Founder and General Partner of Theory Ventures, Tomasz Tunguz, shares his founder story, his predictions for 2024, and his point of view on artificial intelligence from the changing landscape of AI to Microsoft’s leadership in the AI race.
He also shares insights on the impact of inflation and interest rates on the tech industry, concerns about the size of the venture capital industry, and the metrics that matter for seed and Series A companies.
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Let's dive into this episode's key topics…
“It’s Just So Addictive”
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- Tomasz Tunguz is the Founder and General Partner of Theory Ventures, a $230 million fund started in September 2022. He was also an early employee at Google and spent 15 years at Redpoint Ventures, investing in seven unicorns and various other companies such as MotherDuck, Chorus.ai, and Monte Carlo.
- His career started at the age of 17 in 1999 when he opened a small South American legal software company with his father and friend. His friend was a lawyer and business operator needing support running his firm as they were 4 months behind on bills.
- This venture offered Tomasz first-hand business experience, and he even took support calls from his dorm room. In fact, it funded his college and graduate school education.
- Looking back, Tomasz admits, "It's just so addictive because there's this direness, there's this need for survival. It's so raw, it's so pointed."
- Jump to 2008. During the recession, some of Tomasz's brightest colleagues from Google were leaving to start their own businesses. They believed that enduring and succeeding in challenging times would equip them with valuable skills and discipline for continued success.
- Amid 2022’s chaos, Theory Ventures opened its doors to a similar instability that businesses faced in ‘08 with hopes of developing a downturn discipline that would permeate the firm’s culture and long-term success.
Impact of Inflation and Interest Rates on Tech
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- Though the economy didn't enter a recession in 2023, it’s arguable that tech did. By the end of the year, it became clear that inflation was reasonably managed in North America.
- With improving inflation, there has been an almost immediate improvement in the public market, though the private markets have lagged. But what is the first half of 2024 going to look like for the private sector?
- There's a more optimistic outlook for 2024 on account that even four mediocre quarters would trump the two terrible quarters of 2023. You can attribute this optimism to factors such as shorter sales cycles, better dollar retention, and increased spending in the AI sector.
- Database data volumes and observability are growing at a rate of 20-30% per year, contributing to the predicted growth of global software spend, which is expected to grow from 9% to 14%, according to as predicted by Gartner.
- If Gartner’s forecast is correct, the software market could see an increase of a substantial $100 billion in software spending, considering the current total is around $600-700 billion.
“Half of Online Searches will come from AI”
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- Tomasz feels strongly that Microsoft is winning the "AI race" and that Google is far behind.
- This is significant as Tomasz predicts that by the end of 2024, half of all online search will come from AI. A big part of that will come from mobile. However, the shift in how consumers search online will require some time.
- If Google doesn't catch up to Microsoft, it could face the same fate as other organizations that failed to innovate. Think Blockbuster, Polaroid, Blackberry, and Sears.
Other topics discussed on this episode: