Capital returns but discipline and liquidity remain key

$5.1 billion of VC was invested in 2025, a figure that tells a story of a market that has not only stabilised but matured into a high-signal destination for global capital. While the first half of the year required patience, the second half saw several mega-rounds.

The Liquidity Crunch: The elephant in the room

Despite the influx of capital, liquidity remained constrained. The most striking development was the continued liquidity drought and the growing appetite for secondary transactions. With traditional IPO andM&A exits remaining scarce, secondary markets emerged as a critical pressure valve for the ecosystem. Founders and early investors increasingly turned to secondaries to achieve partial liquidity, a trend that reflected both portfolio maturity and the extended timelines to exit that have become the new normal. This wasn't a sign of distress but rather sophisticated and strategic cap table management - creating pathways for capital recycling and enabling long-term believers to remain invested while providing returns to early backers. In 2026, expect this secondary market to deepen, becoming a standard feature.

The "AI-Native" graduation

The headline trend of 2025 wasn't just "AI" - it was the graduation of AI from experimental "wrappers" to industrial-grade infrastructure and vertical applications.

We saw Firmus raise A$830M to build AI data centres, with backing from Nvidia. At the application layer, Heidi Health secured a landmark A$98M Series B led by Point72, validating that Australian HealthTech can compete with the best in Silicon Valley. Even our established giants doubled down. Airwallex raised an eye watering US$330m Series G amid continued global growth.

Deep Tech and climate resilience

In 2025, as investors grappled with the defensibility of software in an AI world, capital flowed into Deep Tech – often touching the physical world. We at Folklore have always loved founders solving “unsexy and hard” problems.

The energy transition drove significant deal flow, exemplified by InfraVision’s US$91m Series B. Led by Singapore’s GIC, this investment in aerial robotics for power grids highlights focus on critical infrastructure resilience. Samsara Eco announced a blockbuster 10-year off take for 20% of Lululemon’s volumes and opened their first commercial plant as the AI-based infinite plastic company quickly matured. Similarly, Google’s investment in OpenSolar was a massive signal, validating the Australian software platform which has facilitated US$10b of installs as the operating system for the global rooftop solar industry.

At Folklore, we backed this thesis by investing in the A$16mSeries A of Hullbot. By deploying autonomous underwater robots to solve biofouling for ship hulls, Hullbot has delivered 10-26% fuel savings as well as carbon emission reductions. We see continued strength in Climate Tech companies with strong unit economics and customer ROI.

The Silicon Valley Bridge

Andreessen Horowitz leading the US$21M Series A in Sphere was also a watershed moment. It demonstrated that when Australian founders build best-in-class solutions - in this case, for the complex problem of cross-border tax compliance - capital will find them, regardless of postcode. FolkloreVentures was the only Australian VC that invested into the company in its first round, at a pre-seed stage.

Outlook for 2026

We enter 2026 with a battle-hardened cohort of founders anda capital ecosystem that is deeper and more connected than ever. The bar has been raised; funding now demands not just growth, but unit economic discipline and global relevance from Day 1.

The capital is here, the talent is world-class and Australia is no longer just "punching above its weight" - we are in the ring with the heavyweights.

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