If you’ve been trying to raise a small round in 2026 and it’s felt harder than it should, you’re not imagining it. The data backs you up.
Cut Through Venture’s Q2 2026 report puts a number on what a lot of Australian founders have been feeling all year: headline funding is up, but the money is going to fewer and fewer companies. Q2 delivered $1.7 billion across 64 venture rounds and five accelerator rounds, taking first-half 2026 funding to roughly $3.5 billion, the second-strongest half on record behind 2022.
Sounds good until you look at where that money actually went. Two deals, Firmus’s $725 million AI infrastructure round and Airwallex’s $460 million Series H, accounted for close to 70% of everything raised in the quarter. The third-largest deal was $70 million. That’s the drop-off.
Meanwhile, sub-$5 million rounds fell to 31 for the quarter, down from a 2025 quarterly average of 56. That’s the lowest count in Cut Through’s dataset, which goes back to 2020. If you’re an early-stage founder outside AI infrastructure or fintech, the money isn’t disappearing. It’s just not going to you.
Where the money went instead
The report describes a barbell: investors are paying up at the very early stage and again at growth stage, and squeezing everything in between. Median deal sizes are now at record highs across every stage on a full-year view: $1.3 million at pre-seed, $4.0 million at seed, $18.6 million at Series A, $41 million at Series B and beyond.
Those numbers look healthy in isolation. They’re less healthy once you know fewer companies are getting to touch them. AI-first and AI-enabled companies together accounted for about 71% of Q2 deals and 65% of Q2 capital. Vertical software pulled 94% of software capital on 80% of software deals, with investors telling Cut Through they preferred it over horizontal software by 72% to 0%.
If your business sits outside those categories, or you need less than $5 million and aren’t at the very top of your sector, you’re competing for a shrinking slice.
There’s a second squeeze happening underneath the funding numbers. The path between rounds is stretching out. Cut Through’s data shows median company age at each stage climbing across the board: 1.0 years at pre-seed, 2.8 years at seed, 5.9 years at Series A, 11.0 years at Series B. The median journey from pre-seed to Series B has widened to about a decade. Founders aren’t just raising smaller rounds, they’re spending years longer between them, and whatever cash they generate themselves in that gap matters more than it used to.
There’s a useful signal buried in the same report too. Bridge-round recommendations from investors fell from 31% to 19% quarter on quarter, and recommendations to raise a normal round rose to 70%. Portfolio health also improved, with 78% of investors rating it good or excellent. Read together: healthy companies are doing okay, and the ones that aren’t are still being told to buy time. Nineteen percent of a venture portfolio being told to bridge is still a lot of founders looking at a runway problem this year.
The R&D Tax Incentive doesn’t care about your term sheet
This is where the R&D Tax Incentive is worth a second look, especially if you haven’t claimed it yet or you claimed once and forgot about it.
The RDTI is a federal government program that refunds up to 43.5% of what an eligible Australian company under $20 million turnover spends on genuine R&D, paid as cash, even if the company is loss-making. It’s cash, not equity or debt: you don’t pitch anyone for it, nobody on the cap table gets diluted to access it, and there’s no pool of capital that runs out or other founder you’re competing against for it. If your development work qualifies, it qualifies regardless of what AI infrastructure did in Q2.
That matters more this year than it did in 2023 or 2024, because the alternative sources of small-round capital are visibly thinner. A pre-seed or seed founder who could easily have closed a bridge round two years ago is now watching investors recommend bridges less often, while full rounds under $4 million take longer to close. Non-dilutive cash that’s already sitting in your development spend is one of the few levers you fully control.
What actually qualifies
The RDTI test comes down to technical uncertainty: was there a genuine point where you didn’t know if something would work, and did you have to experiment, iterate, and sometimes fail to find out?
That covers a lot more founder-built software and hardware than people assume. Custom algorithm development, novel machine learning approaches on your own data, proprietary API or systems work with real technical risk, and hardware prototyping through multiple failed iterations can all qualify. Routine bug fixes, off-the-shelf integrations, and market research don’t.
