TEN13 co-founder Stew Glynn: ‘Great businesses will be built regardless of the market cycle’

TEN13 co-founder Stew Glynn: ‘Great businesses will be built regardless of the market cycle’

TEN13 co-founder Stew Glynn.

Of the 550-plus members of fast-growing venture syndicate TEN13 - known for investments in the likes of Clipchamp, Go1 and Mr Yum - around 70 per cent are reporting plans to invest the same or more in 2022 than last year, citing better opportunities despite the slowdown in capital markets.

TEN13 co-founder Stew Glynn says whilst deals are taking longer to close and unit economics have become a higher priority in later stage funding rounds, he is not seeing any fundamental change in demand at a commercial level for companies within the portfolio - one that he hopes will reach $100 million in funds under management (FUM) over the next year.

The Zimbabwean-born finance expert sees the irony in a goal such as this given his wariness of "vanity metrics" in the startups he researches, but he also knows the importance of ambition - one of many traits he looks for in the founders of the 100-150 companies he looks at every month, which usually only lead to one or two deals.

Having shaken up the angel investing space in Brisbane and Australia alongside co-founder Steve Baxter and partner An Vo, Glynn explains TEN13's unique model and shares his views on the current startup environment, what it takes to adapt quickly and succeed, and the lessons to be learned from failure.


Plucked from the pitching floor of Brisbane's River City Labs which was founded by Baxter upon his return to Australia from Silicon Valley, Glynn took a leap of faith seven years ago to quit the corporate world in exchange for a venture vision.

This began with managing Baxter's direct family office Transition Level Investments, where Glynn's knack for deals from his experience at GE and KPMG could be combined with his new employer's added value on the investor register to give advice and open doors to potential customers.

This spawned the idea that creating a community of investors would be "more valuable than if we had 100 Steves", setting up TEN13 to draw on diverse backgrounds in various industries for a deal-by-deal venture model.

"Our view was that they would help us find and uncover more exciting companies because there’s a network effect, and we can do better diligence on those companies because we understand them better," Glynn explains.

"Our investors are a broad mix. We have people from Afterpay, Canva, Stripe, these sort of scale-up companies like Uber," he says, adding notable new investors who have joined include Zsofi Paterson, Australian CEO of Chris Hemsworth's fitness app Centr, and TechnologyOne (ASX: TNE) founder Adrian Di Marco, a "30-year veteran of building enterprise software".

The network also features founders Transition Level has backed in the past, such as DoseMe co-founder Rob McLeay.

"We invested in that company. It was a Brisbane-based software company in the health tech space, they did dosing of dangerous drugs, and ended up being acquired by Tabula Rasa which is a publicly listed NASDAQ company.

"Then Rob has now gone full circle and started reinvesting through us, but we can call up Rob on any healthcare company - he was the CTO and co-founder, and he can give us insight into whether it’s interesting."

Adding to the mix of founders and scale-up employees who are investing through TEN13, the syndicate is also trying to attract more corporates.

"We've got got folks from Woolworths and a wide range of corporate execs, and we do have some of the VC/investor background like at Macquarie - I'd say it's people with a variety of career bases and skillsets who want to get access to exciting companies, but they also want to learn about ventures," Glynn says.

"The black box of venture capital is you kind of tip your money into a fund and hope that 10 years later you’re going to get a return...in our model we send you a sort of 5,000-word memo on every deal and you make an investment decision, like an angel investor would if you want to support the company."

It is an approach that can also make life easier for founders themselves looking for capital, provided they are able to convince the team at TEN13.

"As a founder, the usual experience of going to angel investors is you go and have 20 coffees and you end up walking away with a couple of people that are a good fit," he says.

"In our scenario, we've got over 500, you don't have to talk to any of them, but then once they’re invested they’re aligned, they want to help you.

"And they’ve got X experience that can be helpful, so if it’s go-to market in the US, or introductions to X companies, we try and engage the network to help us."

For example, connections to investors from Woolworths Group (ASX: WOW) have no doubt proven helpful for fast-moving consumer goods (FMCG) or retail technology companies in the TEN13 portfolio, such as non-alcoholic beer brewer Heaps Good and advanced computer vision AI provider Tiliter.

"Tiliter does weighing scales and using machine vision to understand whether it’s an orange without having to go tap it on the screen, for instance," Glynn says.

"They’re rolling out through Woolies at the moment, and we’ve got a couple of investors at Woolies who help us validate the company and the contracts they’re working on and the opportunity for them...they’ve got exposure in the US and parts of Europe, so it's a very exciting business.

