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Welcome, Bryan and Philip! by @ttunguz
We’re excited to announce our Head of AI, Bryan Bischof, and our first entrepreneur in residence, Philip Zelitchenko. A practicing professor of data science at Rutgers and a Math PhD, Bryan has spent the past two decades building AI and data science practices across thought-leading startups, including Hex, Weights & Biases, Stitch Fix, Blue Bottle Coffee and many others. Recently, he published his learnings on a year’s worth of learnings building with AI here.
A Founder's Guide: Essential Sales Implementation Advice for Startups by @ttunguz
As startups scale, effective sales implementation becomes the difference between stagnation and sustainable growth. After analyzing hundreds of sales organizations across startups, I’ve distilled the key pieces of advice that founders and leaders should keep in mind. 1. Sales Strategy Fundamentals Start with the right price: Establish pricing that reflects value rather than just covering costs. Define your ICP: Clearly identify your ideal customer profile before building your sales process. Understand sales velocity: Recognize that sales success depends on both deal size and deal frequency—optimize for predictability.
A Founder's Guide: Essential AI Implementation Advice for Startups by @ttunguz
As AI capabilities accelerate, effective implementation becomes the difference between wasted investment and transformational success. After analyzing hundreds of AI deployments across startups, I’ve distilled the key pieces of advice that founders and leaders should keep in mind. 1. AI Strategy Fundamentals Start with the problem: Define specific business challenges before exploring AI solutions—not the other way around. Build or buy decision: Evaluate whether to develop custom models or leverage existing AI platforms based on your competitive advantage.
The Great Liquidity Shift by @ttunguz
71% of exit dollars in 2024 came from a new avenue : secondaries. Historically, IPOs and M&A have been the dominant exit paths for venture backed companies. Some years IPOs dominate, other M&A dominates, but in 2024 secondaries captured the super majority. When a company sells new shares to investors in exchange for dollars, they create new shares in the company - primary shares. When existing shareholders sell their shares to new investors, we call this a secondary sale.
The Price of Distinctiveness by @ttunguz
You have to pay a price for your distinctiveness, and it’s worth it. The fairy tale version of “be yourself” is that all the pain stops as soon as you allow your distinctiveness to shine. That version is misleading. Being yourself is worth it, but don’t expect it to be easy or free. You’ll have to put energy into it continuously. The world wants you to be typical – in a thousand ways, it pulls at you.
The Digital Hot Dog : Marketing in the Age of AI by @ttunguz
What is a webinar in the age of AI? It’s a blog post. And a podcast. And a video. And a meme. Let me explain. For many webinars, I’ll send a notetaker in my place, a robot to record the conversation & summarize it in the way I ask. A personal journalist in a sense. Instead of watching & listening to a conversation, I’m transmogrifying the subset of the content that matters to me into the format I prefer : a summary in a template, in other words, a blog post.
The Third UI : The Rise & Fall of the Keyboard by @ttunguz
I remember the day I received it : my first Blackberry. A few weeks later I lost it in the back of a taxi cab in Paris. But I haven’t forgotten the chiclet keyboard, its subtle click with each keypress. A year later, the iPhone presented the world with an all glass keyboard. Who would type on a flat surface, detractors asked? In the end, all of us. This week, I saw another user interface for a phone : dictation only.
The Implications of the Wiz/Google Deal by @ttunguz
Is tech M&A back? Google announced its intention to buy Wiz for $32b today. If approved by regulators, it would be the 6th largest technology M&A ever. This transaction would make Wiz the 5th most valuable pure-play security company. For Google, this would be its largest acquisition ever second to Motorola for about $12b. Notably two of the top three acquisitions are security. Mandiant sold for $5.4b. Why should Google be so interested in security?
Halving R&D with AI & the Impact to Valuation by @ttunguz
Engineering teams within AI application startups are much smaller than a classic software company - maybe half the size or less. Let’s run an experiment : let’s assume every public software company benefits immediately to the same extent & cuts R&D spending by half.1 How would the value of these businesses change?2 72% of unprofitable SaaS companies would become profitable. The typical SaaS company would increase from 4.4% net income margin to 15.
