Startup funding topped $1 billion in the third quarter of 2025, with investors eager to back data centres and AI with enthusiasm that recalls the mid-pandemic valuation bubble of 2021-2022
Investors threw money at AI startups like fans tossing underwear on stage at a Tom Jones concert in Q3, according to the latest Cut Through Venture September quarter report.
A third of the funding total came from six-year-old, Singapore-based data centre infrastructure business, Firmus Technologies, which raised $330 million in a round backed by US chip giant Nvidia in mid-September. The company is building a data centre in Tasmania.
Nonetheless, hardware and biotech startups led total funding for the first time, supported by sustained interest in climate tech. It seems broader political sentiment around deep tech and manufacturing is now starting to flow through to investor mindset, perhaps driven by the large investments the National Reconstruction Fund is also making alongside VC.
All up, there were 116 rounds in the quarter, with more than a quarter (31) from accelerators investments. Firmus was the only raise to hit nine figures, with the other top 5 raises by IoT chip maker Morse Micro ($88m Series C), followed by hot AI startup Lorikeet ($54m Series A), vaccination biotech Vaxxas ($49m Series D) and eCommerce fulfilment startup Skutopia’s $38 million, which was notable as the raise was eschewed by VC firms.
The Australian Venture Capital Funding quarterly report did not include Blackbird-backed PsiQuantum’s $1.5bn Series E. While the startup has expat Australian founders, and is building a quantum computer in Brisbane, it’s based and registered in the US.
Valuations moved higher across the board in Q3, with the most pronounced lift at pre-seed, Seed, and Series A. Later stages were steadier, and AI-first companies priced at a premium, raising faster and often at prices reminiscent of 2021.
Most investors expect to do more deals than in 2024, and if they tip more than $1.3 billion into startups in the December quarter, 2025 will rank third behind 2021 and 2022 for the most capital deployed annually in Australia.
The CTV report notes that after a soft Q2, female-only-led startups rebounded with their strongest showing since early 2023, though the overall share of capital to female and mixed teams fell to 11%, the lowest investment in six quarters. Accelerator programs were responsible for most of the backing for female founders.
Venture funding and deals 2019-2025. Source: Cut Through Venture
Bottlenecks and bubbles
Report author and CTV founder Chris Gillings noted that a Series B bottleneck persists and inflated valuations across 2021–22 may be to blame.
“Cheap capital and an influx of new funds led to unusually large rounds at extraordinary valuations. Founders who might previously have raised $8 million at a $40 million post-money valuation were suddenly raising $25 million at $150 million,” he wrote.
“Investors justified the pricing based on growth assumptions that relied on the market remaining open indefinitely. The problem is that valuations are promises about the future. When the market reset in late 2022, many companies couldn’t grow fast enough to meet those promises. That overhang has defined the years since.
“Startups with inflated A-round valuations found themselves boxed in: too expensive to raise an up-round, too early for an exit, and growing too slow to meet the new efficiency benchmarks expected by investors.
Some responded by tightening burn and pushing for profitability. Others turned to quiet insider extensions, down rounds, or simply waited for conditions to improve. The result is the plateau… These companies haven’t failed, but they aren’t advancing at the rate that their Series A investors probably thought they would.”
Gillings says that by late 2023, many of those companies had accepted the new reality and the market recalibrated rather than collapsed, while founders did more with less, and funds narrowed their focus.
He says the 2024 cohort is currently tracking ahead of recent years.
That is a positive sign. It suggests a healthier pipeline built on more realistic valuations, cleaner metrics, and stronger cohort quality. Investors are backing companies that have gone on to have earned their A, not just pitched it well,” he argues.
Gillings said investor discipline goes to water when the AI carrot is dangled.
“Some of the largest AI rounds over the past year have been done quietly at valuations reminiscent of 2021,” he said
“The tone is familiar: the technology is different, but the psychology is the same. It’s too early to call this a bubble. The difference this time is that the exuberance is concentrated, not widespread. But it’s worth remembering that bubbles don’t look like bubbles when they start.
“Whether this next phase becomes a disciplined expansion or a repeat of past mistakes depends on how investors and founders handle their euphoria this time.”
You can read the The Australian Venture Capital Funding Q3 2025 report here.
Investor insights from the CTV Q3 ’25 report. Source: Cut Through Venture