"The helpful part was we could not only do better diligence because we can pick up the phone and ask people about the opportunity and for validation, but separately from an engagement perspective, a potential customer like that is game changing for a company."

TEN13 also has a growing portfolio of overseas companies, particularly in emerging markets with notable successes such as African fintech unicorn Chipper Cash and Colombia-headquartered digital ledger app Treinta, which in April recorded one of the largest Series A rounds in Latin American history.

Glynn notes there are networking benefits to be gained from having international investments as well.

"A good example is that we've done Treinta, we invested in a company called Kippa in Africa, and we've invested a company called Bookipi in Australia. They're all doing product-led, lightweight bookkeeping tools for small and medium-sized businesses, so we've connected those founders to share learnings," he says.

"They're not conflicted because they're focusing on different markets. They have a certain level of overlap in terms of their offering but they're also going down different tracks of how they monetise and how they grow their businesses...it's been helpful for us and for them to understand the businesses and opportunities."

Finding 'founder-market fit' and avoiding 'vanity metrics'

Seeing between 100 and 150 companies a month, there is no one-size-fits-all approach for Glynn in deciding to back certain founders, but most of what he looks for can be distilled down to one word - potential.

"You look at the potential for this team to deliver on ambitious goals and vision, and then you start breaking it down into all the other different parts: What's the market? What's the problem they're solving? At the earliest instance, it really comes down to the team and do they have the capacity," he says.

"We very rarely will invest in a technology business without a tech founder...if they feel they can't build the product, it's hard for us to make an investment decision to say yes, because we know how long and how hard it is to build software. If you don’t have the capability in-house, that’s a challenge."

He also aims to determine what aspect of quality does a team have, for example background experience, ambition, or "founder-market fit".

"Product-market fit is around whether what you’re selling is actually getting to the customer base, but what we refer to is founder-market fit. Is this founder or group of founders among the best placed in the world to execute on this problem, and why?"

The TEN13 community generally invests in early stage companies, but Glynn clarifies there have been some notable exceptions with a handful of pre-seed investments.

"One was a company called Carted. Holly Cardew is the CEO and we’ve known her for five years, we had a high degree of confidence in her. She’d built a prior business called Pixc and she was a Forbes 30 under 30 in the e-commerce space," he says.

"We wrote a US$500,000 pre-seed cheque basically on a pitchdeck of what they were trying to build into the company, and then they raised a US$10 million seed round led by Blackbird and us.

"It was an easy sell...we wanted to support this person because we knew she’d already built a business before, and was ingrained in the e-commerce space and knew the sector very well."

At that pre-seed level it is essential that a business has some kind of high-level traction to garner Glynn's interest.

"It doesn't need to be revenue, depending on the stage, but you want to basically see usage of some form," he says.

"There are different forms of traction, profit being the end goal, but it doesn’t really happen in startups until they grow their businesses and get to that further part of their journey most of the time, although that's become more of a focus for later stage funding rounds - capital efficiency, unit economics, profitability, things like this.

"Is this business solving a problem? Are customers loving it, even your initial early customers? Is the team executing on it, can they attract good talent to help them build the business? What’s their vision?"

However, the investment expert cautions some numbers produced by startups need to be taken with a grain of salt.

"We call this vanity metrics. For instance, often times people will say GMV (gross merchandise volume), which is like topline volume, is revenue, but it's not actually revenue because they might clip like 2 per cent off that or something," he says.

"It can also be users, for example they might say ‘we’ve had a million people sign up to the platform’ but only 20,000 are actually engaging and using it.

"In short, it’s worth talking about them to show velocity and momentum, but when the rubber hits the road you need to show substance behind that the metrics and the reality."

He says founders will often try to lead with the bigger figures to entice you, and doing so well requires a subtle balance; not overselling the reality.

"If you start uncovering a bunch of stuff which shows the transparency hasn't been there, all of a sudden that's a red flag. If you start digging in and figure out a lot of what’s being told is not entirely accurate, sort of pulling the wool over your eyes, that’s a quick way to get a ‘no’ from an investor," Glynn explains.

"We also know that building a business is exceptionally hard and we’re playing at the earliest stage where there’s a decently high risk of failure, but the upside opportunity for those if they’re successful is also material.

"You also don’t want to lead in with a glass jaw, saying ‘these are all the problems’, because obviously they’re still pitching, they want to tell a good story. We know there are problems in every business. There will be business problems forever...it's a question of can they scale? Are they realistic about those problems and how they’re solving them?"

On this topic, he highlights there can be added benefits to investing in younger founders who haven’t been battle-worn, because those with experience in a certain sector understand the challenges so acutely that they might be more likely to turn away from trying something new in that space.

