Leave a comment
Get the GH Bookmarklet

AMAs

Tomasz Tunguz is a Partner with Redpoint Ventures where he focuses on software investments. He works with Looker, Axial, Expensify, Electric Imp and ThredUp.

Prior to joining Redpoint, Tomasz was a PM at Google working on AdSense. Before Google, Tomasz worked as a Java engineer at Appian Corporation, building tools for the Department of Homeland Security. Before Appian, Tomasz  co-founded a SaaS startup building software for law firms.

He graduated from Dartmouth College as a George Revitz Fellow with a BA in Mechanical Engineering, a BE in Machine Learning, and a Master of Engineering Management.  

Tomasz blogs at tomtunguz.com. Follow Tomasz on twitter at @ttunguz.

  • HQ

    Hila Qu

    over 5 years ago #

    Hi Tomasz, love your data-driven blog posts!

    What is your view on the overall venture capital and start up macro-environment? Do you see any slowing down and any other notable trend?

    • SE

      Sean Ellis

      over 5 years ago #

      Great question Hila! Follow up to this question, are you advising your portfolio companies to be more conservative today with spending than at this time last year and/or to accelerate fundraising?

      • TT

        Tom Tunguz

        over 5 years ago #

        It's a great time for startups be growing really quickly, because the ones that grow really quickly are able to raise follow on capital at terrific valuations. So it's hard to tell my portfolio companies to slow down. Plus, all the money and ecosystem fuels fiercer competition, so it's important to keep up.

        But, it's also important to plan for the downside case. I think the best advice I could give to start up is to continue to grow as quickly as possible. But always to have a plan to be able to dramatically cut growth spend and keep the business working well, while driving to profitability with the cash in the bank at that point in time.

        If ever a startup can't reach profitability on the current cash with spending cuts, then it's time to raise money, because the business could be in a precarious situation.

    • TT

      Tom Tunguz

      over 5 years ago #

      Thanks, Hila!

      I don't see a slowdown coming anytime soon. There is a ton of investor interest in fast-growing technology startups by public market investors, and they are plowing capital into startups.

      That money, you could call it fast money, at some point will leave startupland. But it's only when there is a more attractive place to invest. It could be China, Japan, Spain, commodities, currencies, mortgages, bonds, etc. But right now, none of those are as attractive as technology companies because tech and biotech companies are growing the fastest.

      The Fed will increase interest rates, and that might have some effect, but I doubt they will move rates substantially enough to materially change the attractiveness of other asset classes.

      Meanwhile, VCs have great returns on paper. Which means our investors have great paper returns and so VC can raise more money to invest.

      In terms of other trends, a lot of the money is actually going to series As, which is really good for early-stage founders.

      4 Share
  • JH

    Justin Harris

    over 5 years ago #

    Hey Tomasz,

    I enjoy reading your blog.

    What does redpoint look for in a company when making a typical early (seed) investment? At what point is best for companies to reach out to Redpoint to begin a conversation?

    Thanks!

    • TT

      Tom Tunguz

      over 5 years ago #

      Hey Justin,

      Thanks! We like to start conversations really early, ideally when a team is just getting started even with an idea. We have invested in seed stage companies with just a great team that we know for a while (Andy Rubin and Android, Javier Soltero and Accompli for example). Other times, we invest after the company has built a proof of concept. And we also invest after company has launched.

      We really value relationships with founders, and so being a part of the conversation from the beginning is helpful because we can offer different points of view and also track the progress of the company over time.

      6 Share
  • MB

    Morgan Brown

    over 5 years ago #

    Hey Tomasz,

    Thanks for doing this AMA, your writing is must-read in my opinion. Thanks for publishing as much as you do.

    A few related questions for you. In your startup growth model post here: http://tomtunguz.com/building-a-customer-acquisition-machine/

    You recommend starting with direct response channels to begin building your business. In my experience, DR channels are mostly pay per performance type opportunities.

    1) Is my assumption about DR = pay per performance channels correct when reading your work?

    2) Do you assume PMF for this model? Or is this model congruent with discovering PMF?

    3) How do you counsel companies who are likely to have a high CAC via a paid channel about building out their marketing/growth program? Do you suggest they try some non-paid to augment the paid testing, or is it all about nailing a predictable acquisition model, even at high cost, first?

    Would love your thoughts on how to apply that framework in the day-to-day growth world of a startup.

    Thanks!

  • IB

    Ilias Beshimov

    over 5 years ago #

    What best growth strategies have you seen for early stage companies?

