Business side programs have exploded in the last couple of years. While some firms have used the surge in activity to build their positions in their most promising portfolio companies, Airtree Ventures is taking advantage of the momentum a little differently.
The Sydney-based venture capital firm, founded in 2014, uses company-led secondary sales to reduce its equity stakes and take liquidity from some of its most promising bets. The company’s portfolio consists of Australian unicorns including Canva, last valued at $40 billion, Immutable ($2.4 billion) and LinkTree ($1.3 billion), among others.
Craig Blair, Airtree co-founder and partner, told TechCrunch that Airtree’s goal is to deliver the maximum level of returns to its investors, unlike other venture capital firms. However, unlike many other companies, Airtree generates returns throughout the life of an investment, not just while the company exists.
“From the beginning, we want to put as much energy and thought into the exit process as we do the funding process,” Blair said. “We’re looking at fund life cycles, we’re looking at the businesses themselves and we’re thinking about when might be the right time to exit that business.”
Airtree supports companies in the pre-seed and seed stages. As companies stay private longer, they don’t return money as often during the traditional capital lifecycle. So in 2021, Airtree started looking at alternative ways to get 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 the company reduced its stake in the startup in 2021, when the company was valued at $39 billion. Airtree received a 1.4x return on Fund I from this transaction alone and was able to retain most of its initial stake.
“There is no hard and fast rule,” Blair said of how the company decides when to cut its shares. “We are looking at the position of the fund and the role of this company in that fund [and think]“If we were to sell today at this price, what kind of future value are we giving up that we could hold? [What is] the value of liquidity versus the long-term TVPI and the effect on the fund?’
Whenever Airtree does this, it intentionally keeps most of its share, Blair said. He said the company still wants to get that huge win in the end, but doesn’t want to put “all its eggs in that final basket.”
This strategy makes a lot of sense considering how much some of the late-stage startup valuations have fallen in recent years. While some companies are working to build on their latest valuation, many have a long way to go and may still exit for less than they raised in the last seed round.
But Airtree’s strategy isn’t foolproof, and many investors would likely argue that lowering those bets takes money off the table. They’re not wrong, and Blair acknowledges that when a company eventually exits, Airtree makes less money than it because of this strategy. However, even that final exit is not guaranteed to be strong, he said.
Blair said Airtree would not rule out raising follow-on capital – the venture capital industry’s current liquidity vehicle – and said it might make sense if the company wants to start selling a bunch of its shares immediately. But its current secondary strategy of raising its hand when companies want to hold secondary auctions 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 early can be bad, sure. There is no single answer, but rather a process about active decisions rather than passive decisions [about liquidity]. Don’t just sit and wait [exits] to happen to you”.