The Mirage in the Software Clouds by @ttunguz
Public SaaS companies’ growth rates have halved since 2023, as David Spitz pointed, from 36% to 17%. Why? There are few, fast growing, younger SaaS companies to sustain the growth rates. The top quartile companies are growing at slower rates today than the bottom quartile companies in 2016. The median has never been lower in the last ten years. It’s not to say software spending is slowing (it’s not), or that there aren’t fast-growing businesses (they thrive in the private markets).
This Analysis Cost 27 Cents by @ttunguz
Monday’s analysis cost about 27 cents to produce. This little screenshot is of Claude Code, the product I use now to write the analysis of datasets like estimating the value of a venture firm. I didn’t expect to find this feature initially as useful as I do now. But it makes me feel great because of how inexpensive it is to be productive. 27 cents for a statistical analysis of a small dataset is a bargain considering the battery of statistical tests the AI applied.
Positioning Startups in the Age of AI by @ttunguz
How do you position and scale an AI company in a rapidly evolving market? Join us for an in-person Office Hours session in San Francisco with Alan Hsia, VP of Marketing at Fireworks AI. Alan brings deep expertise in go-to-market strategy and will share insights on: Building a strong brand in AI from the early stages Creating a differentiated GTM strategy to create distance from competition Aligning marketing with sales for maximum growth This session is designed for early-stage AI founders looking for tactical advice from a seasoned Marketing & GTM leader.
How Much Is A Venture Firm Worth? by @ttunguz
A small spin-out from a publicly traded behemoth launched with the ambitious vision of transforming their entire industry. Within just a few years, as capital markets shifted in their favor, they emerged simultaneously as both innovators & titans in their field. We don’t often think of private equity this way, but that’s exactly what happened when KKR spun out of Bear Stearns and Michael Milken at Drexel Burnham Lambert catalyzed the junk bond boom of the 1980s.
Why War & Peace Is Killing Your Data Budget by @ttunguz
Imagine if every time you edited a document, the word processor forced you to retype everything that had been written before that edit. How expensive would that be for a company? This is exactly how data transformation works today. Each time a data engineer modifies some part of the data stack, the Cloud Data Warehouse & its transformation layer recalculates everything. What if the system were designed so that it only recalculated the metrics needed?
A Founder's Guide: Essential Management Advice for Startups by @ttunguz
As startups scale, effective management becomes the difference between chaotic growth and sustainable success. After analyzing hundreds of posts on startup management, I’ve distilled the key pieces of advice that founders and leaders should keep in mind. 1. Management Philosophy Management is a design pattern: Just like engineering has patterns, management has best practices that can be learned and applied systematically. Use Situational Judgement: tailor support for employees ranging from micromanagement for new hires to hands-off for high performers.
Lopsided AI Revenues by @ttunguz
Which is the best business in AI at the moment? I analyzed Q4 revenue data from publicly traded companies across multiple sectors—software companies, consulting firms, and hardware manufacturers to determine which segment dominates the AI market. NVIDIA’s data center business dominated the field, generating $31b in Q4 revenue with impressive margins exceeding 70%. In second place, Microsoft’s AI business, including Azure, is at a $3.25b Q4 revenue. IBM reported $2b, which was a big surprise to me.
Four Marketing Principles That Redefine Markets from Klaviyo's Former CMO by @ttunguz
During a recent Theory Office Hours with Kady Srinivasan CMO at Lightspeed Commerce, Dropbox, and Klaviyo, we discussed several powerful insights emerged on how early-stage companies should approach marketing. Here are the highlights : Define Your ICP Before Anything Else The most fundamental decision for any startup is determining your Ideal Customer Profile (ICP). Without clarity on exactly who you’re targeting, GTM efforts become diluted and ineffective. The earlier the company, the narrower it should be.