    • TT

      Tom Tunguz

      over 5 years ago #

      I think the best strategy is experimentation. Google developed and invested in experimentation frameworks and I think in large part that's why the company was able to grow so fast. I'm sure the same story is true at Facebook and Snapchat and others.

      So, I think the best summary is building infrastructure to test, and develop a culture that uses data to make decisions

      8 Share
  • NK

    Nick Karnik

    over 5 years ago #

    Is it common these days for American Angel investors to invest in Asian startups? Is Angel.co the best way to find investors who invest outside the US?

    • TT

      Tom Tunguz

      over 5 years ago #

      It's happening to a small degree, but not at large scale. I imagine it's hard for individual angel investors to know which Asian startups are exceptional. But, I'm sure it happens.

      Yes, Angellist good. Also, network with VCs in your region. We make it our priority to know the strong angel investors.

    • BW

      Brand Winnie

      over 5 years ago #

      Hey Nick! Stoked to see you on GH :) Let's catch up soon.

  • SE

    Sean Ellis

    over 5 years ago #

    Hi Tomasz, thanks so much for taking the time to do this AMA!
    What is the most common issue that you see around a startup's plans for driving growth when they are fund raising? Specifically startups that already have product market fit and are in the early stages of scaling growth. Any suggestions to fix the common issue?

    • TT

      Tom Tunguz

      over 5 years ago #

      Sean, thanks for having me. This is great fun.

      I think the most common issue is understanding what skills they need to hire in order to scale growth and the sequencing of the skills. I think it's important to move from the bottom of the funnel to the top of the funnel.

      Of course, there are always exceptions. There are some companies who have exceptional talent that content marketing and use that to drive huge adoption. But, for most companies, starting with demand generation is a great place.

      The next challenge is hiring a leader to help them grow. And because the number of marketing skills and grow skills are exploding, it's often hard to find someone who is intimately familiar with each. So, when looking for a VP of marketing or a head of growth, I think it's critical to find someone who can at least appreciate the discipline, hire someone with that discipline and evaluate work from that discipline. But it's not a requisite that this person have worked within content marketing for example..

      6 Share
  • AA

    Anuj Adhiya

    over 5 years ago #

    Hi Tomasz - so cool of you to do this!

    I'm stealing from Peter Thiel here - From a VC perspective, is there this one thing you believe to be true that most other VCs do not?

    • TT

      Tom Tunguz

      over 5 years ago #

      Lol!

      I believe that speech will be the predominant form of interaction between humans and computers in the next 10 years. :)

  • TM

    Taylor Miles

    over 5 years ago #

    How important is Bitcoin and related Decentralized systems for the future of Financial Tech? Is it the next internet or overhyped fad?

    • TT

      Tom Tunguz

      over 5 years ago #

      I think the innovations created by Bitcoin are really important. The adoption of the BTC currency seems right now to be limited to Argentina, at least in large-scale, because of the challenging financial conditions in that country. I think BTC will be adopted by people in countries who need an inflation/deflation hedge. That may be millions of people, but I don't think it will be billions.

      But, I believe the block chain is a fundamental protocol of the Internet, the way that Naval Ravikant described in his post called the Fifth Protocol (I think that's the name).

      The initial applications of the block chain seem to be in things like contracts. But I think ultimately, this decentralized transaction mechanism is going to be pretty broadly adopted. And the most successful companies won't have bitcoin or block chain in their names, nor will most of their customers understand how it works. The same way that very few of us understand how banks use ACH or websites use TCP/IP. But the blockchain powered products will be better and much cheaper than current ones.

      6 Share
  • TS

    Terence Strong

    over 5 years ago #

    I know they say startups scale mainly on one channel, what happens if that channel is paid, let's say Bing search and the price goes up. Won't the startup blow up? How do you effectively scale on a paid channel when cost our constantly rising? How do you mitigate this risk?

    • TT

      Tom Tunguz

      over 5 years ago #

      Terence, that's a really good question. It's dangerous to be reliant on only one channel for the reason that you point out. At some point, the company saturates the channel and prices go up. Another example would be SEO, and is Google changes its algorithm, well – traffic can go way up or down.

      The best strategy is diversification. After one channel is working well enough, it's important for start up to start experimenting on other channels to figure out exactly how to get them to work. It's easy to focus on the one thing that's working in order to drive growth, but diversification will insulate the company from shocks like the one you're talking about.

      7 Share
  • DJ

    Dev Jag

    over 5 years ago #

    With the emergence of IoT do you think this will be a key area of focus for VC investments (ie either at Redpoint or in general)? If yes, could you talk more about what makes it so exciting over other opportunities?

