Founders

Here’s a reality that doesn’t get talked about enough: while startup funding has recovered, VC fundraising hasn’t. Only a handful of Australian funds announced closes in 2024, and many are struggling to raise their next fund.

But there’s another problem lurking beneath the surface. Cut Through’s analysis reveals that startups which raised Series A rounds in late 2021 and early 2022 are still struggling to graduate to Series B. These companies aren’t failing – they’re caught in a valuation trap, unable to grow fast enough to justify the inflated prices they raised at during the boom.

The problem? High net worths and family offices – the traditional backers of smaller Australian funds – have been tapped repeatedly and haven’t seen liquidity from their earlier investments. “Often the same group of high net worths are getting pitched exactly at the same time by all the funds,” notes Dan Gavel.

Meanwhile, the three largest Australian VCs have tapped into institutional capital both locally and overseas, creating what some describe as an oligopoly. “80-90% of the capital in Australia is in 3 companies,” says Dan. “But no one wants to talk about that risk.”

This concentration has forced many emerging fund managers to look offshore – particularly to Singapore – for their next raise. The upside? International funds are coming into Australia earlier and earlier, bringing US-style capital and connections. The downside? Fewer local funds means fewer options for founders, especially those building businesses that don’t fit the narrow mandates of larger funds.

“Good companies will still raise,” Dan argues. “What’s changing is the definition of a good company.”

AI: Not a Sector, Just the New Normal

Let’s address the elephant in every pitch deck: AI.

The Cut Through report showed AI as the most talked about sector, though funding numbers were split across hardware, robotics and other categories. The panelists were quick to point out that this distinction is becoming meaningless.

“That argument dies in two years,” predicts Dan, “because everything that gets invested in is probably going to be AI-native. It’ll be like cloud.”

Kieran agrees: “At our stages-pre-seed and seed-you almost have to be AI-native. You’re just really going to struggle to keep up otherwise.”

The goalposts have shifted dramatically. Bessemer Ventures’ State of Cloud report now talks about hypergrowth businesses following a “quadruple, quadruple, triple, triple, triple” growth pattern rather than the old “triple, triple, double, double” benchmark. US investors are reportedly screening companies with questions like: “Are you growing at 500%? Are you AI-native? Are your gross margins above 30%?”

But here’s what matters for Australian founders: AI is becoming table stakes, not a differentiator. What investors really care about is execution, proprietary data and vertical focus.

“I don’t think technology is going to be the biggest moat moving forward,” says Dan. “It’s probably going to be execution and data. That’s why verticalised SaaS is becoming so popular – if you can have the best data, you’ll have the best solution.”

What About Non-Native AI Companies?

If your business wasn’t born AI-native, don’t panic – but you need to act fast.

Kieran points out that established SaaS companies with proprietary customer data can still be highly investable if they’ve proven an initial AI use case. “If you’ve been able to capture some unique proprietary data around your customers, and you can now monetise that in a scalable way through AI workflows that a public model couldn’t replicate – that’s an investable story.”

The key is that AI needs to be ingrained throughout your platform, not bolted on as a feature. “Even if you’re not AI-native, AI needs to be everywhere in your platform,” Dan emphasises. “Enterprise companies that have really good AI and agility solutions around onboarding will win every time, because they reduce friction and time to implementation.”

One investor reportedly told a founder recently: “We can’t give you an AI multiple, we can only give you a SaaS multiple.” It’s not that you’ll become unfundable – but your valuation potential may change.

Where Capital is Flowing

Beyond AI (which is really just everything now), health tech continues to attract outsized attention and capital.

“Health tech just seems to be getting so much money at the moment,” observes Dan. “From longevity companies like Pranovo and Everlab, all the way through to Heidi Health – from top to bottom, tech is coming for health. Finally.”

But Q3 2025 marked a notable shift: hardware and robotics topped both funding and deal counts for the first time, according to Cut Through data. This represents a significant move away from pure software plays toward capital-intensive, deep-tech opportunities. Biotech and medtech sustained strong investment flows, while climate tech extended its multi-quarter streak as a core area of investor focus.

The healthcare sector benefits from massive amounts of underutilised data and real ROI opportunities. Hospital administrators are literally taking AI courses at Harvard to understand what’s possible. The change management challenges are real, but the momentum is building.

B2B continues to dominate the Australian landscape, with many companies now focused on international expansion – a trend that Jodie Imam is seeing accelerate heading into 2026.

The Female Founder Funding Gap

One of the most disappointing trends in the data is the continued decline in funding for female founders. Solo female founder teams and even mixed-gender teams are getting funded at decreasing rates over the past five years.

Cut Through’s Q3 data reveals a particularly stark problem: female representation at the pre-seed stage fell to its lowest level in many years, with just two female-led pre-seed deals announced. Overall, just 16 female-led startups announced venture capital raises in Q3, and only one late-stage round involved a woman founder.