The Complete Guide to SaaS Pricing Strategy by @ttunguz
Most startups play defense when discussing pricing with customers. They dance between asking for too little, leaving money on the table, and asking for too much, only to lose the customer’s interest. The very best companies lead their customers in that dance. They use pricing as an offensive tool to reinforce their product’s value and underscore the company’s core marketing message. For many founding teams, pricing is one of the most difficult and complex decisions for the business.
What Happened to My Traffic? by @ttunguz
Chegg filed suit against Google for changes in their algorithm forcing the company to consider a sale. They allege the Google AI Overviews feature displays Chegg’s AI-enabled Q&A homework helper. This suit stands as the first of its kind challenging Google for changing search patterns, but it won’t be the last. The data tells a stark story. Looking at Chegg’s traffic using SEMRush analytics, their organic traffic has dropped from 5.
AI Fluency : The Next Interviewing Skill by @ttunguz
Algorithms needed for unpredictable journey. Significant compute costs, endless data processing, long periods of unexplained failures. Safe convergence doubtful. Honor & recognition in event of success. What Shackleton might have written in 2025. AI isn’t perfect but its productivity gains are undeniable. ServiceNow, Microsoft, and Amazon, plus nimble startups generating tens of millions in ARR with teams small enough to feed with a few pizzas all have benefitted. The new boast of 2025?
Auctions in AI : Cost of Capital as a Strategic Advantage by @ttunguz
A decade ago, most startup pitches ended with a calculation justifying the amount they sought to raise. In other words, the raise was an output of the financial model. But for the most sought after companies, the raise amount is disjointed from the capital needs of the business - instead it’s driven by the fundraising auction. Great fundraisers are the teams that build the most auction pressure. This auction dynamic, combined with venture capital’s explosive growth over the last decade, has transformed fundraising strategy.
The AI Elbow's Impact : What Reasoning Means for Business by @ttunguz
October 2024 marked a critical inflection point in AI development. Hidden in the performance data, a subtle elbow emerged - a mathematical harbinger that would prove prophetic. What began as a minor statistical anomaly has since exploded into exponential growth. Since then AI performance has surged attaining a new trajectory, a new slope - no longer linear but geometric. Segmenting out the models by size & type reveals a striking shift in innovation’s source.
Fast-Track Your Growth: GTM & Marketing Office Hours for SF Founders by @ttunguz
For pre-seed to Series B founders, navigating GTM strategy, marketing, and positioning can be challenging. When should you hire your first marketing leader? How do you scale GTM efficiently? When is the right time to invest in branding? To help founders tackle these challenges, Theory Ventures is hosting exclusive 1:1 Office Hours with Kady Srinivasan, former CMO at Lightspeed Commerce and GTM leader at Dropbox and Klaviyo. Kady has led GTM teams that scaled revenue from $150M to $600M ARR, drove successful IPOs, and optimized marketing efficiency at scale.
Google's Future in Search & AI by @ttunguz
Google’s earnings call identified some major changes and unexpected outcomes, including the performance of AI Ads, the importance of hardware compared to algorithmic efficiency gains, and the groundswell of developer adoption for Gemini models. AI algorithms have had a thousand times reduction in inference cost over the last three years. There is another cost reduction curve, which is the compute per watt of electricity. Google reveals that this is decreasing at half of the rate of algorithmic efficiency.
Theory is Looking for a Head of AI by @ttunguz
Theory’s name isn’t just a name - it’s our ethos. We develop & test theories about the future of technology, business, & venture capital through constant experimentation. We’re seeking an architect of the future, someone who thrives at the intersection of AI & process design. Ideally, this person : enjoys architecting processes and implementing them with a team is relentlessly curious about new technologies & techniques has a good understanding or desire to learn about great sales teams thrives in a warm, collaborative, & urgent culture Apply here if you’re interested.
