Australian venture capital has long rested on a familiar promise – that backing a portfolio of young startups today will deliver returns to investors within roughly a decade.
But the regularity of that rhythm is changing, stretching out by up to 1.5x longer as macro shifts and dynamics reshape the path to liquidity.
The IPO window has slowed, both in Australia and globally. The ASX welcomed only 29 new listings in 2024, its quietest year in two decades, along with a growing number of tech delistings.
With the express lane to market largely shut, the standard 10-year fund clock is starting to look optimistic. Globally, delayed liquidity is forcing GPs and LPs to confront internal misalignments wherein fee-driven models outweigh performance-based returns.
At the same time, while Australia’s fundraising environment is showing signs of bouncing back, the recovery is slow and uneven. Recent data shows Australian startups raised $812 million across 76 announced rounds in Q2 2025 – a two-year low in terms of deal count, and a conspicuous absence of “mega-deals”, with only two being more than $50 million.
While deal flow varies from quarter to quarter, the overall trend we’re seeing globally is a stretching of the whole venture cycle. It’s prompting uncomfortable questions from LPs about when, and how, they’ll see real returns.
Why the cycle is expanding
Many factors can cause delayed returns, but there are two which stand out.
First, many late-stage valuations were struck at the top of the 2021 market. Boards are reluctant to accept markdowns, so they have bridged balance sheets with convertible notes and insider extensions rather than launch new “priced” rounds.
Secondly, buyers – public investors and trade acquirers alike – now favour clear earnings over pure growth. A company that last raised on momentum alone must prove a path to profit before anyone will pay a premium. Until that happens, exits remain on hold and funds drift past their original sunset dates.
Longer hold periods would matter less if the cost of waiting had not risen. When term deposits pay 5%, the opportunity cost of sitting in an illiquid growth bet becomes more obvious, and internal rate of return (IRR) maths suffers with every extra quarter.
Of course, the older the fund vintage, the higher the median IRR. But we’re finding that funds from 2021 and 2022 are trailing behind other recent vintages at the same point. Nowadays, general partners who once spoke confidently about a nine year recycle are starting to warn that distributions could take 12 or even 15 years.
Secondaries unlock liquidity
One way to relieve the pressure is a company-run secondary sale, where a small slice of existing shares is sold to fresh investors so that early backers and employees can convert part of their paper wealth into cash. In the US, such buybacks are now routine; Carta recorded 31 company-sponsored secondary transactions during the first half of 2023 alone.
SecondQuarter Ventures managing partner Ian Beatty, the secondaries fund launched in 2021
Australia may be following suit, with reports noting an uptick in secondary sales – a healthy development and sign of confidence in the startup sector.
When managed transparently, secondaries are not only about cashing out, but about becoming an intentional liquidity strategy. It’s increasingly baked into capital raising and board planning processes, much like what we see in PE-backed companies.
Normalising secondaries would benefit every side of the table. Seed funds could recycle gains into the next crop of founders; staff could pay mortgages without leaving their roles; later-stage investors would inherit cap tables full of engaged, not restless, shareholders.
If managed transparently, a structured buyback signals that the company is strong enough to support limited liquidity without jeopardising longer-term upside.
Borrowing from private equity playbooks
When natural exits slow, private equity managers create their own. The classic PE toolkit – bolt-on acquisitions, operating discipline, and capital structures that support growth without dilution – is increasingly visible in venture.
We’re seeing a rise in venture debt and growing interest from VC firms taking minority stakes in later-stage tech businesses. This shift reflects a broader “financialisation” of venture, where investor decision-making is moving beyond intuition and relationships toward structured, performance-based evaluations.
Rolling together several specialists in the same niche can build the scale and earnings profile that public markets or strategics now demand. Operating partners borrowed from the PE world can raise margins by tightening pricing, supply chains or customer-success metrics – value that today’s exit environment pays for.
Venture funds which once prized speed above all else are discovering that a bit of operational muscle can shorten the road to liquidity more effectively than another marketing budget top up.
How the ecosystem can respond
Founders who used to plan for a sprint now need a marathon strategy. Cash discipline sits at the centre: burn rates that once felt acceptable have become red flags, so boards are asking for monthly gross-margin bridges and cohort profitability, not just user-growth charts.
Liquidity planning should move just as far upstream. Baking a small, board-approved buyback into every major raise reassures staff that equity is real money and gives angel investors room to fund the next wave.
For GPs, candour is now the best currency. Offering documents should acknowledge that a traditional ten-year horizon is unlikely and spell out how continuation funds, recycling clauses or structured secondaries will protect returns over a longer arc.
Many LPs are themselves active in buyouts, so they respect frank discussions about liquidity engineering.
A broader purpose than speed
The goal of venture capital has never been a stopwatch. It is to channel risk capital into ideas that can reshape industries. Borrowing methods from PE methods doesn’t dilute venture’s mission of funding transformative ideas. Rather, it introduces greater discipline, operational support, and more structured paths to liquidity, especially in slower markets.
Australia already punches above its weight in innovation. By pairing that creativity with PE-style pragmatism, the ecosystem can keep more ownership, and eventually more wealth, onshore even as exit windows lengthen.
Funds, founders and limited partners who adapt early will turn today’s slow market into tomorrow’s edge and, in the process, rewrite the rulebook for the next decade of Australian venture.
- Bhavik Vashi is the managing director, APAC & MENA, of Carta.
