Australian enterprise capital has lengthy rested on a well-recognized promise – that backing a portfolio of younger startups right this moment will ship returns to buyers inside roughly a decade.
However the regularity of that rhythm is altering, stretching out by as much as 1.5x longer as macro shifts and dynamics reshape the trail to liquidity.
The IPO window has slowed, each in Australia and globally. The ASX welcomed solely 29 new listings in 2024, its quietest yr in 20 years, together with a rising variety of tech delistings.
With the specific lane to market largely shut, the usual 10-year fund clock is beginning to look optimistic. Globally, delayed liquidity is forcing GPs and LPs to confront inside misalignments whereby fee-driven fashions outweigh performance-based returns.
On the similar time, whereas Australia’s fundraising setting is exhibiting indicators of bouncing again, the restoration is gradual and uneven. Latest information reveals Australian startups raised $812 million throughout 76 introduced rounds in Q2 2025 – a two-year low by way of deal depend, and a conspicuous absence of “mega-deals”, with solely two being greater than $50 million.
Whereas deal movement varies from quarter to quarter, the general pattern we’re seeing globally is a stretching of the entire enterprise cycle. It’s prompting uncomfortable questions from LPs about when, and the way, they’ll see actual returns.
Why the cycle is increasing
Many elements may cause delayed returns, however there are two which stand out.
First, many late-stage valuations had been struck on the high of the 2021 market. Boards are reluctant to just accept markdowns, so that they have bridged steadiness sheets with convertible notes and insider extensions fairly than launch new “priced” rounds.
Secondly, consumers – public buyers and commerce acquirers alike – now favour clear earnings over pure progress. An organization that final raised on momentum alone should show a path to revenue earlier than anybody pays a premium. Till that occurs, exits stay on maintain and funds drift previous their unique sundown dates.
Longer maintain intervals would matter much less if the price of ready had not risen. When time period deposits pay 5%, the chance price of sitting in an illiquid progress guess turns into extra apparent, and inside charge of return (IRR) maths suffers with each further quarter.
In fact, the older the fund classic, the upper the median IRR. However we’re discovering that funds from 2021 and 2022 are trailing behind different latest vintages on the similar level. These days, basic companions who as soon as spoke confidently a couple of 9 yr recycle are beginning to warn that distributions may take 12 and even 15 years.
Secondaries unlock liquidity
One strategy to relieve the stress is a company-run secondary sale, the place a small slice of current shares is offered to recent buyers in order that early backers and staff can convert a part of their paper wealth into money. Within the US, such buybacks at the moment are routine; Carta recorded 31 company-sponsored secondary transactions in the course of the first half of 2023 alone.
SecondQuarter Ventures managing companion Ian Beatty, the secondaries fund launched in 2021
Australia could also be following go well with, with stories noting an uptick in secondary gross sales – a wholesome improvement and signal of confidence within the startup sector.
When managed transparently, secondaries usually are not solely about cashing out, however about changing into an intentional liquidity technique. It’s more and more baked into capital elevating and board planning processes, very like what we see in PE-backed corporations.
Normalising secondaries would profit each aspect of the desk. Seed funds may recycle positive aspects into the following crop of founders; employees may pay mortgages with out leaving their roles; later-stage buyers would inherit cap tables stuffed with engaged, not stressed, shareholders.
If managed transparently, a structured buyback alerts that the corporate is powerful sufficient to help restricted liquidity with out jeopardising longer-term upside.
Borrowing from non-public fairness playbooks
When pure exits gradual, non-public fairness managers create their very own. The basic PE toolkit – bolt-on acquisitions, working self-discipline, and capital buildings that help progress with out dilution – is more and more seen in enterprise.
We’re seeing an increase in enterprise debt and rising curiosity from VC corporations taking minority stakes in later-stage tech companies. This shift displays a broader “financialisation” of enterprise, the place investor decision-making is shifting past instinct and relationships towards structured, performance-based evaluations.
Rolling collectively a number of specialists in the identical area of interest can construct the size and earnings profile that public markets or strategics now demand. Working companions borrowed from the PE world can increase margins by tightening pricing, provide chains or customer-success metrics – worth that right this moment’s exit setting pays for.
Enterprise funds which as soon as prized pace above all else are discovering {that a} little bit of operational muscle can shorten the highway to liquidity extra successfully than one other advertising and marketing finances high up.
How the ecosystem can reply
Founders who used to plan for a dash now want a marathon technique. Money self-discipline sits on the centre: burn charges that when felt acceptable have grow to be crimson flags, so boards are asking for month-to-month gross-margin bridges and cohort profitability, not simply user-growth charts.
Liquidity planning ought to transfer simply as far upstream. Baking a small, board-approved buyback into each main increase reassures employees that fairness is actual cash and offers angel buyers room to fund the following wave.
For GPs, candour is now the most effective forex. Providing paperwork ought to acknowledge {that a} conventional ten-year horizon is unlikely and spell out how continuation funds, recycling clauses or structured secondaries will shield returns over an extended arc.
Many LPs are themselves lively in buyouts, so that they respect frank discussions about liquidity engineering.
A broader goal than pace
The objective of enterprise capital has by no means been a stopwatch. It’s to channel danger capital into concepts that may reshape industries. Borrowing strategies from PE strategies doesn’t dilute enterprise’s mission of funding transformative concepts. Moderately, it introduces larger self-discipline, operational help, and extra structured paths to liquidity, particularly in slower markets.
Australia already punches above its weight in innovation. By pairing that creativity with PE-style pragmatism, the ecosystem can hold extra possession, and finally extra wealth, onshore whilst exit home windows lengthen.
Funds, founders and restricted companions who adapt early will flip right this moment’s gradual market into tomorrow’s edge and, within the course of, rewrite the rulebook for the following decade of Australian enterprise.
- Bhavik Vashi is the managing director, APAC & MENA, of Carta.