Minimum spend to claim is $20,000 in eligible R&D expenditure in a financial year. Below that, it’s not worth the exercise. Above it, most founders are surprised by how much of what they built this year actually counts once someone who knows the test walks through it with them.
Two objections come up constantly given where the funding action currently sits. First: “we’re pre-revenue, does that disqualify us.” No. Pre-revenue and loss-making companies are exactly who the refundable offset is built for, since the cash comes back regardless of whether there’s tax to offset. Second: “our dev team is offshore.” Offshore labour itself doesn’t qualify, but Australian-based spend around it, founder time, local contractors, local infrastructure, often still does. Both of these matter more this year because they’re exactly the founders being squeezed hardest out of the sub-$5 million bracket.
How the maths actually works
Take a company that spent $150,000 on eligible R&D in a financial year, has turnover under $20 million, and is loss-making. At the 43.5% refundable rate, that’s $65,250 back as cash after lodgement, not a reduction in a tax bill they weren’t going to pay anyway. Scale that to $400,000 of eligible spend and the refund is $174,000.
Compare that to what it costs to raise the equivalent amount right now. A $174,000 top-up inside a $1.3 million pre-seed round or a $4 million seed round is a meaningful chunk of dilution, term negotiation, and investor time for money that, in many cases, a company has already earned back through its own development spend. The RDTI doesn’t replace a raise, but it does mean some founders are raising a smaller round, or waiting an extra quarter to raise on better terms, because they’ve freed up cash they didn’t realise was sitting in expenditure they’d already incurred.
Why timing matters more in a tight market
The catch with the RDTI is that the cash doesn’t land the moment you spend the money. You claim for a financial year (July to June), lodge with AusIndustry and the ATO, and the refund comes after your tax return is assessed. In a year where investors are pickier and slower, that lag between spending and getting paid back is exactly when it hurts most.
Two things help here. First, start the claim earlier in the year rather than scrambling in April. The lodgement deadline is 30 April, ten months after financial year end, with no extensions, and founders who leave it late tend to lose the eligible activities that happened furthest back because the paper trail has gone cold. Second, if you need the cash before the ATO pays it out, R&D refund financing exists specifically to bridge that gap, letting you access part of an expected refund ahead of lodgement rather than waiting the full cycle.
Other non-dilutive options worth checking
The RDTI is the biggest lever for most founders because it’s uncapped and tied directly to what they’re already spending, but it’s rarely the only one worth checking. Export-focused startups can look at the Export Market Development Grant. Companies structured for early-stage investment can register as an Early Stage Innovation Company, which gives their investors a tax offset and makes the round itself easier to close. State programs like Advance Queensland and various accelerator grants come and go depending on the year and the state. None of these replace a $4 million seed round, but stacked together with the RDTI, they add up to real runway extension without touching the cap table once.
What to do with this right now
If you’ve spent real development money this financial year and haven’t claimed the RDTI, that’s the first thing to check, before you spend more time chasing a round that the data says is harder to close than it was twelve months ago.
If you have claimed before, check whether this year’s work actually looks different. Founders often assume last year’s answer still applies and undersell a year where they took on more technical risk, not less.
And if you’re mid-raise and the term sheet is taking longer than expected, the RDTI refund is cash you’re entitled to regardless of how Q3 shakes out for AI infrastructure deals, on top of whatever the round eventually brings in. A 15-minute eligibility conversation costs nothing and tells you where you stand: granton.io/meet.
Are you ready to turn your funding aspirations into reality? At Granton, we specialize in helping individuals and businesses navigate the world of grants, offering expert guidance on grant applications and finding opportunities that best suit their needs. Whether you’re seeking funding for a startup, nonprofit, or a specific project, our team is here to assist you every step of the way. We take the guesswork out of Grant Applications, R&D Tax Incentives, and Accelerator Programs, making the process smoother and increasing your chances of success. Ready to take the next step? Book a free consultation with us today, and let’s explore how we can help you secure the grants you deserve. Visit our website at granton.io to learn more or use our contact form to get in touch. Your grant journey starts here!