Episode 199: Funding the Clean Future with SOSV's Managing Partner & Founder, Sean O'Sullivan
Episode 199: Funding the Clean Future with SOSV's Managing Partner & Founder, Sean O'Sullivan
Today's guest is Sean O'Sullivan, Managing Partner & Founder of SOSV. SOSV is a venture capital firm with more than $1B in assets under management. SOSV pioneers & runs world-leading startup development programs.
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For starters, what is SOSV?
We invest in about 135 new startups every year. And that is primarily in a few of our concentrated areas wherein life sciences, where the most active investor in the world and in hardware devices, physical devices, things you could drop on your foot and it would hurt kind of thing. We have those two areas where we have dedicated facilities, where we've spent 10s of millions of dollars building out physical capability that can really help in terms of labs and manufacturing equipment and, and lines and various other resources. Of course, including the people, PhDs, and deep tech-focused people in industrial design or supply chain work or all the different areas that we concentrate on. We have a lot of talent as well. We have about 140 staff globally that help our startups thrive.
What's the origin story for the company? How did this all come about?
I could go all the way back in history. So I started SOSV and we manage over a billion and two in assets under management and make a couple, a 100 million, 150 million or so new investments every year. I own interest in deep tech. I started a company directly out of college. The company was called MapInfo. We invented this thing where you type an address into the computer or like onto your smartphone or whatever, and you see a street map and that became a wildly successful idea. Billions of people have now used that technology in various forms since then. So we sold directly in, in the form of software to consumers. We had online systems and we had about a thousand different software vendors that incorporated our products companies like Oracle and Microsoft and many, many other companies that incorporated our products in their products that they shipped to consumers, et cetera. And yeah, so it is still a thing. There are still about, I don't know, 1200 people that work for MapInfo globally. Although, it's in a new corporate entity. I've been wrapped up and bought out many years ago, but it became a public company.
And from the proceeds of that public company, I left after about seven years and did some other things, but one of the things I did was invest in other startups. I found that the place I had enjoyed investing the most was at the very earliest stages in the foundation of a company. And that's how SOSV invests these days through our startup development programs called HAX, which is the hardware-focused area, and then through IndieBio, which is the life sciences area. We also have other programs in the blockchain space called dlab and in the frontier, cross-border space called China Accelerator and MOX.
What were the core tenets of SOSV when you started and were those a natural evolution from where you were spending your time and capital with your angel investing or was it a jagged transition?
Initially, it was just me with a checkbook. And so that's how SOSV started. SOSV originally was Sean O'Sullivan Ventures. Now it's just some initials cause there are a lot of people involved and it's much more than I. I'm still the managing general partner, but we have around 30 partners globally including eight general partners and a wide staff of experts and people who are very hands-on in growth hacking and various other areas, you know, mechanical engineering or biomass engineering, or any other molecular biology or whatever else. So we got this way through a roundabout path.
I won't say it was all designed upfront. I love working with startups. So I was starting it, initially just as a guy with a checkbook backing startups of people that I knew or doing interesting things. And I write checks of, you know, a couple 100 thousands up to a half million dollars in the early days, which was big for an angel back in the day and still is sort of a super angel style check. SOSV does write bigger checks than the traditional accelerator programs. For a while now we've been writing sort of half a million dollar check sizes, quarter million, half million dollar check sizes at our IndieBio and HAX programs in particular.
So, and, and now some other programs. I think YC just recently announced that they're starting to write half-million-dollar checks. And so others are taking after us in that front and will continue to keep innovating and continue to back startups and keep backing them after they go through our programs. But in terms of how we got here, it was initially just writing individual checks and then just trying to figure out, you know, what is the best way to have the greatest impact on the world? I was lucky enough to have some of the companies turn out to, that I backed come and go public.
And so I had some great returns and then I had to build a bigger team around myself and other investors to keep the growth going and then thought of the accelerator model after I didn't think of it, I was looking around for a model that I admired in terms of how people can invest capital and how to work with early-stage teams at scale. And I had seen what Bill Gross had done out at Idealab out in Pasadena. I liked what he was doing there, but it didn't seem that scalable. And then I saw what Techstars did with the cohort model and the physical location 10 teams in a cohort. And I really respected what they had done. I had co-invested with Brad Feld on a number of investments who he was a co-founder of Techstars, and we actually backed one of Techstars as they started in Boulder, but when they expanded, they went into Boston.
I became a backer of their Boston program and other funds there as well as 500 Startups. So I was an initial backer of those programs and actually, I guess before 500 Startups started, we started China Accelerator in Shanghai, originally in Dalian in China. So that was what led us to this one accelerator after another, and then now we've sort of left the original accelerator model behind. But we have these things that we call startup development programs, which have a lot more resources and a lot more follow-on capital, and a lot more physical assets than a traditional accelerator program would have.
I heard you say that you're one of the most active if not the most active climate investor by a number of investments, but I don’t see a dedicated climate program. Is that just spread across all of the different programs you do? Is that accidental? Is there some intentionality to it? Maybe talk a bit about how that's played out and how you think about climate as a pillar, if at all.
Yeah, absolutely. So when I look at the core of what SOSV does, we think of it as human health planetary health. And to the extent, the concentration on HAX is on the reindustrialization and the reinvention of industrialization for the world. Those areas mostly cover our 70, 80% of our investing that happens in the IndieBio and HAX areas. The other programs that we have very successful programs in the blockchain and in the China Accelerator and MOX areas are less about those, that core, but climate has been an area that we've been investing in for at least 15 years, but it has just been coming clearer and clearer how pressing the need is.
