With the global financial markets in flux, having a diverse capital mix can help you steer your business through uncharted waters and keep your innovation plans on track. After serving up a refresher on diverse capital stacks and why they’re important, we’re exploring the short-term and long-term trends shaping the available funding for your business in today’s economy. Whether your start-up is an early-stage, a late-stage/venture-funded operation or is beginning to scale, read on to discover how your funding options are shifting and how to respond.
Why capital stacks matter
A capital stack describes the capital mix businesses use to fund their innovations. Funding for R&D falls into three broad categories: assets, debt and equity. The magic happens when you choose the ideal combination of funding at the right time for your business. A diverse capital mix avoids having all your eggs in one basket and protects innovation businesses from multiple pitfalls. These include experiencing cash-flow shortfalls if your only funding source evaporates, or excessively diluting your equity by over-relying on investors. If you’d like to find out more about capital stacks, read: How to build the best R&D capital stack for your business.
Different businesses need different capital mixes
Innovation businesses can explore several options for funding, depending on their growth stage, their innovative product or service, and the industry sector they operate in. Some start-ups require more funding than others: for example, mining start-ups often have capital-intensive R&D and need sizable seed funding and ongoing capital throughout their growth journeys. By contrast some late-stage service-based start-ups, especially those in consumer markets, might be able to delay the Series A round or even avoid venture funding altogether.
Global trends shaping your company’s capital mix
With the world undergoing a period of unprecedented change, megatrends are combining with innovation, geopolitical and economic trends to reshape the diverse capital stack playbook.
Megatrends
Megatrends are movements set to define Australia’s and the world’s future, with climate change, AI and biotech having an outsized impact on start-up and scale-up funding.
- Climate change
ClimateTech has been riding high in Australia and globally with surging deals and record VC investment since 2018. [1] While the US wants to “drill baby, drill”, corporations, consumers and other countries are not automatically following the Americans’ lead. The reality is the world will have to adapt to rising temperatures and more extreme weather events. So, VCs and other investors will likely continue to back innovators who have inventions designed to reverse climate change or mitigate its impacts, and this could benefit innovators in Australia. The newly re-elected Federal Labor government has doubled down on its climate commitments, setting a target for renewables to power more than 80% of the national grid by 2030. It has also reaffirmed Australia’s support for international climate cooperation and the nation’s goal of becoming a green iron exporter [2], which could make Australian companies a magnet for overseas investors.
- AI
After start-up funding peaked in mid-2022, and then began to tumble, investors soon set their sights on AI. Start-ups of all shapes, sizes and industry sectors began incorporating AI into their innovation to attract investor funding. Now, some analysts are warning that an AI bubble is brewing, but while a correction may be on the cards, AI is here to stay.
- Biotech
Biotechnology is the powerhouse behind a host of game-changing innovations, from healthcare breakthroughs, such as CRISPR-Cas9 gene-editing and lab-grown meat, to climate-resilient and disease-resistant crops.
Geopolitical trends
Huge cuts to university medical research and biotech funding in the US are having a ripple effect worldwide. Many scientists from American universities and health and research institutes facing funding cuts are planning to leave the US [3], handing Australian biotech and healthtech start-ups a golden opportunity to lure top-flight talent and investors from across the Pacific.
Geopolitical tensions and uncertainty often trigger increased defence spending and innovation, and that’s certainly the case now. Australia has already spent an extra $50 billion on defence since 2022, and defence spending is on track to be 2.3% of gross domestic product. Defence expenditure is also soaring globally, from Europe and North America to the Middle East and Asia. [4] So, if you have a defence start-up, or your innovation could have a military or defence application, you could be in the box seat.
Economic trends
Financial markets hate uncertainty, and recent world events are spooking them. Investor funding is harder to land, but it’s important to remember that the money is still there. If you already have funding or your source of capital is part of a long-term commitment, you can rest easy. Even if you’re planning your first funding round, it’s not a lost cause. You just need to put yourself in the investor’s shoes and make sure your offering aligns with what they need in the current market. [5] A ray of sunshine bursting through the current storm clouds is inflation, which is finally sitting in the Reserve Bank of Australia’s 2–3% target range.