    • TT

      Tom Tunguz

      over 5 years ago #

      the Internet of things is a really exciting area for investments. I divide the ecosystem into two buckets: consumer & commercial/industrial.

      Consumer connected devices are the ones that have reached scale the fastest. The Fitbit IPO is probably the best example. Startups can reach millions of people very quickly, they can use crowdfunding sites in order to demonstrate demand before launch, and bring an innovative product market very quickly because of the flexibility Chinese contract manufacturing. The question that investors often ask these kinds of companies is the long-term defensibility and barriers to margin compression. But, a great brand can be just the ticket to huge success.

      The commercial/industrial segment is attractive because the numbers of units here can be orders of magnitude larger than in consumer. Commercial and industrial companies often ship tens to hundreds of millions of units year, which mean much larger unit volumes than in consumer. The challenge with this category is the longer sales cycles and most of these companies want to build their technology in-house rather than rely on a startup.

      I believe that the hardware used to connect devices is going to be commoditized, but the infrastructure and the connectivity and data analysis will not be, and that's why we invested in Electric Imp.

      Ultimately, everything is going to be connected. It's just a question of time. But, yes, it's really exciting.

  • SW

    Samuel Woods

    over 5 years ago #

    What's your take on "native advertising"? Aside from any "fad" attached to it, do you see any potential in this space with software, apps, new ways of reaching markets?

    • TT

      Tom Tunguz

      over 5 years ago #

      On the whole, I think advertising technology right now is really challenged because Facebook and Google have near monopolies on the market. They operate ad networks, ad exchanges, and first party ads. Because of the ads exchanges in particular, they have a near perfect view what is happening the ecosystem, and so they can move to respond to it.

      In advertising, data is everything. Performance data helped to build better productive models, which drives more revenue for publishers and better outcomes for advertisers. Once you have that level going, it's almost impossible to stop.

      New ad formats like native as are interesting, and they take advantage of the platform shift to mobile. But the ad format itself isn't defensible, at least I don't think so. Ultimately, it's the targeting models that will determine success.

      5 Share
      • SW

        Samuel Woods

        over 5 years ago #

        Thank you, Tom, for the answer.

        I think you're right; targeting models will determine success. I guess right ad, to the right person, at the right time holds true ;)

  • PS

    peter sandor

    over 5 years ago #

    Hi Tomasz, I am interested in markets such as India where projected # of internet users will top 500million by 2017. How do you see growth strategies evolving in emerging markets to meet the needs of the average folk that has no easy access to technology?

    • TT

      Tom Tunguz

      over 5 years ago #

      Peter, interesting question. I haven't spent much time in India. We have a team in China and Brazil, so I know those markets better. I think the most important thing I take away from conversations with our colleagues there is that the US growth strategies often don't apply. And this is mainly because a lot of the infrastructure that we have in the US doesn't exist.

      The biggest difference is that mobile phones are the main device, rather than PCs. The second big difference tends to be payment mechanisms. In India, I understand that it's often much more efficient to use cash than mobile payments because of the authentication requirements of mobile payments. Also, cash on delivery is the preferred mechanism for e-commerce. Both of those considerations add friction to transactions. Growth strategies are going to have to take into account those dynamics.

  • ML

    Matt Lovett

    over 5 years ago #

    Hi Tomasz,

    Have enjoyed reading your blog. There are a couple SaaS-marketing questions that I would love your insights on:

    1.) Do you have any insights or data points into sequencing hires in a marketing department for a SaaS company?

    2.) Do you have any examples of SaaS companies using innovative Learning Management Systems (LMS) to lower CAC?

    Thanks!

    • TT

      Tom Tunguz

      over 5 years ago #

      Hi Matt,

      Thanks!

      1. I don't think there is a consistent pattern across companies. But in general, demand generation is probably the first skill that matters. This is because it fills the bottom of the funnel. Then each additional marketing hire should move up the funnel (http://tomtunguz.com/shifting-role-marketing-saas/). The middle of the funnel is going to require skills like website conversion and paid acquisition. the top of the funnel is going to require skills like evangelism and content marketing. After you've hired the first few people to do that, it probably makes sense to hire a data analyst to understand the relative performance of all the different campaigns. And after you reach a particular scale of business, it's important to hire somebody to do customer lifecycle marketing to make sure that existing customers are happy and retained.

      2. that's an interesting question. The coolest use of a learning management system I've seen is to educate channel partners or go to market partners on a product using an LMS so the sales team of the partner company can better sell the product. But I'm not sure how effective that is in reducing the cost of customer acquisition.

