Hundreds of Funded Software Companies Need Exits In The Next 2-5 years

Funded software companies across Australia and New Zealand are set to see hundreds of exits, shutdowns and continuation transactions in the next two to five years.

There are currently 150 to 300 funded seed-stage software companies in Australia and New Zealand that need an exit. Over the next 5 years that number will grow to somewhere between 230 and 900.

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The pressure to exit will come from investors that want to see returns. Venture investors, especially professionally managed venture funds have a contractually agreed time frame within which they need to provide returns to their investors. These timeframes are typically 7-10 years, and in the case of Australia’s regulated early stage venture capital funds (ESCVLPs), they have a mandatory maximum existence of 15 years. 

Over the last decade venture funds and others in Australia and New Zealand have invested in 884 software companies that have not progressed to late stage venture, private equity, IPO or a trade sale yet. These companies took on seed funding of between $100,000 to $15m, with around $1.9m on average. They have been operating for 3.7-4.5 years since their last funding round. 

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Chart note: in the above chart companies weren’t included that didn’t have their funding stage marked in the source data set. 

The pressure to deliver returns will become stronger in over the 2-5 years due to a combination of (a) the build up of companies funded prior to 2020 that haven’t exited or received additional funding, (b) the sheer volume of companies funded over 2020-2022 that will enter the exit window and (c) the fund-life of the bulk of venture capital funds nearing the end.

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Chart note: VC Funds Formed in the above chart refers to ESVCLP registrations. The above chart includes all funding rounds and transactions over the period, not just seed stage companies.

Two timeframes warrant special mention:

• 2017 saw a substantial increase in the number of new venture funds registered. Assuming a 10 year fund life, these funds need to exit their positions by 2027.
• 2020-2022 were the COVID bubble years of readily available venture funding and high tech valuations. These funds have more time to see exits, with an exit window starting around 2027 (+7 years from 2020) and running through to 2032 (+10 years from 2022). These funds will start needing exits in 2027.

Methodology

The source data was from Crunchbase of funding transactions between 2015-2025. The Crunchbase data, for software companies, has been relatively reliable in our other uses of it. 

The areas where there may be issues with the data are:

1. Differentiating between Seed, Early Stage and other funding types. This varied within the data set. Further time could be spent more clearly defining this in an objective way, e.g. by amount rather than Crunchbase determined tagging.
2. Companies may have shut down. Determining the number of companies that had already shut down did not make it within the scope of this analysis and we may revisit it in the future. 

For the most part, even with these issues, the analysis put forward appears to remain directionally sound.

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