About SOSV and Sean O’Sullivan

How would you describe SOSV and your investment thesis/guiding principles in one sentence?

We make the impossible inevitable by providing the first check in deep tech.

Can you tell us a bit about yourself and the main partners in the team?

Before starting SOSV, I began as an entrepreneur. My first startup, MapInfo, grew to a $200 million revenue business, and a public company with over 1,000 employees in the 1990s, popularizing street mapping on computers. Afterwards I founded NetCentric where we developed many concepts in internet computing, and I’m credited with coining the term “cloud computing” in 1996 and trademarked in 1997, along with George Favaloro.

For the first 10 years after my first company went public, I was a “super angel”, just investing in people who I thought had strong talent, at the seed stage (these days called “pre-seed”). After funding several companies that ended up as public companies, I ended up with too much money for me to put it into early stage startups just by myself, so I brought on a number of other general partners.

Today there are 8 of us, as GPs, half of which have been with the firm for more than 10 years. We have a very interesting array of GPs that includes Duncan Turner, an engineer/designer/entrepreneur whose work is in the permanent collection at MoMA; Po Bronson, an 8-times NY Times Bestselling author; Mohan Iyer, one of the early employees of biotech giant Genentech and a perennial COO of Silicon Valley biotechs; Stephen Chambers, a molecular biologist with multiple IPOs under his belt; and Cyril Ebersweiler, a long-time pioneer in startups in Asia, based now in Singapore after two decades in China and Japan. The rest of the team is about 90 people in various locations around the world. In addition, we’ve spun off two other VC funds that employ about another 30 staff.

Can you tell us a bit about the fund’s history?

SOSV started back in 1995, after MapInfo IPO. It was just me and a checkbook for 12 years. Some of my favorite early investments were JUMP Bikes (acquired by Uber) and Harmonix, the company behind Guitar Hero and Rock Band. I was originally more a passive angel investor, and I was simultaneously starting and running my own companies, some of which are still around, some of which got acquired. But eventually I invested alongside Brad Feld in TechStars when it expanded from Boulder to Boston, and I really liked the model, so I decided to tweak it a little, and along with Cyril, we created the first accelerator in Asia, in China, where I was living at the time (called “Chinaccelerator”, which now is a defunct brand). We then went with a vertical, deep tech approach to accelerators, and created HAX and IndieBio, which are now the mainstay brands of the firm.

People, and sovereign wealth funds, were also asking me for advice or to manage their money, so I decided to become more like a traditional VC firm, with most of the LP base originally just my own capital.

Can you give us the key characteristics of this new fund?

• Size (targeted & closed) and horizon: Our most recent fund, SOSV V (Sustainable Economies Fund), is a $306M fund that closed in April 2024.
• Industry/Technology focus: We invest in human and planetary health, in deep tech. Through IndieBio (life sciences), we invest on the biology side of things. Through HAX (physical sciences), we invest in chemistry, electronics, robotics, mechanics, and the means of manufacturing.
• Geography focus: We invest globally, with more than half of our investments originating from founders based outside the US, although many of our international founders choose to incorporate in the US for the substantial benefits that brings them.
• Maturity focus/stage: We nearly always are the first professional investor, and we always start by writing a seed level check (~$500k) at the pre-seed round. We do follow-on into Seed, Series A and Series B rounds, but we only evaluate companies that have been through IndieBio or HAX for follow-on investment.
• Ticket size: $500k initially; with later, pro-rata checks going as high as $5m on $50m rounds.

Do you lead investments, and do you have any typical deal terms?

We lead at the pre-seed stage only (usually the only check at that stage). We do not lead at subsequent rounds, but we have an extensive array of hundreds of investors that invest with us every year at the later stages, that we help bring into the rounds. For every $100m we invest, about $2 billion is invested by later stage investors.

Can you follow on in later rounds?

Yes, routinely. We also like working with other investors who are not “one-and-done” investors.

Why do you think now is the right moment to launch this fifth fund?

There are 3 answers to this question.

First, there is a tremendous urgency to launch this fund now because coming up with solutions to our climate problems are absolutely first order problems for humanity. These are problems that can only be addressed by changing the means of production — changing the products and processes used to produce the world’s physical goods. The average consumption of the 8 billion people on the planet is 25,000 pounds (11,400 Kg) of processed goods… from the primarily petrochemical energy that is needed to fuel our cars or our households, to the production of food we eat, to the built environment. These 25,000 pounds of products/person/year are generating the excess greenhouse gasses that are causing global warming.

