Australia’s startup landscape is undergoing its most dramatic shift in a decade, with data from the annual Startup Muster report revealing that founders are investing in artificial intelligence rather than headcount.
The 2025 edition of the nation’s largest startup survey, released in Sydney on Friday night, reveals a sharp fall in employment as more than 50% of local startups now build AI products and nearly two-thirds rely on AI for core business functions.
Startup Muster founder and MD Murray Hurps said it’s not only a seismic transformation in how innovation is created and scaled, the rate of change is startling.
“I thought Startup Muster would document the transition of Australia’s tech startup ecosystem towards AI-enabled companies, but I’ve been amazed at the speed of this transition,” he said.
“While employment numbers have always been relatively small in startups, the real impact they have will continue to be the productivity uplift they drive in existing organisations through provision of new services, learning spillovers and competitive pressure.
“At a time when every Australian could use a pay rise, our startup ecosystem is playing a valuable role in ensuring Australia plays a role in, and benefits from, the AI revolution.”.
Startup Muster has measured and published the progress, challenges and opportunities for the Australian startup sector since 2013, asking a range of questions to check the temp, blood pressure and pulse of local founders and investors.
This year a record 163,733 questions were answered between July and September, with survey coordinators in every state and territory helping to gather the data. All up there were nearly 1200 responses, but after a careful validation process, it was whittled down to just under 700 respondents, with more than two-thirds of them coming from startups.
The responses came 47% from NSW, 19% from QLD, 17% from VIC, 9% from SA, 9% from WA, 5% from ACT, and 2% TAS and the NT, with participation from outside of NSW up 14%.
For the first time, founders were asked why they based themselves in Australia. The top reason was quality of life (23%) then family ties (15%), followed by ties to Australian customers (11%) and testing before going overseas (9%).
Startups that were planning to move overseas were doing so primarily for better market opportunities (51%). More than 1-in-10 were chasing better access to capital (12%).
The typical Aussie founder is: well educated (90%) tackling important problems (19% deep tech), mainly for B2B customers (72%), with the majority now building AI products and services (51%).
Other key findings in the 63-page report include:
- The average number of full time employees dropped 48% from 8.2 in 2024 to 4.2 in 2025.
- The average number of planned hires in the next 12 months dropped 30% from 5.0 in 2024 to 3.5 in 2025.
- 62% of startups were using AI for key job functions, with significant year-on-year lifts in utilisation for software development (52%, up from 34% in 2024), content creation (48% up from 36%) and marketing (46% up from 31%).
- AI is now the most commonly identified industry that applies strongly to startups, rising to 42% from 35% in 2024 and 24% in 2023.
- 13% of startups listed “Using AI for guidance or ideas” as a critical event in their founding.
Use of AI itself is also evolving:
- Anthropic and Google had significant increases in utilisation, rising to 34% and 20% of startups vs 9% and 6% last year.
- OpenAI remained the leading provider at 67%.
- 25% of startups using AI reported hosting some of their AI in Australia, with minimal utilisation of models developed outside America (about 1% using Deepseek, Qwen and Mistral).
- 62% of AI users weren’t sure where their AI was hosted, and only 11% could name any safety standards for AI use in Australia.
- Preferred sources for online learning for founders now strongly favour AI above all else, with 70% choosing OpenAI vs 58% last year
- YouTube remains stable at 61% in second place.
- 75% of startup founders rated their skills and knowledge in using AI tools as moderate, large or very large.
But there were some unexpected results:
- The proportion of startups planning to raise funding in Australia dropped to 54%, down from 60% last year
- Plans to raise funding overseas dropped to 28% from 38% last year, perhaps reflecting the reduced startup costs that AI-enabled startups require.
- Suggestions that government should provide more funding also dropped by a fifth to 40%, down from 51% in 2024 and 50% in 2023.
- Startups that have successfully raised now report speaking to an average of 150 investors vs 100 last year and 72 the year prior
- But they report spending the same amount of time on fundraising (about 450 hours), perhaps thanks to AI-enabled fundraising.
- Startups using external consultants for grant applications dropped to 12% from 17% in 2024 and 20% in 2023, again, with AI-generated applications a likely reason.
Hurps said that while this AI wave grows, there are things to celebrate:
- The proportion of female startup founders has reached a new high of 33% in 2025, up from 27% in 2024 and 2023, and following a long curve of growth from 16% in 2014.
- 37% of startups said they currently, or planned to, manufacture or assemble their products, with 33% of startups saying they will do some or all of this inside Australia. Only 5% said they plan to manufacture entirely outside Australia.
- Startup employees are enjoying more remote work than ever, with 72% of startups having no requirement for employees to work from an office, up from 64% in 2024.
- Only 15% of startups report global tariffs and tensions have negatively impacted their growth plans.
- Deep tech startups represent 19% of startups surveyed, and 23% of startups identified as climate tech.
- 25% of startups were working outside metropolitan areas, and 72% of these said their costs were significantly lower than they would be in a capital city, and rated their quality of life higher (22% rating it as excellent vs 18% in metropolitan areas).
- 45% of startups in SA rated their government support as above average (the highest approval rating in Australia), followed by 39% in QLD and ACT, 28% in VIC, 22% in NT, 20% in WA, 18% in NSW and 13% in TAS.
- 17% of startups said their decisions were driven by desire for impact, and 69% by impact and profit equally (up from 64% in 2024 and 56% in 2023).
- The most common level of education for startup founders is masters degrees (31%) with 12% holding PhDs, and 56% of founders said their startups were related to their area of study.
- A new high of 42% of startups identified as being part of an innovation precinct or cluster, with the most named being Sydney’s Tech Central, Adelaide’s Lot Fourteen and Brisbane’s The Precinct.
- 29% of accelerators and incubators surveyed were being run by universities, a new high.
- 39% of startups reported collaborating with universities and 8% of startups are employing international students.
The areas to improve, according the Startup Muster report, include:
- Startups reporting their home internet quality negatively impacted their work significantly remained 24%, from 22% in 2024 and 24% in 2023.
- The proportion of startup founders attending at least one event per month has dropped to an all-time low of 60%, from a high of 76% in 2017.
- 24% of startups plan to hire overseas in the next 12 months, most commonly in the USA (36%), Philippines (35%), India (20%) and Europe (19%).
This year’s popularity lists included:
- Most recommended coworking space: Stone & Chalk
- Most recommended incubator/accelerator: I2N – University of Newcastle
- Most recommended annual festival: _SOUTHSTART
- Most named innovation precinct: Tech Central
- Highest rated state for support of startups: South Australia
- Most used government grant/incentive: R&D Tax Incentive
- Most commonly named philanthropic organisation working in the startup sector: Atlassian Foundation.
- Most commonly named MP seen as supportive of the Australian startup ecosystem: Ed Husic
- Most commonly used news source: Startup Daily (replacing the AFR, which held the top spot since 2018).
Startup Muster 2025 was supported by Optus, ARENA, Australian Research Data Commons (Research Link Australia), City of Sydney, ACS Labs, Rippling, Stone & Chalk, Main Sequence, Queensland University of Technology, University of Newcastle, Pledge 1%, National AI Centre, CSIRO, Ashurst, Baxter IP, Gild Group, ServiceRocket, Compass IoT, JurisTechne, PollenOne and Passionberry Marketing.
The Startup Muster 2025 report can be downloaded at startupmuster.com
Daily startup news and insights, delivered to your inbox.