This downward trend is particularly problematic when considered in the context of Australia’s low base for early stage funding. The 2018-19 figures represent early stage funding of about US$3.05 per capita. Over the same period the UK saw US$781m invested in seed and angel rounds, or about US$15.84 per capita – more than five times Australia’s rate.
Clearly, early stage funding is an area where Australia still lags.
Anecdotal evidence suggests there is also a problem in terms of the quality of Australian early stage investment. For the most part, seed investment remains a cottage industry, with individual investors sourcing deals directly and with little amalgamation or professionalisation. The few notable exceptions are angel investment groups, typically located in major cities. These account for as little as 5% of all angel investments made in Australia.
Outside of these groups, seed investment is fragmented and opaque, making it hard for founders to connect with investors (and vice versa). This fragmentation also means best practice is hard to find, increasing the risk of poor or harmful deals. Many accelerator operators and later-stage investors note that they regularly see startups with seed stage terms so onerous that they are unable to attract any further funding down the line, crippling the business from the outset.