Venture Unlocked: The playbook for venture capital managers

Tomasz Tunguz on where we are in the AI S-Curve and the Evolving Investment Landscape

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Mar 5, 2025

Tomasz Tunguz, Founder and General Partner of Theory Ventures, dives into the transformative power of AI and its implications for both venture capital and everyday life. He highlights the significant cost reductions in AI training, debates the benefits of open versus closed-source models, and discusses the rise of AI applications. Tomasz also shares insights on navigating investment challenges in this rapidly evolving landscape and addresses AI's potential to reshape employment while balancing the need for sensible regulation.

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INSIGHT

DeepSeek's Impact

DeepSeek's key innovations included chain-of-thought reasoning and plummeting reasoning costs.
These advancements significantly reduced the cost and increased the accessibility of AI reasoning.

INSIGHT

Open Source vs. Closed Source

Open-source models like DeepSeek offer transparency and customization options, unlike closed-source models.
However, closed-source models often provide cutting-edge performance and convenient APIs.

INSIGHT

Jevons Paradox in AI

Jevons Paradox suggests that decreasing costs of technology lead to increased consumption.
This applies to AI inference, where lower costs will likely drive a surge in usage.

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Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.

Had a great conversation recently with Tomasz Tunguz Founder and General Partner at Theory Ventures. We dug into how AI is reshaping venture capital and everyday life, from the rapid advancements in the space to what it all means for startups and the broader market. We covered everything from the declining cost of training AI models to the open vs. closed-source debate and how enterprises are starting to adopt AI in real ways. A really insightful discussion—hope you enjoy it.

About Tomasz Tunguz

Tomasz Tunguz is the Founder of Theory Ventures, where he invests in early-stage technology companies with a focus on SaaS, data infrastructure, and machine learning. Renowned for his deep analytical insights and data-driven approach to venture capital, Tomasz helps founders navigate growth, product-market fit, and scaling challenges.

Prior to founding Theory Ventures, Tomasz was a Managing Director at Redpoint Ventures, where he led investments in several high-growth software companies. He is widely recognized for his blog on SaaS metrics, startups, and venture capital, which serves as a valuable resource for entrepreneurs and investors alike.

Tomasz holds a degree in Mechanical Engineering and Economics from Dartmouth College. His passion for technology, strategy, and helping companies succeed has made him a respected voice in the venture capital community.

Theory Ventures is an early-stage venture capital firm focused on investing in transformative technology companies across sectors like SaaS, data infrastructure, AI, and machine learning. Founded by Tomasz Tunguz, Theory Ventures combines deep analytical expertise with a founder-first approach, providing hands-on support to help startups achieve product-market fit, scale operations, and drive long-term growth. The firm is committed to backing visionary entrepreneurs who are building the next generation of technology solutions, offering both capital and strategic guidance to turn bold ideas into successful businesses.

Timestamps:

In this episode, we discuss:

* AI's Impact (1:18)

* Cost Reduction in AI Training (2:18)

* Impact of DeepSeek on Market Dynamics (5:01)

* Open Source vs. Closed Source AI (10:57)

* Enterprise Decision-Making in AI (13:19)

* Defensibility of AI Applications (17:27)

* Efficiency in Growing Companies (21:01)

* The Path to AGI (25:46)

* Impact of AI on Labor Market (28:58)

* Excitement and Concerns About AI (30:55)

* Non-Consensus Views on AI and Final Thoughts (33:29)

I’d love to know what you took away from this conversation with Tomasz Tunguz.

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