Risk secondaries have skyrocketed in recent years. While some companies have used the increase in activity to strengthen their positions in their most promising portfolio companies, Airtree Ventures is harnessing the momentum a little differently.
The Sydney-based venture firm, founded in 2014, has been using company-led secondary sales to reduce its shareholding and raise liquidity from some of its most promising bets. The company’s portfolio is made up of Australian unicorns including Canva, last valued at $40 billion, Immutable ($2.4 billion) and LinkTree ($1.3 billion), among others.
Craig Blair, co-founder and partner at Airtree, told TechCrunch that unlike other venture firms, Airtree’s goal is to deliver the highest level of returns to its investors. But unlike many other companies, Airtree generates returns throughout the entire life cycle of an investment, and not just when the company exists.
“From the beginning, we want to put as much energy and thought into the exit process as we do into the financing process,” Blair said. “We look at the life cycles of the fund, we look at the companies themselves, and we think about when might be a good time to exit that business.”
Airtree supports companies at the pre-seed and seed stage; As companies stay private longer, they don’t return money as frequently over the lifecycle of traditional funds. So in 2021, Airtree began looking for alternative ways to raise liquidity for some of its early holdings, Blair said.
One of which was Canva. Airtree originally invested in Canva’s $6 million Series A round in 2015. Blair said the company reduced its stake in the startup in 2021, when the company was valued at $39 billion. Airtree earned a 1.4x return on Fund I from this transaction alone and was able to maintain most of its original stake.
“There’s no hard and fast rule,” Blair said of how the company decides when to reduce its bets. “We look at the position of the fund and the role of that company in that fund. [and think]’If we were to sell today at that price, what kind of future value would we be giving up that we could keep? [What is] The value of liquidity versus long-term TVPI and the effect on the fund?’”
Each time Airtree has done this, it has intentionally kept the majority of its stake, Blair said. He said the company still wants to get that big win at the end, but doesn’t want to put “all its eggs in the final basket.”
This strategy makes a lot of sense considering how far some late-stage startup valuations have fallen in recent years. While some companies are working to grow to their latest valuation, many have a long way to go and may still exit for less than they raised in their last primary round.
But Airtree’s strategy is not foolproof. Blair acknowledges that when a company eventually exits, Airtree makes less money from this strategy, although the final exit is also not guaranteed to be strong, he said.
Blair said Airtree would not rule out raising a follow-on fund – the venture industry’s current preferred liquidity vehicle – and said it could make sense if the company wants to start selling a block of its shares immediately. But their current secondary strategy of raising their hands when companies seek to conduct secondary tenders has worked well for them so far.
“I would say our responsibility as investors is to return money to our LPs at the right time,” Blair said. “Selling too soon can be bad, for sure. There is no single answer but rather a process for making active decisions and not passive decisions. [about liquidity]. Don’t just sit and wait [exits] Let it happen to you.”