$1.2b of Revenue in 30 Days by @ttunguz
Web3 is putting up real revenue numbers. Over the last 30 days, the top 20 public Web3 projects generated $1.2B in revenue. This isn’t some theoretical valuation metric. This is hard revenue, derived from trading and other financial fees. And it tells a compelling story. A power law is clearly at play. While we might expect this in a nascent market, the sheer scale is impressive. Even the smallest project on this top 20 list is running at a $75M annual run rate.
AI Impact Curves by @ttunguz
What is the impact of AI across different levels of seniority? Over the weekend, I read Sergey Tselovalnikov’s post on AI Impact Curves. The software engineering curve reveals an intriguing pattern. Junior engineers experience both benefits and risks from AI. Staff+ engineers also gain tremendous leverage at the senior end of the curve. However, mid-level engineers see more modest impacts, primarily because they are proficient with their codebases and can write effective code adeptly.
Faster Sales Cycles & Software Buyer Confidence by @ttunguz
Cloudflare’s earnings last week revealed something more significant than just company optimism: a fundamental shift in software buyer confidence. “However, as the quarter progressed, we saw encouraging signs that confidence is beginning to return, particularly in the U.S. Security, AI, modernization and efficiency form the word cloud we hear most often in these conversations. These themes play directly to Cloudflare’s strength.” Sales cycles are accelerating. “Beyond the qualitative, we saw measurable improvements in Q4.
It Pays to be an AI Company by @ttunguz
AI startups represent about 70% of B2B Series As, up from about 40% in early 2024. On average, AI Series As raise at 40% higher valuation than non-AI companies, a multiple that has been increasing over time. But this is less of a premium than in the public markets. As of January 31, an AI publicly traded software company trades at twice the multiple of a non-AI software company. Forward ARR Multiple
$13b Run Rate & Doubling by @ttunguz
Microsoft announced earnings yesterday & the data painted a brilliant picture for the future of AI. Greater than 30% annual growth in back-to-back quarters is sensational for a $100b run rate business. Microsoft is projecting similar for next quarter. The AI subset is on a $13b run rate, more than double last year. Azure other cloud services revenue grew 31%. Azure growth included 13 points from AI services, which grew 157% year-over-year, and was ahead of expectations even as demand continued to be higher than our available capacity… In Azure, we expect Q3 revenue growth to be between 31% and 32% in constant currency driven by strong demand for our portfolio of services.
Darwin's Finches in AI by @ttunguz
Darwin’s finches sprinted to evolve when food sources changed. For decades, nothing—then sudden transformation. AI follows the same pattern & it’s accelerating. Every morning, I wake up wondering what breakthrough will propel the ecosystem forward. Last week, it was DeepSeek v2. This morning, a Hugging Face researcher announced that he could induce reasoning on the major advance of the last three months in one of the smallest models, a 3B parameter model.
The AI Cost Curve Just Collapsed Again by @ttunguz
A microwave that writes its own recipes. A smart watch that crafts personalized workout plans. A ticket kiosk that negotiates refunds in natural language. This isn’t science fiction - it’s 2025, & DeepSeek just made it far more affordable. The Chinese AI company released two breakthroughs: V3, which slashes training costs by 90+%, & R1, which delivers top-tier performance at 1/40th the cost. But the real innovation? They proved that sometimes simpler is better.
Top Themes in Data Transcript by @ttunguz
Slide 1 Clearing: While data world consolidates, capabilities have exploded with AI. Content: AI is rewriting every rule about what’s possible with data Those two forces in tension will make for an exciting 2025 Slide 2 Clearing: My name is Tomasz Tunguz, founder and general partner at Theory. Content: I’ve been investing in data for the last 17 years and have worked with companies like Looker, Monte Carlo, Hex, Omni, Tobiko Data and Mother Duck I founded Theory, a venture firm managing $700M with the idea that all modern software companies will be underpinned by data and AI We run a research-oriented firm, formed by 200 buyers of data and AI software Transition:
Top Themes in Data in 2025 by @ttunguz
There are two opposing forces in the world of data: an overall consolidation within the modern data stack & a massive expansion driven by AI capabilities. AI is rewriting every rule about what’s possible with data in 2025. Here are Theory’s Top Themes in Data in 2025 with the full presentation at the bottom. The Great Consolidation. After a decade of expanding complexity in the modern data stack, companies are looking to dramatically simplify their architectures to drive better results.