“It’s a bit depressing,” admits Jodie Imam, who recently attended workshops run by Equity Clear focused on transparency and solutions. “It was actually really interesting sitting with some male investors and just seeing the penny drop when they realised how complex this is.”

Kieran O’Neill acknowledges that his fund, which has a two-thirds female investment team, discusses this issue regularly – but they don’t have a silver bullet solution. Part of the problem is structural: Australian funding flows heavily into B2B technology, where fewer female founders operate, partly because of low representation in engineering and computer science programmes (estimated at 15-20%).

“Starting these funds and building in mandates to help support female founders is obviously a positive step,” says Kieran. “But I think it needs to be more consistent and uniform across Australia.”

The panelists agreed that transparency through initiatives like Equity Clear – which tracks and reports investment data – is a critical first step. But the deeper question remains: are female investors actually in decision-making roles on investment committees, or just visible in the team?

What Founders Should Do Now

If you’re planning to raise capital in 2026, the bar has never been higher – but neither have the tools at your disposal.

The reality check: Cut Through’s latest investor survey shows valuations rising at every stage in Q3, with 68% of investors reporting pre-seed valuations increased compared to the previous quarter. Founders with clear AI angles are raising faster and often at valuations reminiscent of 2021. But don’t mistake this for easy money – investors are also reporting that 34% are now recommending bridge rounds to extend runway rather than fresh capital raises, up from 31% in Q2.

Start Early and Be Prepared

Dan Gavel is blunt: “If you’re going to raise, it starts 6 months before, where you start building. The companies that get funded are the ones that come ready. Deal rooms are slick, clear narrative, FAQs answered – this team is ready to go. Versus ‘hey, I need money, here’s a s***y deck that’s half-assed.’ You’re just wasting everyone’s time.”

Having investor-ready books isn’t optional anymore – it’s table stakes. Your financials need to be clean, accurate and up-to-date before you even think about reaching out to investors. That means streamlined bookkeeping, clear revenue recognition and financial statements that tell a coherent story about your business.

Nail Your First Four Slides

“You’ve got four slides before I get bored,” says Dan. “If you can’t get your story across in the first four slides, go back and keep trying. There’s no excuse anymore with AI tools available to help you build a good narrative.”

But here’s what many founders miss: your story needs to be backed by numbers that make sense. Investors want to see unit economics that work, realistic assumptions about growth and a clear path to profitability. That’s where a solid financial model becomes essential.

Plan Your Capital Mix

For Jodie Imam, the most important thing founders can do is think strategically about their end goal. “What journey do you want to go on? What’s your exit? Then do the desktop research and find the perfect partners and the right capital mix for that outcome.”

Smart founders are increasingly using debt between equity rounds to extend runway and hit better metrics before their next raise. “Keep growing, get all your metrics up before you raise again, whether that’s here or overseas,” advises Jodie.

Alternative funding sources like R&D tax incentives can also be powerful tools to extend your runway without dilution. For many Australian tech startups, R&D claims represent a significant source of non-dilutive capital that’s often underutilised.

Build a 12-Month Plan Across Three Buckets

Kieran O’Neill recommends a simple framework: “Work backwards from where you want to be in December 2026 across three areas: product (your 12-month roadmap with at least the next quarter crystal clear), go-to-market (what strategies and channels you’re pursuing with revenue forecasts) and team (who you’re hiring to build out capability).”

This isn’t just good business practice – it’s what investors look for. “Is this the team that’s going to actually build a global, VC-backable business?” is one of the key questions on every investor’s mind.

Part of being investor-ready means having your corporate structure sorted and your cap table clean. Nothing kills momentum in a fundraise faster than discovering your shareholding structure is a mess or your option pool isn’t properly documented.

The Bottom Line

Capital is flowing again in the Australian startup ecosystem and 2026 is shaping up to be a year of opportunity. But this isn’t 2021. The market is more selective, the benchmarks are higher and investors are backing execution over ideas.

If you’re a founder with strong metrics, a vertical focus, AI integration throughout your product and a world-class team, you’re likely to find interest – whether from Australian funds or increasingly, from international investors who are coming downstream earlier than ever.

If you’re still finding product-market fit or struggling to hit growth benchmarks, alternative capital sources like venture debt may help you extend runway and reach better metrics before raising equity.

The key is being honest about where you are, understanding what investors need to see and preparing accordingly. Because in 2026, the companies that get funded aren’t just the ones with the best ideas – they’re the ones that are ready to execute at a pace that would have seemed impossible just a few years ago.

“There is so much data out there around benchmarks,” notes Dan. “Use it to work out what you need to look like if you’re going to go on a VC journey. The bar is high at the moment, but it’s also clearer than ever what you need to do to meet it.”

This article is based on Standard Ledger’s webinar “The State of the Australian Market Heading Into 2026” featuring Kieran O’Neill (Tidal Ventures), Dan Gavel (Black Sheep Capital) and Jodie Imam (Tractor Ventures). Additional data sourced from the Cut Through Quarterly Q3 2025 report.