"We don’t say you have to have experience in your industry to go and disrupt a new industry, because oftentimes a fresh set of eyes and like ambition is actually a good thing, because you don’t go into it with the knowledge of the challenges ahead. You go back to first principles of solving problems."

"Run towards the fire": Mr Yum case study shows how founders can level up

For up-and-coming entrepreneurs the news of startups announcing eye-watering capital raises can be overwhelming, and a great source of admiration. But for companies like hospitality ordering Software as a Service (SaaS) Mr Yum, which raised $89 million in a Series A in late 2021 in just its third year of existence, success was never predestined.

It is worth remembering the founders behind prominent, fast-growing scale-ups are only human. And in his role at TEN13, Glynn is able to see how entrepreneurs develop professionally through the ups and downs, growing as their businesses scale up.

"Mr Yum is a good example. Kim [Teo] and one of her other co-founders Kerry [Osborn] had a business, it failed, they learned a lot of lessons from that. They started another business called pitchblak here in Brisbane, and then they launched it in Melbourne; it was a consultancy business to help companies launch from idea to start," says Glynn, who is a board member at Mr Yum.

"They sort of 'dogfooded' that themselves, and they started Mr Yum by saying ‘menus have been around for hundreds of years and it hasn’t really changed. Why is this not digital?'

"They started from scratch, they already had a failed business before which is not a bad thing. They were willing to go out and build something – it didn’t work out, but without that sort of knowledge and understanding, they wouldn't have gone on to the next step of trying to launch their next business."

With its other co-founders Adrian Osman and Andrei Miulescu, Mr Yum has grown rapidly, and Glynn notes that the problems you deal with when you have 200 people and are scaling up overseas are very different to when you just have 10 staff.

"From our view, and the reason why we love this team is they’re heavily culture focused – they have a very low [staff] turnover," he says.

"They have an ability to what they call ‘run towards the fire’ which is embracing the fact there’s challenges ahead.

"The middle of COVID is a good example; it was almost impossible to get out of Australia, and they literally left and went to launch the US market. They would have never attracted global venture capital unless they said ‘we’re launching in the US, the UK’ and ‘we’re going to take this market we think Australia is leading the charge in at-table ordering’."

He adds that amidst pandemic lockdowns in Melbourne, Mr Yum's biggest market at the breakout of the pandemic, there was a threat to its business with a lot more factors in favour of delivery services like UberEats.

"Mr Yum in basically two weeks pivoted and built and ordering solution, and partnered up with a delivery business to enable you not to use UberEats; you can just host it on your website and basically have an online ordering portal," Glynn says.

"So to be able to pivot their product and create a new product to service their customers and help those hospitality groups was incredible. And they almost replaced their revenue in three months, but when things bounced back they effectively went back to their core product, so that shows their nimbleness."

Can a business stand on its own two legs in a tapering capital market?

When asked whether volatile financial markets are affecting his approach to investing, Glynn replies that not much has changed at the early stage that TEN13 targets. Nonetheless, the capital market has "slowed up materially" so deals are taking longer to close.

"We still fundamentally believe in early stage investing, backing high quality founders with ambition," he says.

"We think technology is here to stay. It's going to continue to disrupt and great business will be built regardless of the market cycle.

He says whilst capital markets have changed, this comes after a year when the "ventury industry got a bit ahead of itself" with a high velocity of deal flow and an influx of capital.

"Capital was abundant and a lot of businesses got funded and some may not have had the fundamentals of what they should have had," he explains.

"I think that’ll wash out over this time – it doesn’t mean good businesses aren't building and aren't selling software. We’re fundamentally at this point not seeing a change in demand for the companies on a commercial level."

He says a lot more questions are being asked about the sustainability of a businesses at later rounds like Series B and C, not necessarily in terms of profit but capital efficiency.

"For every dollar of revenue, how much does it cost you to actually build the team to do it? What’s your burn multiple? What’s your runway?

"If you strip away pushing hard on growth or product completely, so you don’t go and build new products and features, is this business going to stand up on its own two legs?

"But I think that’s relatively healthy. The bifurcation there is there’s a lot of dry powder, so there’s a lot of venture capital that’s been raised. There’s a higher bar on the quality level, and more hesitation around investing at all costs."

Despite that degree of reticence, Glynn does not see any demand slowdown from investors as material.

"In 2019 we did $2 million, in 2020 we did $8 million, and last year we did $40 million, and the first half of this year we did $20 million. So we're basically on pace with last year," he says.

"When we poll our investors, 70 per cent say they want to do the same or more investing this year because they think there’s a better opportunity now than last year."

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