What DeepSeek's Newest Model Means for AI by @ttunguz
Over the weekend, a small Chinese hedge fund turned star AI research outfit launched DeepSeek R1, a new massive open-weights model with state-of-the-art performance, trained on a shoestring budget. Just how much interest is there in this advance? I analyzed R1 downloads on Ollama, and I recorded my steps to perform this analysis with AI using speech, an AI model, & a developer environment. See the video below if you’re curious how I did it.
From Blank Canvas to a Brilliant Presentation with AI by @ttunguz
A few days before the deadline, I’d find myself in that familiar pool of anxiety : staring at a blank digital canvas, clock ticking, knowing the next 20 hours would dissolve into a blur of bullet points, chart creation, & late-night pixel-alignment. Time to make a presentation. With AI, I’ve slashed the time it takes to build a presentation from a full day down to just a few hours I start with the essence - three key ideas or stories that will resonate with my audience.
Building GTM for AI : Office Hours with Maggie Hott by @ttunguz
On Thursday January 30th :at 5:30 Pacific time, Office Hours will host Maggie Hott, GTM Leader at OpenAI. This Office Hours session will be held in person at SHACK15 in San Francisco & is for early-stage founders. Maggie will dive into mistakes founders make building GTM for AI companies — ranging from hiring practices to pipeline building & pricing strategies—and provide actionable insights on how to avoid them. If you’re interested in attending, please register here.
Tech's $370B Paradox: Why Cash-Rich Giants Might Not Lead 2025's M&A Race by @ttunguz
Despite holding a staggering $370b war chest in 2025, tech giants aren’t racing to acquire companies – they’re too busy building their AI empires, one data center at a time. Microsoft hasn’t acquired a company since January 2023. Two of Google’s reported acquisition overtures, Wiz & Hubspot, were scuttled. This focus elsewhere creates an opportunity for mid-market players to lead the M&A wave of 2025. As of January 2nd, these major acquirers hold $370b in cash & short-term equivalents.
Back to Text: How AI Might Reverse Web Design by @ttunguz
AI saved me from cookie banners, travel insurance popups, car rental quotes, & the special frustration of comparing flight options across tabs. I downloaded an open-source agent, tweaked it & watched it find the cheapest flights for my trip from San Francisco to Newark. One-Way Trip (12 Jan 2025) Airline Departure Arrival Duration Stops Price United Airlines 5:14 AM from SFO 3:44 PM at EWR 7 hr 30 min 1 (DEN) $297 United Airlines 10:45 AM from SFO 7:26 PM at EWR 5 hr 41 min Nonstop $474 Return Trip (18 Jan 2025) Airline Departure Arrival Duration Stops Price United Airlines 5:14 AM from SFO 3:44 PM at EWR 7 hr 30 min 1 (DEN) $297 United Airlines 6:38 AM from SFO 5:33 PM at EWR 7 hr 55 min 1 (DEN) $422 In the video, the robot “sees” the page, determines the next step, errs by clicking on an SEO optimized link, backtracks, & then ultimately extracts the answer from the chaff.
2025 Predictions by @ttunguz
Every year I make a list of predictions & score last year’s predictions. Here are my predictions for 2025. The IPO market rips. ServiceTitan’s success has revealed the retail & instititutional demand for high growth software. Stripe, Databricks & many others generate huge liquidity for VC funds. The pull from the public market & desire for AI drive M&A to 5 year highs, enabled by a laxer FTC M&A policy. Google continues their surge in AI.