The Fastest Growing Sectors of Startup Fundraising in 2020


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    From time to time, I chart the fastest growing categories of startup investment in the US for seed through Series C. Here are <a href="https://tomtunguz.com/fastest-growing-areas-investment-2015/">2015</a>, <a href="https://tomtunguz.com/software-categories-raising-most-capital-2017/">2017</a>,  This year, I was certain the categories would have been influenced by COVID19.
I analyzed Crunchbase data and looked for the startup categories that grew fastest in terms of funding rounds year-over-year, provided there were at least 10 rounds in that category. image Quantum computing topped the list with a doubling of rounds. The leader doesn’t have much to do with COVID ostensibly but is likely propelled by increasing interest in the technology because of recent advances in quantum computing design and manufacture. Dating is next, followed by battery companies, doubtlessly benefiting from the surge of electric vehicle sales and boom in consumer electronics. Video conferencing is no surprise: it’s the new office for many information workers. Music streaming, test and measurement, and quality Continue reading "The Fastest Growing Sectors of Startup Fundraising in 2020"

Cloud Data Lakes – The Keystone to the Decade of Data


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    On January 27-28, <a href="https://www.dremio.com/?utm_source=tomasz-tunguz">Dremio</a> host their second <a href="https://subsurfaceconf.com/winter2021?utm_medium=partner&amp;utm_source=tomasz-tunguz&amp;utm_term=tomasz-tunguz-investor&amp;utm_content=na&amp;utm_campaign=2021-subsurface-winter">Subsurface conference</a>. <a href="https://tomtunguz.com/cloud-data-lakes/">Cloud Data Lakes are the future of large scale data analysis</a>, and the more than 5000 registrants to the first conference substantiate this massive wave.
This time, the conference will build on the foundation from last year’s event. Mai-Lan Tomsen Bukovec, Global Vice President for AWS Storage will deliver one of the keynotes. Also, Tableau’s Chief Product Officer Fran├žois Ajenstat will discuss the Tableau’s role in the cloud data lake. Plus, leaders from Microsoft PowerBI, Apache Iceberg, Amundsen, Monte Carlo and many others will share their views on the advances they’re seeing in cloud data lakes and the software that’s being built around them. In my predictions post for 2021, I said that the 2020s will be the decade of data. Cloud data lakes are a key technology enabling the innovation in analytics and machine learning. On top of these Continue reading "Cloud Data Lakes – The Keystone to the Decade of Data"

The Art of Doing Science & Engineering


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    <a href="https://www.amazon.com/Art-Doing-Science-Engineering-Learning/dp/1732265178">The Art of Doing Science and Engineering</a> is a curious book. Richard Hamming, the author, was a professor of science and engineering at the Naval Postgraduate School and researcher at Bell Labs. He knew quite a bit about science and engineering.
The book is curious because it’s written in the first person and defies categorization. Part memoir, other times, a mathematics lecture on information theory, and yet others a book on life philosophy. Within the first 30 pages, Hamming delves into back of the envelope calculations. I was expecting questions a candidate might be asked in a consulting interview. How many ping pong balls fit into a 747? How many violinist repair shops are there in Chicago? Hamming skips the linear. His idea of back of the envelope is a geometric equation, modeling explosive behavior that exists in many parts of nature and business. Staring at an equation with an Continue reading "The Art of Doing Science & Engineering"

The Missing Insight Around Software Multiples for Valuing Companies


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    Imagine two public SaaS companies, identical in every respect but one. The first grows revenue twice as fast as the second. How much more valuable should the first be? Twice as valuable isn&rsquo;t the answer.
Most investors value stocks using multiples, which tend to obscure the underlying drivers of value. Many investors also seek to distinguish between value and growth stocks, which are commonly sorted based on multiples of earnings or book value. The important drivers of value are opaque with these practices, and very few investors have a clear sense of how revisions in expectations for those drivers change multiples.
image Michael Mauboussin is a leading markets thinker. He wrote a short paper recently called The Math of Value and Growth that’s worth sharing to answer the question in the first paragraph. He included this chart which shows the P/E multiple on the y-axis and NOPAT (Net Operating Profit After
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Information Cascades – How Many Rational People Can Make Logical Decisions and Yet Still Create a Bubble


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    When I say bubble, you likely conjure images of people speculating on real estate or stocks or tulips in your imagination. Like me, you might dismiss the folly of these bubbles as the collective action of a multitude of people who lose all rationality when bidding on these assets. But, <a href="https://softwareengineeringdaily.com/2016/12/05/algorithms-to-live-by-with-brian-christian/">as I learned from a recent interview with Brian Christian</a>, bubbles can be created even when everyone acts rationally. This phenomenon is called an information cascade.
Here’s how it works. Suppose we have two opaque mason jars. One jar contains 2/3 red balls, 1/3 gray balls (majority-red). The other contains 2/3 gray balls and 1/3 red balls (majority-gray). I pick one of the two jars and place it before the a line of four people. The first person steps up to draw a ball, and I instruct them,“Look at the color of the ball, but reveal the color to Continue reading "Information Cascades – How Many Rational People Can Make Logical Decisions and Yet Still Create a Bubble"