  • XZ

    Xikai Zhao

    over 5 years ago #

    Tomasz, thank you for doing this AMA. I work for a ecommerce company and our growth team only has one dedicated dev person. We are constantly lack of dev resource. We are also having a hard time hiring a dev person. What have you recommended startups in our situation do to get around this?

    Thank you :)

    • TT

      Tom Tunguz

      over 5 years ago #

      Xikai, this is a common problem, particularly for smaller companies who want to prioritize their engineering efforts on the core product. I wish there was a great solution I can offer you.

      Most of the time, companies use external services to help them patch over the lack of engineering help they can get. I'm not sure what you are trying to do, but if it's data analysis, then I would encourage you to look at Segment.com to move the data and add new services and Looker.com to analyze it. (I work with Looker, btw).

  • RT

    Rohit Tirkey

    over 5 years ago #

    Being an honest fan of a lot of your portfolio companies, Here is my question. [Q] Has redpoint kept their focus on selective sectors? VC's generally have extra smart finance people to assess and predict the market in any sector. [Q] Any specific reason you would not put in money for a crowded market such as recruitment tech?

    Thanks.

    • TT

      Tom Tunguz

      over 5 years ago #

      Thanks! Yes, we spend a lot of time in software, developer tools, infrastructure, and consumer marketplaces.

      Well, I think recruitment technology is actually really interesting. It is the software category that has generated the most value in the public markets, tied with sales.

  • AA

    Anuj Adhiya

    over 5 years ago #

    Is it uncommon for someone with an engineering background to land up becoming a VC?
    For anyone with a similar background, what advice would you have if someone wanted to become one?
    Is there something in your journey that you would or would not have done to accelerate/raise the odds of getting there?

    • TT

      Tom Tunguz

      over 5 years ago #

      No, not at all. Most of the team at Redpoint have engineering backgrounds. Many of us still code, too.

      I think the best advice is to make friends with lots of VCs. That way, you will get to know the business better, you'll network within the community, and when it comes time for a venture firm to hire someone new, you will be top of mind. VCs also have a particular language in a way of thinking about things and you'll get exposure to that.

      • AA

        Anuj Adhiya

        over 5 years ago #

        I guess the natural follow up question is what's the best way to make friends with VCs? :)

  • HQ

    Hila Qu

    over 5 years ago #

    Hi Tom, in the spirit of AMA, what do you think of Alphabet?

    • TT

      Tom Tunguz

      over 5 years ago #

      its awesome to see the Google executive team unafraid to take big risks and continuously manage themselves out of their jobs. to become a much bigger company, Google needs some of its moonshots to succeed. The new structure will free Larry, Sergey and Eric to focus on those moonshots.

      And Sundar is beloved at Google. He is widely regarded as an inspirational manager particularly to young people. It's a great evolution of the business.

  • AA

    Anuj Adhiya

    over 5 years ago #

    Couple more questions:

    a. What does your typical day look like?

    b. I imagine you're pretty busy - how in all of that, do you find the time to blog (including research) that you do?
    What's that process like and what can we take away and apply to better our own content generation efforts?

  • RS

    Rob Sobers

    over 5 years ago #

    What is one of the most high leverage things an enterprise startup with great unit economics and a large sales force can do in order to grow?

    I'm curious about your thoughts for software companies that are big ($100M+ revenue) and growing decently fast, but still rely on outbound because they're not a household name yet.

  • DC

    Dhiren Chatlani

    over 5 years ago #

    Hi Tomasz,

    I would like to know your opinion on certain markets within the sharing economy. I see redpoint has invested in companies such as luxe valet (there are a few other which could be part of the sharing economy, depending on how you define it). What I wanted to know is your opinion on p2p(b2c) startups which focus on product rentals between users. Say I have a camera I barely use, I can rent it out to someone around me. There are many startups which have failed in this market and I would like to know if you believe there is a market here, and if so what do you think a company must do to differentiate itself? Many times for these platforms to succeed you need a large user base and it is hard to reach this without investment or extreme GH.

    • TT

      Tom Tunguz

      over 5 years ago #

      Dhiren, Picture question. The sharing economy is very exciting place to be investing, both because the Internet enables more efficient allocation of resources and better customer experiences.

      One of the key questions we ask when evaluating a sharing economy startup is: is the incremental benefit of using a shared service 10 X better than the friction associated with it?

