Tomasz Tunguz on raising Theory Ventures’ $450 million second fund

Tunguz grew up in a Polish military family—his last name, he says with mirth, “comes from the region in Siberia where [his] ancestors were exiled by Nicholas II.” But while living in D.C. in his early 20s, Tunguz was entranced by Jack Kerouac’s On the Road and stories of Carmel, Big Sur, and San Francisco. 

“I have a machine learning background, and I really wanted to work at Google,” said Tunguz. “I remember when I flew out to go interview at Google. They had these cafes where the food was free, and what stood out to me was this huge chafing dish, full of raspberries—and you could have as many of them as you wanted. I could not get over this plate of raspberries.”

There’s sincerity in how Tunguz talks about it—they weren’t just raspberries, they were an idea about what life could be that he wanted to investigate. It tracks: Tunguz has seemingly always been someone entranced by ideas, and then inclined to test them. He’d go on to work at Google, and later became a VC at Redpoint, where he made his name as an investor in Looker and Kustomer (acquired by Alphabet and Meta, respectively). Tunguz also developed another distinction, as one of the most memorable early VC bloggers, known for his deep research and, well, his theories. Appropriately then, he named his new firm Theory Ventures when he struck out on his own in 2023. Last year, Theory announced its first fund at $238 million. And though that first fund isn’t entirely deployed, recent LP demand sent Tunguz back to the marketplace: Theory recently raised its second fund at $450 million. 

Tunguz, Theory founder and general partner, kindly spoke to me about the firm’s new fund after I scooped the news from a filing earlier this month. What surprised him in this first year? It hasn’t been the marketplace he planned for, for one thing. 

“Round sizes are up 42% since we started the firm,” he said, adding that his financial model had suggested round sizes would decrease after the Federal Reserve raised rates in 2022.

Naturally, it all goes back to the AI boom, which has been bolstering round sizes. It’s been a double-edged sword—even though round sizes are bigger than anticipated, Tunguz and Theory have also been using AI themselves. Theory has built internal software that Tunguz says “has accomplished what a team of three or four might have before.”

What’s his theory on where the AI boom is right now? Tunguz suggests we’re at a plateau, with major changes on the way, especially for software giants. His case is this: AI is poised to disrupt entrenched workflows that major software incumbents like Salesforce and Zendesk are built upon, rendering them vulnerable. He likens these companies to “ossified,” bone-like structures—rigid and unable to adapt quickly to the rapid changes AI will drive in white-collar work.

“Salesforce, Zendesk, Workday, ServiceNow, all those big companies, I think, are finally attackable in a way that they haven’t been in 20 years,” Tunguz told Fortune.

Tunguz is constantly calibrating for what change could look like. Another theory: “I’ve been wondering, In five years, will keyboards still have letters?” He thinks it’s reasonably likely that, as computers increasingly listen and respond to voice commands for tasks like navigation and summarizing, manual typing will fade away.

Venture capital is a world filled with theories, and in some sense, having a theory is a VC’s job. But Tunguz has made me think about why the industry needs its theories in the first place: In order to invest early at all, you need to have a view about the future. Tunguz also knows that he can’t rely on theory alone, and says there’s a necessarily balanced relationship between theory and practice. The goal isn’t perfection, but to be “mostly right” by constantly testing and refining ideas in the mold of the scientific method, he said.

“It’s easy to pontificate about the future and end up in the wrong place if you aren’t trying the tools, talking to buyers, and testing it with people who criticize your ideas, who point out the flaws,” Tunguz told Fortune. 

So, what’s unique about Tunguz is not that he has theories, but the public, data-driven forthrightness with which he presents them. It’s a risk, really. He could be wrong, he could be copied. But in Tunguz’s approach, there’s thoughtful transparency—and confidence.

See you Monday,

Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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VENTURE DEALS

– Lighthouse, a London-based travel and hospitality insights platform, raised $370 million in Series C funding from KKR.

– Enveda, a Boulder-based AI-powered medicine developer from natural compounds, raised $130 million in Series C funding. Kinnevik and FPV led the round and were joined by Baillie Gifford, Premji Invest, Lingotto Innovation, and others.

– Liquid Wind, a Gothenburg, Sweden-based eFuel production facilities developer, raised €44 million ($46 million) in Series C funding. Uniper, HYCAP, and Samsung Ventures led the round and were joined by existing investor Klimatet Invest.

– OneRail, an Orlando-based omnichannel fulfillment solution provider, raised $42 million in Series C funding. Aliment Capital led the round and was joined by eGateway Capital, Florida Opportunity Fund, existing investors Arsenal Growth Equity, Piva Capital, Bullpen Capital, and others.

– TailorMed, a New York City-based end-to-end healthcare platform, raised $30 million in funding. Windham Capital Partners led the round and was joined by Citi Impact Fund, Samsung Next, BrightEdge, and others.