These solutions are not going to be solved by software. In fact, if you hadn’t noticed, AI is consuming more energy by factors than ever before. We actually need to leverage biological sciences and the physical sciences to solve these problems. And we do believe these problems are solvable.

But this problem needs to be addressed now. This is an existential crisis for humanity, and we have to act fast.

Second, SOSV has become a major source of startups for all other climate tech VCs, and hardtech

VCs. Around 5% of all the seed investments in the US go into companies that first came through HAX and IndieBio. Now that may sound like a small number, or it may sound like a preposterously large number, depending on your perspective. You may think it’s irrelevant, the VC industry certainly wouldn’t die without us… but actually, when you consider that most of the VC industry is investing in sectors like SaaS software, Fintech, and marketplace, e-commerce, entertainment, or social network style software applications — actually, the number of truly deep-tech companies is rather small, and so we at SOSV have an outsized role, and an outsized responsibility in making sure that the 70 companies we back in deep tech every year get backed at seed. And so, that’s working, and in the past ten years SOSV companies’ portion of the VC seed funding industry has grown by about 10X, from 0.5% of the US Seed market to about 5%.

There is a tiny portion of risk capital going into pre-seed and seed companies relative to the money that is being placed at the later stages. This is a function of the portfolio management strategies of institutional capital. It’s hard to deploy a lot of capital into a lot of companies. This is part of the reason why SOSV acts at the scale we do.

Thirdly, SOSV needs to act at the scale we do, at the stage that we do, in order to make it efficient to fund deep-tech startups at a lower cost to society and to the rest of the VC industry.

We have to change the means of manufacturing, because at no time in history have people ever said, “I’d like to go back to the day when we didn’t have electricity and refrigerators and running water and cars.”

We don’t think it will ever work to deny people a high quality of life in the future. Moreover, we don’t think it’s necessary.

We can create abundance by using science and engineering to re-invent how we clothe ourselves, how we build our houses and workplaces, and how we power our lives. To do this, we simply have to re-invent every manufacturing process to generate less greenhouse gases. (The other option is to reduce the population of the earth to 2.5 billion people, which would also achieve the same result of generating less greenhouse gasses. But let’s assume that’s a non-runner).

So, lots of experiments and lots of engineering must be done. Some of this can be done, or improved, by simulation, for sure. But ultimately, it needs to be produced at benchtop scale, and then at pilot scale, and then in larger scales in distributed locations.

The beauty of biology is that it has been refined over millions of years to be incredibly efficient. Using biology as a means of production can be 30-300x more efficient than using traditional chemical and mechanical methods of producing materials, food, and chemicals that are necessary in our everyday modern lives. And more efficient chemistry can be achieved as well, for example in using enzymes to produce chemical reactions hundreds or even thousands of times more energy efficient.

What SOSV has done is enable scientists and engineers to use the wet labs, the chemistry labs, the mechanics and electronics labs that we have built, at the cost of many tens of millions of dollars, in our IndieBio and HAX centers. And we put our scientists and engineers alongside the founders to help them advance their ideas, all while gifting any patentable IP that we may help develop into the hands of the startups.

We don’t expect other VCs to run such facilities… the expense would be enormous unless it was being amortized over the scale that SOSV operates at. And, as SOSV is the world’s most active investor in climate tech investing, with about 90 staff, there are few VCs that could do what we do even if they wanted to.

So, this new fund, at the record size (for us) of over $300m, and a total AUM of over $1.5 billion, allows us to continue to operate at scale, and help bring these startups to the point where it becomes easier for the later stage investors to invest in these companies. We are entirely dependent upon these hundreds of later stage deep tech investors to lead the rounds subsequent to our programs.

What is your unfair advantage? What do you bring besides money?

Besides the facilities mentioned above, and the engineering and science help we can provide to our founders (we have over 11 PhDs on staff), we have a unique network of follow-on investors. We hold the world’s largest founder/funder events, such as the SOSV Climate Tech Summit; and quarterly founder/funder virtual match-ups (open to non-SOSV startups as well), that attract between 500 to 1,200 VCs having thousands of meetings with the world’s leading deep tech startups.

Importantly, the facilities we’ve built are not just laboratories. We bring together communities of deep tech founders and funders for hundreds of events per year. But the founders operating in these centers also get to work with other selected superstar engineers and scientists, and this creates an environment which is more than the sum of its parts. Deep-tech founders help each other get through the challenges, not just in the programs, but in the years after they form these bonds with the other startups and mentors they discover in the program.

Investment Strategies, Advice & Upcoming Trends

What do you look for in entrepreneurs? / What will convince you to invest in a company?

