Airtree Ventures already returned its first fund thanks to Canva while maintaining the majority of its stake

Venture capital secondaries have exploded over the past two years. While some firms have taken advantage of the surge in activity to strengthen 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, has used company-led secondary sales to reduce its equity holdings and gain 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, like other venture capital firms, Airtree’s goal is to deliver the maximum level of return to its investors. But unlike many other companies, Airtree generates returns throughout the lifecycle of an investment, rather than just while 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 businesses themselves and think about when is the right time to exit that business.”

Airtree supports businesses at the pre-seed and seed stage; As companies stay private longer, they don’t repay as often during the traditional fund life cycle. So in 2021, Airtree began looking at alternative ways to obtain liquidity for some of its early holdings, Blair said.

One of them was Canva. Airtree initially 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 single transaction and was able to retain the majority of its original stake.

“There’s no hard and fast rule,” Blair said of how the company decides when to reduce its holdings. “We look at the position of the fund and the role of this company in this fund (and we think), ‘If we sell today at this price, what kind of future value are we giving up that we could hold?’ (What is) the value of liquidity in relation to TVPI in the long term and the effect on the fund? »

Each time Airtree has done this, it has deliberately retained the majority of its stake, Blair said. He said the company still wanted to get that huge win in the end, but didn’t want to put “all its eggs in the final basket.”

This strategy makes perfect sense given how valuations of some late-stage startups have fallen in recent years. While some companies strive to grow to their latest valuation, many have a long way to go and could still exit at a lower price than they raised in the last round of the primary.

But Airtree’s strategy isn’t foolproof, and many investors would probably say that reducing those stakes takes money away. They’re not wrong, and Blair acknowledges that when a company eventually disappears, Airtree makes less money from it as a result of this strategy. However, this final release is also not guaranteed to be strong, he said.

Blair said Airtree would not rule out raising a continuation fund – the venture capital industry’s current liquidity vehicle of choice – and said it could make sense if the company wanted to start selling a batch of his actions at the same time. But its current secondary strategy of raising its hand when companies seek to arrange secondary bidding sales 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, that’s for sure. There is no single answer, but rather a process for making active, not passive (liquidity) decisions. Don’t sit around and wait for (the releases) to come to you.