In recent years, the growth of venture secondaries has been remarkable. Unlike other firms, Airtree Ventures is capitalizing on the current surge in activity in a unique way.
Established in 2014, the Sydney-based venture firm has been using company-led secondary sales to reduce its equity stakes and generate liquidity from some of its most promising investments. Australian unicorns like Canva, valued at $40 billion, Immutable at $2.4 billion, and LinkTree at $1.3 billion, among others, comprise the company’s portfolio.
Craig Blair, a co-founder and partner at Airtree, explained to Eltrys that Airtree, like other venture firms, aims to provide the highest possible returns to its investors. However, Airtree stands out from other firms by generating returns at every stage of an investment, rather than solely when the company exits.
“From the very beginning, we prioritize giving equal attention and effort to the exit process as we do to the funding process,” Blair stated. “We carefully analyze the fund’s lifecycles and evaluate the businesses themselves to determine the optimal timing for exiting those ventures.”
As companies continue to stay private for longer periods, Airtree invests in companies at the pre-seed and seed stages. However, these companies are not generating returns as frequently as they used to during the traditional fund lifecycle. In 2021, Airtree began exploring alternative methods to obtain liquidity for their initial investments, according to Blair.
Canva was one of the companies I invested in. Airtree initially invested in Canva’s $6 million Series A round in 2015. Blair mentioned that the firm reduced its investment in the startup last year when the company’s valuation reached $39 billion. With a recent Canva sale, Airtree achieved a 1.4x return on Fund I and successfully preserved the majority of their initial stake.
“There is no strict guideline,” Blair stated regarding the firm’s decision-making process for reducing its stakes. “We consider the fund’s position and the company’s role within it, pondering the potential future value we would be forfeiting if we were to sell at the current price.” What is the importance of liquidity compared to long-term TVPI, and how does it impact the fund?
Every time Airtree has done this, they have intentionally held onto the majority of their stake, according to Blair. He mentioned that the company is still aiming for a significant victory in the end but is cautious about relying solely on one opportunity.
It’s quite logical to consider this strategy given the significant decline in valuations for late-stage startups in recent years. While some companies are striving to expand their current valuation, many still have a significant journey ahead and may ultimately exit at a lower value than their previous primary round.
However, Airtree’s strategy does have its limitations. Blair recognizes that when a company eventually exits, Airtree’s profits are reduced due to this approach, although the ultimate exit may not necessarily be lucrative, he mentioned.
Blair mentioned that Airtree is open to the possibility of raising a continuation fund, which is currently popular in the venture industry for providing liquidity. This could be a strategic move for the firm if they decide to sell a bundle of their shares all at once. However, their current secondary strategy of expressing interest when companies seek to conduct secondary tender sales has proven to be successful for them up to this point.
“Our primary duty as investors is to ensure timely returns for our LPs,” Blair stated. Timing your sales is crucial. There is no one-size-fits-all solution, but it’s important to approach liquidity decisions with an active mindset rather than a passive one. Take proactive steps and seize opportunities instead of passively waiting for exits to come your way.
