Canva debates secondaries sale as tech valuations slump

“We fully endeavour to do a secondary round in the second half of the year, and it’s something we’ll assess over the next few months,” a Canva spokesman said.

“We don’t have a crystal ball but if [a market deterioration] does happen, and we don’t do a secondary ... then we will have to reassess at the time.”

Secondary share sales are valuable liquidity events for start-ups, whereby the earliest employees can get rewarded, converting paper wealth into cash.

In the UK, Softbank-backed private firm Revolut allowed workers to sell shares in secondaries, which led to more than 75 employees becoming millionaires.

Canva was valued at $US40 billion ($60 billion) in its last external funding round in September 2021, but it suffered markdowns to $US25.6 billion last year as Aussie venture-capital backers followed US investors in re-assessing private tech firms.

Individual shares in Canva were understood to be worth $US1680 at its last funding round, but sources said its shares were currently on offer in US secondaries markets for hundreds of dollars less. The Financial Review was unable to verify the secondary price, however.

Discussions about what to do with employee shares within Canva mirror those playing out across Australia’s private tech sector, as the IPO window remains firmly shut.

AirTree Ventures’ Daniel Petre says Australia’s secondaries market will grow. Peter Braig

Brokers have been approaching employees and founders hoping to buy stock in promising firms. One start-up has raised the idea of setting-up its own data room to bring together prospective buyers and employees to get the fairest price.

AirTree Ventures co-founder Daniel Petre, who no longer has a role at the VC firm, said the sale of secondaries was particularly tightly managed by founders in Australia, where they have more control of the process.

“There are lots of paper millionaires in Australia, but the secondary market doesn’t really exist in the same way it does in the US,” Mr Petre said.

“And there is a reluctance to signal valuations at the moment, because if someone sold a bunch of shares at a much lower price to what the market believes the company is worth – which is set by the previous valuation – then that could be a real issue when the company tries to raise again.”

Successful private tech firms can find the issue of illiquid staff shares a growing problem, if there are no signs of an IPO on the horizon.

Early this year Silicon Valley-based payments firm Stripe had to raise $US3.5 billion from private investors, to help early employees hold on to the firm’s stock in the face of a massive tax bill caused by its failure to go public.

“The good news is it goes away,” Mr Petre said. “And Australia is maturing, so we will see in a few years more IPOs and there will be more mechanisms for employees to sell shares. Until then, it’s a matter of sitting tight.”

Liquidity in Australia’s secondary market will remain tight, as long as larger players avoid raising capital. The market has fallen away markedly in the past year, with private company valuations down as much as 40 per cent.

Brisbane-based unicorn Go1 has given early employees share options in the corporate training marketplace. It raised $US100 million from investors at a $US2.8 billion valuation last year, and the start-up’s founder Andrew Barnes said he expected the unpredictable market to be around for some time.

Go1 co-founder and CEO Andrew Barnes says he will open up datarooms to help secondary transactions take place. Dan Peled

“Pricing is the trickiest thing right now,” Mr Barnes said. “Without a capital raise event it’s hard for people to have a price signal and the market could stay like this for a while.”

Venture-capital investors generally receive preference shares, while employees often receive ordinary shares, reflecting different status on the company’s share capital table.

While Canva manages its employee sales centrally, negotiating the sale price with investors on their behalf, Go1 has generally allowed employees to negotiate with outside buyers independent of the company.

“But that only works when there are clear price signals like a capital raise,” Mr Barnes said.

“So we will probably open up data rooms for prospective sales to help both buyers and sellers get an idea of company fundamentals to determine a price.”

US-based brokers have been approaching Australian tech company employees via email and LinkedIn to offer direct sales for ordinary shares, as well as using platforms such as EquityZen, Forge and Carta to determine prices for private companies.

“We’ve certainly seen emails where people are looking to be opportunistic and buy things cheaply now just because the public markets are down,” Mr Barnes said.

Ian Beattie, co-founder at SecondQuarter, Australia’s largest fund dedicated to buying secondary stock from employees, says some secondary transactions have been discounted to previous capital raise rounds.

“Everyone knows the market has fallen and everyone is being realistic when it comes to pricing,” Mr Beattie said.

“And obviously there are companies that would love to have the same multiples as when the market was higher, but liquidity has always been an issue in Australia because the capital pools are comparatively small.”

During an interview with the Financial Review last month, SafetyCulture CEO Luke Anear said his company had no plans to IPO, so was actively looking for ways for early employees to cash out and help them with large personal purchases.

“We’ll continue to look for those opportunities so that people who have worked for seven or eight years building SafetyCulture can help pay down mortgages and things,” Mr Anear said.

“There’s a number of ways you can do that and we’ve done that each year for people anyway.”