– Wordware, a San Francisco-based AI development full-stack operating system, raised $30 million in seed funding. Spark Capital led the round and was joined by Felicis, Y-Combinator, Day One Ventures, and angel investors.

– Aviz Networks, a San Jose-based AI-driven networking solutions provider, raised $17 million in Series A funding. Alter Venture Partners led the round and was joined by Celestica, Qualcomm Ventures, and existing investors Cisco Investments, Moment Ventures, Wistron, and Accton.

– Teleo, a Palo Alto-based heavy equipment autonomous technology developer, raised $16.2 million in Series A extensions. UP.Partners led the $9.2 million first extension round and was joined by Trousdale Ventures, existing investor F-Prime Capital, and others. UP.Partners led the second extension round and was joined by Triatomic Capital, existing investors F-Prime Capital and Trucks Venture Capital, and others.

– Aizen Therapeutics, a San Diego-based mirror peptides biotech developer, raised $13 million in seed funding. Madrona led the round and was joined by Wilson Hill and Cercano.

– Aquaria, a San Francisco-based air water infrastructure developer, raised $12 million in funding from Mistletoe, Ciri Ventures, Soma Capital, and others.

– Anomalo, a Palo Alto-based data quality platform developer, raised $10 million in a Series B extension from Smith Point Capital.

– Crown Affair, a New York City-based haircare brand, raised $9 million in Series B funding. True Beauty Ventures led the round and was joined by existing investors Selva, Sidekick, Stage 1.

– Amigo, a New York City-based digital cloning platform for service providers, raised $6.3 million in funding. General Catalyst and GSV Ventures led the round and were joined by Comma Capital, CohoVC, and angel investors.

– Kodiak Hub, a Stockholm-based supplier relationship management platform provider, raised €6 million ($6.3 million) in funding. Oxx led the round and was joined by existing investor Scandector.

– Revisto, a San Antonio-based medical, legal, and regulatory AI review solution for pharmaceutical marketing materials, raised $4 million in seed funding. LiveOak Ventures led the round and was joined by Eli Lilly, Tau Ventures, and Arkin Digital Health.

– DANNCE.AI, a Boston-based AI biomarkers platform for neurological care, raised $2.6 million in pre-seed funding. LDV Capital led the round and was joined by Glasswing Ventures, The Leo Lion Company, Duke Capital Partners, and Merck Digital Sciences Studio.

– SuperScale, a Bratislava, Slovakia-based game business analytics provider, raised $1.2 million in funding from Strecko Investments and existing investors Across Private Investments, LevelUp Ventures, Zero One Hundred, and Venture to Future Fund.

PRIVATE EQUITY

– Centerfield, a portfolio company of Platinum Equity, acquired Brainjolt, a Pasadena-based social commerce platform. Financial terms were not disclosed.

– Jones Lake Management, backed by Fort Point Capital, acquired Ponds Beautiful, a Medina, Ohio-based pond and lake management services provider.

– SolomonEdwards, a portfolio company of Renovus Capital Partners, acquired Dominion Advisory Group, a Newport Beach, Calif.-based anti-money laundering advisory and financial crime consulting firm. Financial terms were not disclosed.

EXITS

– DwyerOmega acquired Process Sensing Technologies, an Ely, England-based measurement and monitoring solutions provider for process-critical applications, from AEA Investors and Battery Ventures. Financial terms were not disclosed.

– Fremman Capital acquired a majority stake in rehaneo, a Munich-based outpatient rehabilitation service provider, from Gimv. Financial terms were not disclosed.

OTHER

– Accenture acquired Allitix, an Irvine, Calif.-based Anaplan solutions provider. Financial terms were not disclosed.

– Vercel acquired Grep, a code search engine. Financial terms were not disclosed.

– Wiz acquired Dazz, a Palo Alto-based unified security remediation provider. Financial terms were not disclosed.

FUNDS + FUNDS OF FUNDS

– Accel-KKR, a Menlo Park, Calif.-based investment firm, raised $2.2 billion for its first fund focused on secondary investments in the software industry.

– Neos Partners, a San Diego-based investment firm, raised $1.4 billion for its second fund focused on energy transition and critical infrastructure .

– Blue Bear Capital, a Jackson, Wyo.-based venture capital and growth equity firm, raised $160 million for its third fund focused on technology companies in the energy, infrastructure, and climate sectors.

PEOPLE

– Anzu Partners, a Washington, D.C.-based venture capital and private equity firm, added Hunter Brown as a principal. Previously, he was at Anduril Industries.

– H/L Ventures, a New York City-based venture capital firm, promoted Galina Ozgur to general partner.

– Welsh, Carson, Anderson & Stowe, a New York City-based private equity firm, added Bill Bowman, Bala Girisaballa, and Lawrence Miller as operating partners. Previously, Bowman was at Emburse, Girisaballa was at Vista Equity Partners, and Miller was at Wilshire.