Following the money in 2025
AI, climate change and other megatrends are converging with geopolitical tensions and market volatility to create a challenging funding landscape. Let’s look at how this melting pot of global trends is impacting the capital available for your start-up and scale-up, and how you can turn today’s funding scene to your advantage and keep your innovation on track.
Grants
The recent Federal Election was a win for the incumbent Labor Government and for stability and continuity. Established grant funding programs and innovation policies will continue, and the Future Made in Australia, which will deploy $22.7 billion over the next decade, and the $15 billion National Reconstruction Fund won’t miss a beat. Private sector businesses that support Australia transitioning to net zero and securing the nation’s place in the world’s changing environment stand to benefit. Other programs, as well as the government’s flagship grants, are likely to continue and even increase after the Strategic Examination of Research and Development panel review concludes at the end of the year. So, if you have a start-up at any of the three growth stages, revisiting your grant options is a good way to strengthen the asset component of your capital mix.
Investor funding
Maybe halting your capital raising plans isn’t an option, or ramping up your assets won’t meet your capital needs. If that’s the case, then you can make your late-stage start-up or scale-up more appealing to investors. Demonstrating product-market fit and showing that your innovation has traction with customers is more important than ever with today’s risk-averse investors. Sharing revenue numbers, customer retention statistics or even letters of intent to purchase will boost your chances of securing a backer, while making it clear that you’re across your financials is vital. So, know your burn rate, create a detailed budget with financial projects and zero-in on the funding amount you need before you pitch to investors. [6] Only approach VCs or other backers that invest in your industry vertical, and consider pivoting your innovation to the sectors where investor funds are flowing, such as AI or ClimateTech.
Debt with a difference
Once start-ups secure an investor, they often leave debt financing behind. Don’t make that mistake. Debt financing allows you to retain more of your business as it scales and can play a crucial role in a diverse capital stack. Many types of debt funding, for example, R&D financing, complement rather than compete with equity funding. So, keep your bank and non-bank lenders close. And if your start-up or scale-up qualifies for the R&DTI refund, you can continue to apply and use R&D financing, for example, Radium Advances, to access it early. Analysts are expecting more interest rate cuts this year, which could make debt financing cheaper. So long as inflation stays stable, start-ups can dial up debt and dial down equity funding in their capital stack next financial year.
Explore your options
This latest period of uncertainty is a curve ball for innovators and the innovation ecosystem in Australia and overseas. Building a diverse capital mix to fund your innovation can enable you to keep your R&D programs and your go-to market plans on track. If you build strong foundations for your start-up, your business will still be standing long after this latest storm passes.
[1] Kini, A. (2025). Climate Tech: Past, Present, and the Road Through 2025 – Lotus Capital. [online] Lotus Capital. Available at: https://www.thelotuscapital.com/climate-tech-past-present-and-the-road-through-2025/
[2] Newell, B. and Morgan, W. (2025). Australia is set to be a renewables nation. After Labor’s win, there’s no turning back. [online] The Conversation. Available at: https://theconversation.com/australia-is-set-to-be-a-renewables-nation-after-labors-win-theres-no-turning-back-256081
[3] Chemical and Engineering NewsPublishing (2025.). 8 agencies to terminate $450 million in grants to Harvard.[online] Available at: https://cen.acs.org/policy/research-funding/8-agencies-terminate-450-million/103/web/2025/05.
[4] STOCKHOLM INTERNATIONAL PEACE RESEARCH INSTITUTE (2025). Unprecedented rise in global military expenditure as European and Middle East spending surges. [online] SIPRI. Available at: https://www.sipri.org/media/press-release/2025/unprecedented-rise-global-military-expenditure-european-and-middle-east-spending-surges.
[5] Cucino, G. (2025). How to Prepare Your Startup for Early-Stage Funding in a Tight Market. [online] Entrepreneur. Available at: https://www.entrepreneur.com/starting-a-business/how-startups-can-secure-funding-in-todays-tough-vc-market/489808
[6] Cucino, G. (2025). How to Prepare Your Startup for Early-Stage Funding in a Tight Market. [online] Entrepreneur. Available at: https://www.entrepreneur.com/starting-a-business/how-startups-can-secure-funding-in-todays-tough-vc-market/489808
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