Airtree Ventures has returned its first fund with help from Canva while retaining a majority stake

The secondary market for venture capital has exploded over the past few years. While some firms have used increased activity to establish themselves among the most promising portfolio companies, Airtree Ventures is capitalizing on the momentum, but with a slightly different twist.

The Sydney-based venture capital firm, founded in 2014, has been using company-led secondary sales to reduce stakes and gain liquidity from some of its most promising investments. The company’s portfolio is made up of Australian unicorns, including Canva, which was last valued at $40 billion, Immutable at $2.4 billion and LinkTree at $1.3 billion.

Airtree co-founder and partner Craig Blair told TechCrunch that unlike other venture capital firms, Airtree aims to maximize returns for investors. But unlike many other companies, Airtree generates returns throughout the life of the investment, not just while the company exists.

“From the beginning, we wanted to put as much energy and thought into the exit process as we did the financing process,” said Blair. “We look at the life cycle of the fund, look at the business itself, and think about when is a good time to exit the business. .”

Airtree supports pre-seed and seed-stage companies; as companies remain private longer, they return capital less frequently over the life of a traditional fund. As a result, Airtree began looking in 2021 for alternative ways to obtain liquidity for some of their earliest holdings, Blair said.

Canva is one of them. Airtree originally invested $6 million in Canva’s Series A round in 2015. Blair said the company reduced its stake in the startup in 2021, when it was valued at $39 billion. With this transaction alone, Airtree’s Fund One achieved a 1.4x return and was able to retain the majority of its original equity.

“There are no hard and fast rules,” Blair said of how the company decides when to reduce its stake. “We are concerned about the position of the fund and the company’s role in the fund [and think]”, “If we sell at this price today, what future value are we giving up that we can hold? [What is] How does liquidity value compare to long-term TVPI and the impact on funds? “

Blair said each time Airtree did so, it did so with purpose by retaining a majority stake. He said the company still hopes for a big win in the end but doesn’t want to put “all its eggs in the final basket.”

This strategy makes a lot of sense considering how much the valuations of some late-stage startups have fallen over the past few years. While some companies are working toward reaching their final valuations, many still have a long way to go and may still exit at a price lower than the last primary round of financing.

But Airtree’s strategy isn’t foolproof, and many investors may feel that reducing these stakes would be a drain on money. They’re not wrong, and Blair acknowledges that when a company eventually exits, Airtree will make less money from it because of this strategy. However, he said the eventual exit was not guaranteed to be strong.

Blair said Airtree wouldn’t rule out raising a continuing fund, the venture capital industry’s current liquidity vehicle of choice, and said it might make sense if the company wanted to start selling large amounts of stock right away. But so far, its current secondary strategy has worked well for the company when it looks to do a secondary tender sale.

“I would say our responsibility as investors is to return capital to our limited partners at the right time,” Blair said. “Of course, selling too early can suck. There’s no single answer, but rather a process for proactive rather than reactive decision-making. [about liquidity].Don’t just sit back and wait [exits] Happened to you. “