Tom Tunguz

APRIL 6, 2025

With another tariff induced red-tinged day hammering markets, I wondered: Do private markets follow public ones? The data suggests yesbut with a delay & at a fraction of the magnitude. A 1% increase in Nasdaq’s (QQQ) quarterly return translates to a 0.47% rise in median Series A valuationsbut only after a two-quarter delay. The inverse holds true as well: when public markets contract, private valuations follow suit approximately six months later at roughly half the intensity.

Venture Capital 218

Venture Capital Marketing Data 218

Tom Tunguz

APRIL 2, 2025

The new tariffs have markets down broadly. What do they mean for startups? 1 In terms of first order effects, tariffs can impact a startup in two ways : the input costs and consumers’ demand. Most software companies don’t import or source critical components of the software from abroad so the COGS / gross margin structure of the company shouldn’t change unless they rely on significant hardware purchases, for example GPUs or robotics components.

AI 179

AI Forecasting Startup Trends 179

Tom Tunguz

MARCH 27, 2025

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.

Scale 182

Scale Sales Hiring Startup Compensation 182

Tom Tunguz

MARCH 30, 2025

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.

Machine Learning 130

Machine Learning Artificial Intelligence AI Startup 130

Tom Tunguz

MARCH 27, 2025

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.

Venture Capital 252

Venture Capital Sales Marketing 252

Tom Tunguz

MARCH 25, 2025

You have to pay a price for your distinctiveness, and its 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 dont expect it to be easy or free. Youll have to put energy into it continuously. The world wants you to be typical in a thousand ways, it pulls at you.

Pricing 127

Pricing Sales Recruiting Sales 127

Tom Tunguz

MARCH 16, 2025

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.

AI 182

AI Venture Capital Enterprise Engineering 182

Tom Tunguz

MARCH 13, 2025

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.

Software 173

Software Cloud SaaS Marketing 173

Tom Tunguz

MARCH 10, 2025

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 looki

AI 130

AI Scale Startup Branding 130

Tom Tunguz

MARCH 8, 2025

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.

Venture Capital 147

Venture Capital Finance Acquisition Innovation 147

Tom Tunguz

MARCH 4, 2025

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.

Startup 270

Startup Management Scale Construction 270

Tom Tunguz

MARCH 1, 2025

Which is the best business in AI at the moment? I analyzed Q4 revenue data from publicly traded companies across multiple sectorssoftware 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%.

AI 247

AI Revenue Azure Consulting 247

Tom Tunguz

FEBRUARY 27, 2025

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).

Marketing 207

Marketing Scale Startup Branding 207

Tom Tunguz

FEBRUARY 26, 2025

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.

SaaS Payments 283

SaaS Payments Pricing Strategy Scale 283

Tom Tunguz

FEBRUARY 20, 2025

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.

Venture Capital 124

Venture Capital AI Acquisition Startup 124

Tom Tunguz

FEBRUARY 2, 2025

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.

AI 162

AI Cloud B2B Software 162

Tom Tunguz

FEBRUARY 5, 2025

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.

Revenue 162

Revenue Government Enterprise Software 162

Tom Tunguz

JANUARY 11, 2025

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.

Technical Review 147

Technical Review Software Review Acquisition Finance 147

Tom Tunguz

DECEMBER 16, 2024

From the pit lanes of Formula One to the secretive world of commodities trading, from the championship poker tables to storytelling competitions, I enjoyed a wide range of different books this year. Here are my favorites : Every Hand Revealed by Gus Hansen : A hand-by-hand narrative of Professional poker player Gus Hansen winning the 2007 Aussie Millions tournament.

Travel 176

Travel Development Sales Marketing 176

Tom Tunguz

DECEMBER 15, 2024

Remember the first time you touched a computer screen instead of typing commands? We’ve lived through distinct epochs of human-computer interaction: the cryptic beauty of command lines, the intuitive dance of graphical interfaces, & the ubiquity of browser-based computing in the SaaS era. It’s different now. When I manage spreadsheets, I don’t want to manipulate formulas anymore.