      There is a trope about power drills. The typical power drill is used two minutes per year. There are 525,947 other minutes of utilization each that can be redistributed and sold. And conceptually that makes sense. The problem is every other user of the drill is also only going to use it for two minutes; and the drill probably costs $20-$30 at Home Depot. So the friction of aligning schedules to borrow the drill from someone else, using the drill, making sure you don't break the drill, and then returning the drill in good condition isn't worth the $15 savings.

      I don't know if growth hacking is the limitation in this case. I wonder if it's a question about the fundamental value proposition to the user. Is a service like this really making their life easier?

      4 Share
  • MP

    Millen Paschich

    over 5 years ago #

    Hi Tomasz,

    Your "Faster Sales Cycle as Competitive Advantage" post was great.

    Any tactics that you have seen work for SaaS products? One potential example could be a riff on Net 30 pricing… e.g. buy before free trial is over and receive a discount.

    Thanks!

    • TT

      Tom Tunguz

      over 5 years ago #

      Yes, one thing that Mark Roberge of Hubspot does but I thought it was really interesting is to change the compensation structure of the sales team in the following way. I'm making up the numbers here, but the point remains the same.

      If you have a product that can be upsold with an account, a salesperson's initial booking is only worth half of its face value against quota, and any future upsell dollars are worth 2x. making this into a more concrete example. Imagine a sales rep has $500k/year ARR quota. Imagine the typical account for this customer growth 100% per year. Imagine the first sale of the product is worth $10,000.

      The salesperson will become considered the following way. $10k * 1/2 = $5k of quota + $20k (upsell) * 2 = $40k of quota.

      This kind of compensation structure incentivizes really fast and small sales just to get in the door and relies on either the customer success team or the product to upsell. That way, you can dramatically reduce sales cycles.

  • TS

    Terence Strong

    over 5 years ago #

    Tomasz,

    After achieving product market fit? What is your systematic process for testing and choosing a customer acquisition channel?

    -Terence

    • TT

      Tom Tunguz

      over 5 years ago #

      I think it has to be creating an experimental framework, automation tools and using statistics to test acquisition channels. I believe growth hacking is more science and art, and I mean the kind of science in the lab that involves a lot of failed experiments. Like Thomas Edison and his thousand different types of filament

  • VV

    Vishnu Vankayala

    over 5 years ago #

    Hi Tomasz

    From your view, do you see any interest with startups which are based in India?

    Thanks

    • TT

      Tom Tunguz

      over 5 years ago #

      we don't invest in India. But from what I can tell, there is a huge amount of investment happening in India right now.

  • MF

    Marc Feder

    over 5 years ago #

    What what you advise a startup (we're in healthcare) to do if an idea that is very similar to theirs that they've just thrown half a million dollars at developing and are in the still infant stages of developing, is launched by a company in their region but 2 years ahead in terms of progress? It is a similar idea, but not the full concept (they are lacking but could easily incorporate our features).

    • TT

      Tom Tunguz

      over 5 years ago #

      it's hard to know without going into the specifics. But, if you believe your execution will be much better than the competition, then I would keep going. Ideas are a dime a dozen. It's how you bring them to market that counts.

  • GB

    Gijs Bos

    over 5 years ago #

    Hi Tomasz,
    You've written about related topics before:

    What would you advise a SaaS company that focuses on enterprise for both fundraising and customer acquisition?(When launching a SMB product isn't an option http://tomtunguz.com/saas-innovators-solution)

  • FA

    Faisal Al-Khalidi

    over 5 years ago #

    Hi Tomasz,

    Love your data-driven blog posts! What are your favorite SaaS related blogs/newsletters?

  • YA

    Yağız Akdil

    over 5 years ago #

    Hello Tomasz, i always wonder what techniques or methods you are using when you plan to invest on any startup. For example, do you use AHP, ANP decision making techniques ? or what processes do you have when you invest on startups. If you give any detail about this, i will appreciate it. What do you suggest for any person thinking about working for VC firm. Thanks a lot.!

  • GQ

    Gareth Quinn

    over 1 year ago #

    Hey Tom - I hope you are well.
    I am starting to set key metrics for our sport tech startup and working through your Redpoint Metric Template which is a great help.
    This is probably a pretty primitive question but I thought I would ask anyway...

    Under the 'Bookings & Revenue' section you have two metrics namely 'PS planned' and 'PS actual'. Can you elaborate on PS and what you mean. I am not the sales guy but have done a few searches and it points me towards some SAP resources but nothing definitive.

    Thanks in advance Tom,

    Gareth (Ireland)

SHARE
51
51