Cut Through Venture's Q2 2026 report reveals a 44% drop in early-stage startup funding rounds, with AI-native startups seeking larger initial investments. The data challenges the narrative that AI has made founding a startup easier.
TL;DR
- Early-stage startup funding rounds dropped 44% in Q2 2026, with only 31 sub-$5 million rounds announced.
- AI-native startups are seeking larger initial investments, with many targeting $5 million to $10 million in their first rounds.
- Despite the drop in dealflow, the total funding raised increased by 60% year-on-year, with mega rounds from Firmus and Airwallex.
What happened
Cut Through Venture's Australian Startup Funding Report for Q2 2026 indicates a significant decline in early-stage startup funding rounds, with only 31 sub-$5 million rounds announced. This is the lowest count since the data collection began in 2020 and a 44% drop from the 2025 quarterly average.
The report suggests that AI-native startups are seeking larger initial investments, with many targeting $5 million to $10 million in their first rounds. This trend is boxing out early-stage funds that typically invest in rounds under $3 million.
Despite the drop in dealflow, the total funding raised in Q2 2026 increased by 60% year-on-year, reaching $1.7 billion. This increase was driven by mega rounds from companies like Firmus, which raised $725 million, and Airwallex, which raised $460 million.
Why it matters
This data challenges the narrative that AI has made founding a startup easier, as the funding landscape for early-stage startups has become more challenging. Founders may need to reconsider their funding strategies and seek larger initial investments.
The trend of AI-native startups seeking larger initial investments could have implications for early-stage funds, which may be boxed out of the market. This could lead to a consolidation of the startup funding landscape, with fewer funds able to invest in early-stage startups.
The increase in total funding raised, despite the drop in dealflow, suggests that investors are still willing to back promising startups. However, the concentration of funding in a few mega rounds could indicate a lack of diversity in the startup ecosystem.
Key facts
- Early-stage startup funding rounds dropped 44% in Q2 2026, with only 31 sub-$5 million rounds announced.
- AI-native startups are seeking larger initial investments, with many targeting $5 million to $10 million in their first rounds.
- Total funding raised in Q2 2026 increased by 60% year-on-year, reaching $1.7 billion.
- Firmus raised $725 million, and Airwallex raised $460 million in mega rounds.
- The median value of pre-seed and seed rounds reached a record high of $1.3 million and $4 million, respectively.
- AI took roughly three-quarters of capital and two-thirds of deals in Q2 2026, up from 64% of both in Q1.
- The median age of a company raising a Series B is 11 years, more than double the age in 2021.
- Over three-quarters of investors rated their portfolio health as good or excellent, up from 58% two years ago.
Context
The startup funding landscape has been evolving rapidly in recent years, with AI playing an increasingly important role. While AI has made it easier to create a software startup, the funding landscape has become more challenging, with investors seeking larger initial investments.
The trend of AI-native startups seeking larger initial investments could have implications for the startup ecosystem, as it may lead to a consolidation of the funding landscape. This could make it more difficult for early-stage funds to invest in promising startups.
Despite the challenges in the funding landscape, the increase in total funding raised suggests that investors are still willing to back promising startups. However, the concentration of funding in a few mega rounds could indicate a lack of diversity in the startup ecosystem.