The Next Chapter for StackRox


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    Today, <a href="https://www.redhat.com/en/about/press-releases/red-hat-acquire-kubernetes-native-security-leader-stackrox">RedHat announced that it has acquired StackRox</a>. By joining forces with RedHat, StackRox, which provides Kubernetes-native security, completes the next step a journey that started six ago, and will become a key part of OpenShift.
The world of container and Kubernetes security evolved enormously during the past six years. Docker burst onto the scene and its containers took the infrastructure world by storm. Then, there was a scrap for the best orchestration and Kubernetes won out. These two foundational technology shifts ushered in the DevSecOps movement. Today, StackRox enables DevSecOps for many leading companies including Splunk, Zendesk, SumoLogic, UIPath, Supercell, Priceline, Looker and many others. Through it all, Kamal, Ali, and the rest of the StackRox team led the business to become the first Kubernetes native security company and a leader in the category. I’m very grateful to the entire team and especially the leadership at StackRox for inviting Continue reading "The Next Chapter for StackRox"

Why Remote Work Changes the Nature of Leadership, and the Kinds of Leaders to Recruit in Startups


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    Erica Brescia, the COO of Github, a company in which 70% of the workforce has worked remotely for a decade, wrote in <a href="https://www.economist.com/the-world-ahead/2020/11/17/at-software-firms-many-people-already-worked-from-home">the Economist</a> about how remote working is different and better. There have been many perspectives shared on remote work, but Erica&rsquo;s perspective adds an intriguing detail.
Managers tasked with creating a culture of collaboration within a distributed team will find the profile of a leader changes. A recent study found that the skills and traits of successful leaders in an in-person, office-based environment differ from those needed to lead distributed, remote teams. Instead of valuing confidence and charisma, remote teams value leaders who are organised, productive and facilitate connections between colleagues.
This perspective raises the question, should leaders recruit managers with different skill sets depending on the team operates in the office or remotely? I dug up the paper which you can read here and summarized the findings Continue reading "Why Remote Work Changes the Nature of Leadership, and the Kinds of Leaders to Recruit in Startups"

You Should Be Recruiting Different Types of Leaders for Remote Teams


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    Erica Brescia, the COO of Github, a company in which 70% of the workforce has worked remotely for a decade, wrote in <a href="https://www.economist.com/the-world-ahead/2020/11/17/at-software-firms-many-people-already-worked-from-home">the Economist</a> about how remote working is different and better. There have been many perspectives shared on remote work, but Erica&rsquo;s adds an intriguing detail.
Managers tasked with creating a culture of collaboration within a distributed team will find the profile of a leader changes. A recent study found that the skills and traits of successful leaders in an in-person, office-based environment differ from those needed to lead distributed, remote teams. Instead of valuing confidence and charisma, remote teams value leaders who are organised, productive and facilitate connections between colleagues.
This perspective raises the question, should leaders recruit managers with different skill sets depending on the team? I dug up the paper which you can read here and summarized the findings in a bit more detail below. Emergent Continue reading "You Should Be Recruiting Different Types of Leaders for Remote Teams"

Why Fast Learning Curves are So Important to Startups


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Startups are business machines engineered to grow quickly. Once a company hyts hypergrowth, the market exerts enormous strain on every aspect of the company. Internal processes and systems break all the time as the company moults into a new skin. It’s one thing to talk about this idea in the abstract. More tangibly, every lead hired today, whether marketing , sales, engineering or product, will have a very different job nine months from now, much less two years from now. Imagine you work at a startup that is growing headcount 125% year over year. It’s 25 people going to 56 going to 126. You hire a head of engineering. The engineering team is 17 people. image The org chart will look like this: one engineering lead with 17 engineers reporting to them. 17 direct reports is unsustainable. It’s at least one full working day of 1/1s. Plus, the engineering lead must
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Continue reading "Why Fast Learning Curves are So Important to Startups"

5 Predictions for 2021


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    Every year, I make a list of predictions and score last year&rsquo;s <a href="https://tomtunguz.com/5-predictions-for-2020/">predictions</a>. 2020 is a year that defines the long tail events, twelve months in which black swan after black swan event seemed to hit the press. Each morning I held my breath as I checked the news wondering what headline could top yesterday&rsquo;s bombshell.
Here are my predictions for 2021
  1. Working remotely for a year changes how we work forever. Meeting in person remains important for advancing careers, critical meetings, and team cohesion, but the days of the 9-5 daily commute from Monday through Friday are gone for most knowledge workers. Two days per week in the office? Three days per week in the office? Working remotely for a quarter instead of taking 20 days vacation? I’m not sure where it will settle, but working patterns won’t return to pre-2020 behaviors.
  2. 2020 becomes the decade of data. The Continue reading "5 Predictions for 2021"