Venture secondaries have exploded in recent years. While some companies are capitalizing on increased activity to position themselves among the most promising portfolio companies, AirTree Ventures is capitalizing on this momentum in a slightly different way.
The Sydney-based venture, founded in 2014, has used company-led secondary sales to reduce its shareholding and gain liquidity from some of its most promising investments. The company's portfolio is made up of Australian unicorns including Canva with a final valuation of $40 billion, Immutable with $2.4 billion and LinkTree with $1.3 billion.
AirTree co-founder and partner Craig Blair told TechCrunch that AirTree's goal, like any venture, is to provide the highest level of return for investors. However, unlike many other companies, AirTree generates profits throughout the lifecycle of the investment, not just during the company's existence.
“From the beginning, we want to put as much energy and thought into the exit process as we put into the financing process,” Blair said. “We look at the lifecycle of the fund, we look at the business itself, and we think about when is a good time to exit that business.”
AirTree supports pre-seed and seed stage companies. The longer a company remains private, the less frequently it returns funds during the lifecycle of a traditional fund. So in 2021, AirTree began exploring alternative ways to secure liquidity for some of its early stakes, Blair said.
One of them was Canva. AirTree originally invested in Canva's $6 million Series A round in 2015. Blair said AirTree reduced its stake in 2021 when the company was valued at $39 billion. AirTree received his 1.4x return from Fund I on this trade alone and was able to keep most of his original stake.
Blair said there is “no hard and fast rule” about how the company decides when to reduce its stake. “We are looking at the positioning of the fund and the role of the company in that fund. [and think]“If I sell at that price today, how much future value would I give up?” [What is] What is the value of liquidity and long-term TVPI and what is the impact on the fund? ”
Mr. Blair said that every time AirTree has done this, it has intentionally maintained a majority stake. He said the company still wants to win big at the end, but doesn't intend to “put all its eggs in the last basket.”
This strategy makes a lot of sense considering how much valuations for some late-stage startups have fallen over the past few years. While some companies are working to grow to their last valuation, many still have a long way to go and may exit with less money than they raised in their last preliminary round.
But AirTree's strategy is not foolproof, and many investors would argue that cutting back on these bets would be a waste of money. They're not wrong, and Blair acknowledges that this strategy will reduce the profits AirTree will get from it if the company eventually exits. But there's no guarantee that that final exit will be strong either, he says.
Mr. Blair said AirTree would not rule out raising a continuation fund, which is the venture industry's current choice for liquidity, if the company wanted to start selling chunks of stock at once. Said it might make sense. But the current second-order strategy, where companies raise their hands if they want to conduct a second-bid sale, has worked well for companies so far.
“I would say our responsibility as investors is to return the money to the LPs in a timely manner,” Blair said. “Selling too soon can certainly be a bad thing. The answer is he's not the only one, but there needs to be a process to make proactive rather than negative decisions. [about liquidity].Don't just sit and wait [exits] It's what happens to you. ”