AI 203

AI Engineering Revenue SaaS 203

Tom Tunguz

DECEMBER 12, 2024

If you needed proof that every software company is an AI company , here’s the evidence. 46% of all US venture financings in dollar terms in 2024 were AI. This revolution breeds in every corner of the startup ecosystem : 37% of Seeds, 35% of Series As, 67% of Series Bs, 24% of Series Cs, & 47% of Series Ds were AI companies. Within a year, half of software companies are AI companies.

AI 253

AI Finance Trends Startup 253

Tom Tunguz

NOVEMBER 20, 2024

Today, we’re announcing our second fund of $450m to support our mission of partnering with early stage software companies that leverage technology discontinuities into go-to-market advantages. This marks the next chapter in our firm’s evolution. Since we launched Theory in 2023, we’ve gathered a wonderful team : Lauren , Spencer , Andy , Rafa , Amber , Arjun , & Kristin.

Artificial Intelligence 201

Artificial Intelligence Innovation Technology Software 201

Tom Tunguz

NOVEMBER 19, 2024

I didn’t notice it at first but there in the back corner of my laptop, I’ve been assembling a little library. The library doesn’t contain books, but scraps of text that explain what an AI should do. Visit Anthropic’s home page & you’ll find their collection : Each of us will assemble these little libraries with tracts like : write a blog post in my voice about this topic collect action items to send to the team from team notes & format them in this particula

Software Review 241

Software Review Finance AI Software 241

Tom Tunguz

NOVEMBER 7, 2024

Over the weekend, I found myself in an hour-long conversation during my drive with an AI. We jumped from discussing Cooper Flagg’s basketball stats at Duke to comparing Carlo Rovelli and Brian Greene’s competing theories of physics to talking about the history of San Francisco. In a daring feat of economic analysis, I asked it to calculate if the after-tax returns of two ETFs were statistically significant & to compare the energy portfolios using the 13-Fs of a few hedge funds fo

Artificial Intelligence 185

Artificial Intelligence AI Engineering Investment 185

Tom Tunguz

NOVEMBER 5, 2024

The major areas of AI innovation automate white-collar work. Reviewing the BLS’ data on employment for white collar work, I aggregated the data to these categories. It’s striking that most of them already have a significant number of AI startups pursuing their ambitions to change workflows. Occupation Employment (in millions) AI Technology Software Developers & IT 2.71 Code completion, generation, refactoring, security analysis Education & Librarians 2.37 Computer adaptive in

Software Review 239

Software Review Technical Review Scale Construction 239

Tom Tunguz

NOVEMBER 4, 2024

“AWS’ AI business is a multibillion-dollar revenue run rate business that continues to grow at a triple-digit year-over-year percentage and is growing more than 3x faster at this stage of its evolution as AWS itself grew, and we felt like AWS grew pretty quickly.” “Our AI business is on track to surpass an annual revenue run rate of $10 billion next quarter, which will make it the fastest business in our history to reach this milestone.

GCP(Google Cloud Platform) 225

GCP(Google Cloud Platform) Azure AWS Cloud 225

Tom Tunguz

OCTOBER 28, 2024

On Monday, at TC Disrupt Colin Zima CEO of Omni , Jordan Tigani CEO of Motherduck , Daniel Svnova CEO of Superlinked & Toby Mao CTO of Tobiko Data who are leading the evolution of the Post Modern Data Stack discussed the trends they are seeing. Here are some of the themes & predictions from the group. Customers are excited about new architectures that significantly reduce cost.

Trends 248

Trends Data New CTO CTO 248

Tom Tunguz

OCTOBER 15, 2024

Since July , have you noticed how much better your AI model has become? Measuring them is hard to do. All we can do is quantify the vibe : is this one better than that one? Elo is a score that measures how often one model wins against another, as judged by a human. Which model answers the prompt : “Describe the differences in texture between a Pink Lady and a Macoun apple” better?

