Australian enterprise capital has lengthy rested on a well-known promise – that backing a portfolio of younger startups as we speak 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 12 months 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 inner misalignments whereby fee-driven fashions outweigh performance-based returns.
On the identical time, whereas Australia’s fundraising surroundings is displaying 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 when it comes to deal rely, and a conspicuous absence of “mega-deals”, with solely two being greater than $50 million.
Whereas deal move varies from quarter to quarter, the general development 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 could cause delayed returns, however there are two which stand out.
First, many late-stage valuations had been struck on the prime of the 2021 market. Boards are reluctant to simply accept markdowns, so that they have bridged steadiness sheets with convertible notes and insider extensions relatively than launch new “priced” rounds.
Secondly, patrons – 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 wager turns into extra apparent, and inner fee 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 current vintages on the identical level. These days, basic companions who as soon as spoke confidently a few 9 12 months recycle are beginning to warn that distributions might take 12 and even 15 years.
Secondaries unlock liquidity
One approach to relieve the strain is a company-run secondary sale, the place a small slice of current shares is bought 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 through the first half of 2023 alone.
SecondQuarter Ventures managing associate Ian Beatty, the secondaries fund launched in 2021
Australia could also be following swimsuit, with stories noting an uptick in secondary gross sales – a wholesome improvement and signal of confidence within the startup sector.
When managed transparently, secondaries aren’t 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 similar to what we see in PE-backed firms.
Normalising secondaries would profit each facet of the desk. Seed funds might recycle features into the following crop of founders; workers might 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 robust sufficient to assist restricted liquidity with out jeopardising longer-term upside.
Borrowing from personal fairness playbooks
When pure exits gradual, personal fairness managers create their very own. The basic PE toolkit – bolt-on acquisitions, working self-discipline, and capital buildings that assist progress with out dilution – is more and more seen in enterprise.
We’re seeing an increase in enterprise debt and rising curiosity from VC companies 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 elevate margins by tightening pricing, provide chains or customer-success metrics – worth that as we speak’s exit surroundings 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 funds prime 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 after felt acceptable have turn out to be pink 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 elevate reassures workers that fairness is actual cash and provides angel buyers room to fund the following wave.
For GPs, candour is now the perfect 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 defend returns over an extended arc.
Many LPs are themselves energetic in buyouts, so that they respect frank discussions about liquidity engineering.
A broader objective than pace
The objective of enterprise capital has by no means been a stopwatch. It’s to channel threat capital into concepts that may reshape industries. Borrowing strategies from PE strategies doesn’t dilute enterprise’s mission of funding transformative concepts. Somewhat, it introduces higher self-discipline, operational assist, 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 preserve extra possession, and finally extra wealth, onshore whilst exit home windows lengthen.
Funds, founders and restricted companions who adapt early will flip as we speak’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.
