$688M AUM in 2 Years | Tomasz Tunguz, Theory Ventures
Trillion Dollar AI Opportunity, OpenAI v Hyperscalers, Inference, Energy, Product Testing
Trillion Dollar AI Opportunity
Tomasz Tunguz is a prominent venture capitalist and the Founder & GP of Theory Ventures, a $688M AUM fund. Theory focuses on investing $1-25m in early-stage companies that leverage technology discontinuities into go-to-market advantages. Before Theory, Tomasz was a managing director at Redpoint Ventures, where he led investments into companies such as Looker, Expensify, Monte Carlo, Dune Analytics, and Kustomer. Throughout his career, Tunguz has been recognized for his data-driven approach to investing and his very popular, personal blog, TomTunguz.com (which we reference a lot in the weekly deals newsletter).
Tomasz recently raised $450 million in November of 2024 for Theory Ventures' second fund, which marks a significant milestone for the firm. This follows his initial breakout fund, launched in just 2023, with $238 million. That’s $688M in just 2 years! (We discuss the dynamics of how this works.)
This is a very timely conversation where we go into everything AI, LLM business models (Perplexity), macro outlooks, operating stacks, fund construction, and more.
→ Listen on Spotify, YouTube, Apple
Timestamps
0:00 - Welcome Tomasz To Sourcery
1:00 - State of AI Adoption
6:45 - Power Struggle Btwn OpenAI xAI & Hyperscalers (*nuclear energy*)
9:50 - AI Inference Will be 1 Billion Times Larger
15:00 - Perplexity's Move into Ad Monetizing
20:00 - Raising $688M in 2 years
28:00 - Theory's Investment Theses: 3 Buckets
33:30 - Partnering with Former Palantir Executive & Building the Team
35:45 - Tomasz's Journey to VC
37:40 - What Is Tomasz Looking Forward To The Most This Year
The Macro of It All
The early-stage investing market is in a dramatic transformative moment, driven by the rapid adoption and evolution of Artificial Intelligence (AI) and the incoming new application wave of Web3 and Blockchain technologies (too early to thank to the AI & crypto czar?).
Consumer AI adoption is on the rise, particularly among younger demographics, signaling a shift in market dynamics. However, enterprise AI adoption faces unique challenges due to the narrower range of acceptable outcomes. As AI infrastructure becomes more prevalent, energy consumption has emerged as a critical factor to consider. Interestingly, the cost of AI inference is decreasing, which is unlocking more demand but energy expenditure is creating significant roadblocks for model development and scale.
And so, how do independent LLMs compete to monetize in a world dominated by hyperscalers and OpenAI? The advertising model, a cornerstone of the largest revenue streams in the world, is trying to find its footing with the likes of Perplexity and more. This will be a fun one to watch. In addition, behind the scenes, the actual advertising business is being disrupted by generative AI technologies, which makes things a bit dramatic.
As for web3 & blockchain?
“Very very few people appreciate like the scale of Ethereum. Ethereum in the first quarter of 2024 produced on a percentage basis, the most profitable software company in the world, and on a aggregate dollars basis sixth largest producer of cash it's worth seven Snowflakes put together, it's $350 billion market cap. $250 billion worth of memecoins that have been created out of thin air. There's just a lot of market cap.
→ Fund Construction, Thesis, Resources, 2025 Predictions Below
It’s 2025 and AI is expected to significantly alter workflows across various sectors leading many to wonder what our jobs will look like “post-AGI.” The impending advent of Artificial General Intelligence (AGI) could lead to super duper productivity gains, but it necessitates a shift in work practices that are unclear and scary to most. In this landscape, Theory’s ‘raison d'être’ with a data-driven DNA gives them an edge above others, by testing, researching, applying, and analyzing, trends, insights, products, and all of the mysterious signals to come.
Highly recommend following Tomasz for his early alpha.
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