TEN13 is a Brisbane-based Australian venture capital syndicate founded in 2019 by Stew Glynn and Steve Baxter. This article is the transcript and companion reference for Flight Club #2 - Portfolio Approach: Spread Your Wings, the second session in TEN13's investor education series, presented by Partner An Vo, Managing Partner Stew Glynn, Investment Principal Seamus Crawford and Investment Analyst Alexander Barrat. It covers why portfolio size drives expected returns in venture capital, the power law distribution behind outlier outcomes, the real impact of dilution, and how to diversify a venture portfolio across stage, sector, geography and time.

Why a Portfolio Approach Matters in Venture Capital

TEN13 invests first cheques of A$300,000 to A$2 million at pre-seed and seed stage in technology companies across Australia, New Zealand and globally. But no single investment decides an investor's outcome in venture capital - the asset class rewards investors who build a wide enough portfolio to capture its outlier returns.

Partner An Vo opened the session by framing venture returns through the lens of Fred Wilson, a venture capitalist who has invested since 1987 and is managing partner at Union Square Ventures - an early backer of Twitter and MongoDB across a portfolio of roughly 150 startups spanning seven funds over nearly twenty years.

If you look at the distribution of outcomes in venture, you will see that it is a classic power law curve, with the best investment towering over the rest, followed by a few other strong investments, and then a long tail of investments that don't move the needle. - Fred Wilson, VC, Union Square Ventures

Three ideas anchor TEN13's approach to portfolio construction:

• Broaden your chance at outlier successes - more shots on goal statistically increases the odds of backing a breakout company.
• Respect the power law - a small number of positions will generate the majority of a portfolio's return.
• Follow your winners, avoiding dilution - reserving capital to continue investing in the companies that are working is as important as the initial cheque.

The Power Law: Why a Small Number of Deals Drive Most Returns

AngelList studied the portfolios of more than 10,000 investors on its platform and found that portfolio size and expected return are directly correlated: the typical annual return of a 100-investment portfolio is almost 9 percentage points higher than a portfolio built on a single investment. The more venture investments an investor makes, the more likely the portfolio is to generate a positive, and higher, IRR.

Source: AngelList, studying portfolios of 10,000+ investors on its platform.

Andreessen Horowitz's own analysis of US venture investments from 1985 to 2014 shows the same pattern at industry scale: just 6% of deals produced 60% of total returns, while roughly half of all deals returned less than the capital invested.

Source: Horsley Bridge / Andreessen Horowitz.

Andreessen Horowitz's data also shows funds don't escape this pattern by avoiding losses - they escape it by swinging hard enough to catch the outliers. Data from Horsley Bridge, one of the world's leading fund-of-funds investors, shows that the top-performing venture funds (3-5x+ net returns) actually have a higher rate of money-losing investments than mid-tier funds (2-3x returns) - because they took the higher-risk bets required to catch genuine outliers.

An extreme example: Jason Calacanis and Uber

Prolific angel investor Jason Calacanis put US$25,000 into Uber's seed round through a scout program with Sequoia Capital. That single position was worth over US$120 million at Uber's IPO - a return of roughly 4,965x. It's an extreme outlier, not a typical result, and TEN13 uses it precisely to illustrate why portfolio construction matters: an investor needs enough positions in the portfolio for an outcome like this to be statistically reachable, because it is impossible to predict in advance which specific company will become the outlier.

How Much Should You Invest? A Worked Example

TEN13 walked through a hypothetical based on Australia's A$2.5 million sophisticated investor net wealth threshold, allocating 10% of net wealth to venture capital across 15 companies.

This is illustrative, not advice about how any individual should construct their own portfolio - the right allocation depends on personal circumstances, risk tolerance and how much capital an investor wants to hold in reserve for follow-on rounds into their winners.

The reasoning behind reserving a meaningful share of capital for follow-ons: losing a small proportion of net worth across a number of underperforming positions won't materially damage an investor's overall net worth, but backing one or two genuine outliers can materially increase it. That asymmetry is the core argument for a portfolio approach in venture capital.

Power Law in Action: Transition Level Investments' First 23 Deals

Stew Glynn walked through Transition Level Investments' (Steve Baxter's family office, and TEN13's predecessor) first 23 investments made between 2011 and 2019, illustrating the power law in a real portfolio rather than an industry-wide dataset.

This is an example of technology/software investments made by Transition Level Investments ("TLI") between 2011-19, measured as at early 2023. Valuations are marked-to-market to a company's last priced financing round; companies with no new investment are held at cost. Past performance is not indicative of future performance.

As Stew Glynn put it in the session: the winners take care of the losers. A portfolio needs enough upside potential that a handful of 10x+ outcomes can offset the underperforming half of the book - which is also why exit timing is a genuine strategic decision, not just an opportunistic one: selling a winner too early forfeits the very return the rest of the portfolio depends on, but venture positions are illiquid, so exit windows (a secondary sale, an acquisition offer, or an IPO) don't come along often and have to be weighed carefully when they do.

How this showed up in Transition Level Investments' actual fund performance

TEN13 benchmarks its own vintage-year performance against Cambridge Associates' top-quartile US VC fund data, split into two vintages: 2011-2016 and 2017-2019 (TEN13 itself launched in 2019).

Top-quartile benchmark figures from Cambridge Associates US VC fund vintage data, as at 30 September 2023. TLI figures are net of fees, expenses and carried interest, based on initial technology/software investments made by Transition Level Investments between 2011-16 and 2017-19 respectively. Valuations are marked-to-market to a company's last priced financing round. Past performance is not indicative of future performance.

Two Case Studies: DoseMe and Clipchamp

Both companies illustrate the same lesson from different angles - a strong seed bet, active follow-on decisions, and patience through a difficult stretch, in DoseMe's case, or conviction to go harder than usual, in Clipchamp's.

DoseMe: a 23x return through a difficult middle stretch

DoseMe is a B2B healthtech company that provided dosing software for dangerous drugs, aiming to reduce adverse drug events in hospitals. Transition Level Investments led DoseMe's seed round in 2014. The company went through a genuinely difficult period - one co-founder left the business, and DoseMe struggled to raise its next round. Steve Baxter personally decided to follow on, investing an extra $100,000 to help buy out the exiting founder's position, and the team helped restructure the business and recruit a new CEO.

Result: a 23x return. $600,000 invested across the seed round and the follow-on secondary returned $13.8 million - achieved through a mix of cash, acquirer stock, and a performance-based earn-out, all realised over roughly six years.

Clipchamp: conviction pays off with a Microsoft acquisition

Clipchamp is a Brisbane-founded B2B SaaS business that made online video editing easy for millions of customers worldwide through a product-led growth model. Transition Level Investments joined Clipchamp's 2017 seed round with $189,000 - whatever capital remained after other angel investors had already taken up $600,000-$700,000. After building conviction from engagement with the founders and seeing strong customer usage data, the team decided to lead Clipchamp's post-seed round with a far larger cheque.

Result: a 14.6x return. $1.27 million invested across three rounds returned $18.5 million. Clipchamp's founder, Alex, now reports to the CEO of Microsoft Office - the product now ships alongside Word and PowerPoint inside Microsoft 365.

The common thread: neither outcome came from picking correctly on day one and doing nothing else. DoseMe required a difficult follow-on decision during a genuine low point; Clipchamp required conviction to increase position size well beyond the initial small allocation once the signal became clear. Both required capital held in reserve to act on those decisions when they arose.

Dilution: Why Following On Protects Your Position

Dilution happens whenever a company raises a new round of funding after an investor's initial cheque. If that investor doesn't participate in the new round, their percentage ownership shrinks - even though the dollar value of their stake may still be rising as the company's valuation increases. This is one of the most commonly misunderstood mechanics in venture investing: entering at a certain valuation doesn't guarantee a proportional return at exit unless ownership is actively maintained.

In this example, the company's valuation rose 100x from seed to exit, from $10 million to $1 billion. Without dilution, a $100,000 seed cheque at 1% ownership would be worth $1 million at exit - a straightforward 100x return. But because the investor didn't follow on through Series A, B and C, their ownership fell to 0.42% by exit, turning the outcome into a 42x return instead of 100x. Still an excellent result, but less than half of what full pro rata participation would have delivered.

Why this matters for portfolio strategy: typical venture firms reserve 40-60% of total fund capital specifically for follow-on investing into their winners, rather than deploying it all into new positions. Four principles from the session: support high performers and concentrate capital on your "winners"; understand that venture capital operates on a milestone-funding model, so bridging a company to its next milestone is often what a follow-on round is for; own as much of your eventual winners as you can, because that's where the return actually lives; and use pro rata rights where available to limit dilution, while recognising that pro rata allocation isn't always available if a round is oversubscribed by new lead investors.

Diversifying Across Stage, Sector, Geography and Time

Alexander Barrat closed the core content by framing diversification the way a public-markets investor would recognise it, applied to venture's much longer time horizon.

Vintage-year diversification: don't deploy everything in one year

Because venture is a five-to-ten-year hold, timing the "right" year to invest or exit is extremely difficult. TEN13's own data on venture returns by entry timing shows returns vary meaningfully depending on the vintage year an investor enters, with historical "VC golden periods" - windows of outperformance - tending to follow periods of public-market uncertainty, such as the dot-com bust in 2001 and the Global Financial Crisis in 2008. Notably, Uber, Airbnb and PayPal were all founded during recessions, a pattern the session attributed to lower entry valuations, more capital-efficient founding teams, and heightened demand for disruptive solutions during downturns.

The practical takeaway: rather than trying to time a single "best" year, spread capital deployment across multiple years - for example, five investments a year over three years rather than fifteen in one year - so the portfolio captures a mix of market conditions rather than being fully exposed to any single vintage.

Other forms of diversification

• Stage - spreading investments across pre-seed, seed and Series A rather than concentrating in one stage's specific risk profile.
• Sector - not concentrating in a single category, even a currently fashionable one.
• Geography - the session noted that while the US has been the dominant tech market for roughly the last decade, that hasn't always been true. Between 2000 and 2013, the S&P 500 was essentially flat through two crashes, a period when narratives shifted toward emerging markets including China and South America as sources of alpha. Geographic diversification is a form of risk management that gets easy to overlook in a venture landscape that is often heavily US-focused.

Simulating Your Own Angel Portfolio

TEN13 shared an interactive Angel Investing Portfolio Model that lets an investor input their net worth, the percentage they want to allocate to venture, and the number of investments they want to make, then simulates return scenarios across five outcome bands - outlier, high, medium, low and disaster - each with adjustable probability weightings and return multipliers (0x, 10x, 100x, 1000x).

Who Presented This Session

Flight Club #2 was presented by four members of the TEN13 investment and investor relations team.

As a team, TEN13 has 30+ years of combined venture capital investing experience, has deployed $120m+ in funds under management, has backed 100+ companies, and holds 8 board positions.

Further Resources on Portfolio Construction

Frequently Asked Questions About Portfolio Construction in Venture Capital