Founders who are looking to be of service to the mission, and to solving pressing customer needs. Founders must be creators, builders, and practical problem solvers putting their egos aside to deliver scalable solutions to the world.

How do you plan to leverage this fund to amplify the impact of HAX and IndieBio programs to scale innovations and foster breakthroughs in deep tech and biotech?

Well, as I said, for every $100 million SOSV invests of our capital, about $2 billion comes in from investors who follow-on invests into these companies. For us to do a good job for our startups, we’ve got to make sure we’re delivering what these investors need in order for them to feel confident that HAX and IndieBio are selectively putting out the companies which are close to customer, and, in a time like this, closer to revenue.

Sometimes some great SOSV startups have come along and attempted to swallow up an entire industry, whole. A few decades ago, I invested in Netflix through a fund, and after Netflix went public, I bought some more shares, I personally owned about 2% of Netflix. Now, Reed Hastings did some miraculous things at Netflix over the years, but that is a rare example where a company completely vertically integrated, and owned the distribution network, the end-customer relationship, and over time the movie libraries and the production studios that produce 700 titles a year, more than any other studio in the industry. It was masterfully done, and Netflix is now worth hundreds of billions of dollars.

But most startups don’t have that level of guts, and mastery, and luck, and access to inexpensive capital. So, in a time like today, when capital is very hard to come by, startups have to figure out how to get profitable quickly, and, in most cases, not be vertically integrated into every part of the stack.

We have several companies who are vertically integrated, from the production technology all the way to the customer, and I hope each and every one of them wins. But in a tight capital market, you have to get to profitability for the piece of the industry you can be absolutely the best at. And over time, and on the back of a profitable model, you can vertically integrate further up and down the stack.

At SOSV, that means helping our startups in partnering with corporates and others to supply the industry with plug-in replacements of feedstocks, materials, food products, fertilizers, solvents, critical minerals, and everything else that needs to be decarbonized. When we can get our companies to produce these better-for-you, better-for-the-environment products at cost parity or two or ten times cheaper, that’s when investors get excited.

What is the best way for founders to approach you and what will convince you to have a first meeting?

The single best way to approach us is by applying to our startup development programs IndieBio or HAX. If someone were to reach out directly to me, I would redirect them to our applications, at https://sosv.com/apply, which are always open. There are about 15 people that review our applications, and I’m personally not on the selection committee for the programs, as we get ~8,000 applications per year, and no one person can look at all those applications. It is important to note that though I am part of every IC for follow-on funding at later stages, the final decisions on which companies enter our programs rest with the GPs and their selection committees, for each program and location.

What is one advice you would give deep tech founders?

Be impatient. Ie., the George Bernard Shaw quote, “all progress depends on the unreasonable man (/woman).”

In order to move at a speed that others cannot match, you have to not settle for the status quo, you have to be fundamentally unsatisfied with the status quo, and you need to gather around yourself a team of doers who can figure out how to simplify and create breakthroughs which are perhaps 10x better by one measure, 100x by another measure, and perhaps accept 50% worse by another measure. And then fix the broken parts and optimize as you go along.

Who are your LPs and how did you convince them to invest their money in deep tech?

Our LPs are a very diverse group of corporates, institutions, and HNWIs (including about two dozen founders with exits we had previously backed). Our LPs are all people and organizations that already understand the planetary crisis that we’re in and how much work SOSV puts into making sure that the best scientific ideas to address climate change get funded.

Which climate problems and solutions do you think are still overlooked?

Most of our climate problems are still overlooked. When you compare the funding needed to solve our climate crisis against the funding actually being deployed, we are nowhere near the amounts we need.

The good news is that funding is improving, and that climate proved to be a very resilient vertical during these last few tough years. VC was down horribly, whereas climate was down only moderately. That is still bad but headed in the right direction and attracting more capital.

What trends are you currently seeing in the deep tech investment landscape?

Deep Tech, like all VC, is seeing a slow-down in capital deployment. Activity is picking up somewhat on the earlier side of things (Seed-Series A), but valuations are definitely lower than 1.5-2 years ago.

While just part of another cycle, we need to make sure we are managing our assets the right way for this kind of market. More importantly, we need to remain steady in our deployment strategy as years like this one have proven to be some of the best vintages in VC.

—-

I also started the O’Sullivan Foundation, was the founding funder of Coderdojo (a global network of coding clubs that more than 50,000 kids attend every week) and am a principal donor to Khan Academy (used by more than 75 million students monthly).