Enterprise secondaries has exploded over the past couple of years. Whereas some companies have used the rise in exercise to construct up their positions of their most promising portfolio corporations, Airtree Ventures is profiting from the momentum a bit in a different way.
The Sydney-based enterprise agency, based in 2014, has been utilizing company-led secondary gross sales to slim down its fairness stakes and get liquidity from a few of its most promising bets. The corporate’s portfolio is made up of Australian unicorns together with Canva, final valued at $40 billion, Immutable ($2.4 billion) and LinkTree ($1.3 billion), amongst others.
Craig Blair, a co-founder and companion at Airtree, informed TechCrunch that not in contrast to different enterprise companies, Airtree’s objective is to ship the utmost stage of returns to its buyers. However in contrast to many different companies, Airtree generates returns all through the entire lifecycle of an funding, reasonably than simply when the corporate exists.
“Right from the start, we want to put as much energy and thought into the exit process that we do for the funding process,” Blair mentioned. “We look at the lifecycles of the fund, we look at businesses themselves, and think about when could be a good time to exit that business.”
Airtree backs corporations on the pre-seed and seed stage; as corporations keep personal longer, they aren’t returning cash as typically through the conventional fund lifecycle. So in 2021, Airtree began looking for alternative routes to get liquidity for a few of their earliest stakes, Blair mentioned.
One among which was Canva. Airtree initially invested in Canva’s $6 million Collection A spherical in 2015. Blair mentioned the agency slimmed down its stake within the startup in 2021 when the corporate was valued at $39 billion. Airtree acquired a 1.4x return on Fund I from this transaction alone and was capable of keep the vast majority of their authentic stake.
“There is no hard and fast rule,” Blair mentioned on how the agency decides when to slim down its stakes. “We look at the position of the fund and the role of that company in that fund [and think], ‘If we sold today at that price, what sort of future value are we giving up that we could hold? [What is] the value of liquidity versus long-term TVPI and the effect on the fund?’”
Every time Airtree has achieved this, it’s purposefully maintained a majority of their stake, Blair mentioned. He mentioned the agency nonetheless needs to get that vast win on the finish, however doesn’t wish to put “all their eggs into that final basket.”
This technique makes a variety of sense taking a look at how far a few of the valuations for late-stage startups have fallen over the previous few years. Whereas some corporations are working to develop into their final valuation, many have a protracted strategy to go and should exit for decrease than they raised their final main spherical.
However Airtree’s technique isn’t foolproof. Blair acknowledges that when an organization does finally exit, Airtree makes much less cash off of it due to this technique — although the ultimate exit isn’t assured to be robust, both, he mentioned.
Blair mentioned Airtree wouldn’t rule out elevating a continuation fund — the enterprise business’s present liquidity automobile of alternative — and mentioned it could make sense if the agency needs to start out promoting a bundle of its shares directly. However its present secondary technique of elevating its hand when corporations look to run secondary tender gross sales has labored out nicely for them so far.
“I’d say our responsibility as investors is to return money to our LPs at the right time,” Blair mentioned. “Selling too early can be bad, for sure. There isn’t a single answer but rather having a process about having active decisions and not passive decisions [about liquidity]. Don’t just sit back and wait for [exits] to happen to you.”