AI 282

AI Innovation Scaling Data 282

Tom Tunguz

OCTOBER 9, 2024

Klarna, the Swedish fintech giant, is making waves by churning from industry-standard software like Salesforce and Workday in favor of building its own internal systems with AI. After their success with AI customer support automation which manages 2/3 of their customer inquiries , Klarna is now doubling down on this strategy. Klarna is betting AI-enabled software is the future of internal tools.

Scale 228

Scale AI SaaS Cloud 228

Tom Tunguz

OCTOBER 7, 2024

Recently, Thomas Laffont of Coatue highlighted a non-obvious impact of the M&A slowdown after this preamble : “Ironically and I think somewhat perversely one of the byproducts of constraining big companies from buying small companies is it hurts small companies. This point is clear & straightforward. Less demand for an asset decreases price. 2023 & 2024 are two of the three lowest in the last 12 years in both activity & value across the ten largest strategic software buyers

Innovation 285

Innovation Sales Hiring Government Acquisition 285

Tom Tunguz

OCTOBER 2, 2024

Visa announced their plans to launch a stablecoin with BBVA today. Throughout the quietness in crypto created by the wake of the FTX collapse & the AI boom, stablecoins have become a large & very fast growing part of web3. Users clock 3m stablecoin transactions per day at an approximate average value of $5,000. But, the use of stablecoins extends far beyond crypto trading.

PayPal 201

PayPal AI 201

Tom Tunguz

SEPTEMBER 30, 2024

Morgan Stanley surveyed a group of CIOS to understand the sources of AI budget. If hyperscalers deploy $100b in capex on AI this year & legions of software vendors hawk AI solutions, the money to justify it must come from somewhere. 41% of CIOs said net new spend. 35% said existing software spend. Only 6% said it would come from professional services.

AI 282

AI Investment Software Startup 282

Tom Tunguz

SEPTEMBER 29, 2024

Recently, Google launched the ability to generate a podcast conversation from an article. I was curious if it worked & I tried it out on three recent posts. The output could fit into any radio show or podcast I’ve listened to. It’s not perfect: there are no intros or outros. But the “hosts” chuckle, ask questions, interplay in human-like ways.

AI Search 275

AI Search AI Generative AI Advertising 275

Tom Tunguz

SEPTEMBER 24, 2024

Like in web2, building an app on a blockchain requires several layers & components. Picking the best of each can be a challenge for a developer. Once the stack is fixed, a developer might want to choose the best database characteristics for an app : lower latency for a game, greater security for a financial exchange. Last, interoperability with other systems is a critical way of enticing users to use the apps.

Blockchain 269

Blockchain Onboarding Development Data 269

Tom Tunguz

SEPTEMBER 22, 2024

Suppose you’re a startup in a competitive market with a large incumbent who owns the system of record - the software that runs the sales team or the support team or the marketing team. How do you win? In the last decade, startups have chosen to identify a feature or workflow to improve & leverage that wedge into an advantage. Many have reached great levels of success, but few have overturned the incumbent.

AI 312

AI Startup Software Metrics 312

Tom Tunguz

SEPTEMBER 19, 2024

The Fed cut rates by 50 basis points this week. A mantra circulating in Silicon Valley has echoed that the tepid exit markets will revive as a result of a laxer monetary policy. The last ten years’ data suggest the relationship is real & non-linear. 1 When the Fed cuts rates - negative changes in the Fed Funds Rate (FFR) - US venture backed software exit activity increases by between 10% and 65%.

Marketing 279

Marketing Acquisition Startup Software 279

Tom Tunguz

SEPTEMBER 18, 2024

In a few years, most feature flags & linting tools & other developer tools will be implemented predominantly by robots. Already, 50% of code at Microsoft & other large internet companies is written by AI. This idea expands far beyond developer tools. Robots will manage sales development, paralegal work, medical intake, & many other tasks.

Artificial Intelligence 221

Artificial Intelligence Software AI Retention 221