And we're responding to what we think our humanity's most pressing needs are. I'm lucky enough myself that my first company went public when I was 28 years old. I never needed to work a day in my life. I work a 100 hours a week since then, and I don't know why I'm motivated [laughs] to do so. But the truth is my primary goal is yes, we do very well financially as a firm and we grow very well but the real thing is what kind of lasting impact can we have as human beings and how do we leave a purposeful and meaningful life? And I think if you focus on the problems that really need solving, rather than just trying to make money, you can make money along the way. It's a side effect of doing things that really matter.
And so the things that I believe really matter are the things that the people around us at SOSV the people that come to SOSV and work as partners care about these core areas that we've just talked about, human planetary health in particular. And so these are existential questions for our survival. And so planetary health probably was, I'd say 10% of our investing 10 years ago. It is at this point 30% of our investing globally and I could see it being even more in the years ahead. It is a pressing problem that is not going away. And there are other problems that we need to solve for humanity and for justice and equality, and for other areas that we think technology has a role to play. But climate is an extraordinarily important and pressing problem that is obvious to all of us today. We are working on it heavily across the board in dozens of industries.
How does SOSV think about what makes a meaningful climate investment?
Sure, absolutely. And I have no problem with a VC saying, "Hey, this is our approach to how we're going to slice it and dice it." We know the deals that come through SOSV that we wanna take to Breakthrough Energy just because we know and they've been backing several of our companies along the way. And we like working with them a lot. I mean, they're very committed and I appreciate their approach with the Lifecycle Analysis. So we like that approach. We think it's clear as to what they're going for. We are definitely looking at what the entrepreneur brings to us, right? So we get around 8,000 applications a year to get into one of the SOSV programs. We select about 2% of them, or a little less than that. And we look at the ideas that come to us and we say, "Okay, this fits nicely into our climate focus. This fits nicely into our planetary health." It does not need to be a half a gigaton of impact.
If it's gonna improve our ability to feed the planet, you know, in a more sustainable way, it could be something which, you know, hypothetically, a lot of companies get to where they end up being through multiple pivots, you know, before they get there. If you're planning to save the world's three gigatons of carbon dioxide emissions equivalent the likelihood is you've probably not gonna end up doing what you think you're going to do anyway. So there's the expression about how many times it takes for a company to succeed, how many pivots they need to take.
Because if you don't pivot at all and you start your business and you're not listening to the customers, and you're like, "This is what we're gonna do," and you're likely to fail because the marketplace is not necessarily where you think it's going to be. You actually have to start at one place, bringing the product forward, pivot as necessary, attract a new market, et cetera. The average company that succeeds pivots between two to three times by the time they succeed. If they pivot more than three times, they probably are gonna fail because they just run out of pivots. They run a runway. They're changing their minds too quickly. They don't give themselves enough time to succeed.
And if they don't change at all, then they're just fixed in their mindset and they're just not listening to the marketplace, or they're not listening to the changes in technology, or they're not listening to their customers. And so we're looking at the team with the idea that they take to us, the core, their North Star. Why are they there? What matters to them? And we're looking at people that really care about improving life on the planet and have perhaps a little bit... You know, there has to be a business model, but also needs to be a reason why people really care about that business. From an impact perspective, we're not a 100% impact investor.
Probably 60, 70% of what we do, 70% probably is impact investing and then other stuff is probably more financially driven, but we do very well on the impact, investment side anyway, you know, in terms of re-returns, et cetera, because people who really care about these fundamental changes that are, you know, are necessary, you know, they're gonna stay with the business. There's gonna be greater investor interest. There's gonna be greater consumer demand or pickup by the customers who really care about the mission that the company has. So we like investing in this space for a lot of reasons. I hope that answered the question, partially at least.
It does. I want to jump back to something you talked about earlier, which is, it, it almost sounded like, and correct me if I didn't hear correctly, but that you think of it as profit in service of impact versus profit in service of profit.
Don't tell our LPs that. [laughs] They're happy with their 30% net IR returns.
So that's what I want to talk about, given what drives you is the impact. If that's really true, which you said it was earlier in the discussion, then what are the implications of that? What do you do that's different than if it was profit in search of profit with no impact driver at all?
I have made that mistake. I remember after my first company went public, so super successful, right? So I thought I could do anything. I thought I was God. I was over confident. My next company was... you know, somebody came to me who had been involved with the first company and he asked me to come and be the CEO of something in the internet space when the internet was super hot, it was very early days. And I said, yes. And I said, it partly out of pride and partly out of greed.
And I found out that greed is a terrible North Star, and it is just fickle as anything, including all the people that you attract to that mission. A greed mission is just a disaster. The moment anything starts going wrong everybody jumps ship, you know? The whole thing was a, I just found it from my heart to be a waste of time and it felt it to be so destroying. And the minute I could ethically get out of it and hand it along to somebody else to run that company, which did do 10 million in revenue and did op you know, but it was a failure. And it felt to me like a terrible outcome. And it was a bad outcome even financially in the end.
So I just don't want to have a meaningless life chasing the almighty dollar, you know? And I do think that many other people feel the same way that you can create great and lasting value by doing important things and attaching a business model to it. And the business model is necessary in order for you to have the greatest level of impact, right? So if you build a profitable company, you can continue to expand and you can continue to play, and you can continue to deliver more value to the end customer.
There are two ways to make money in this world. One is to do it by creating value at the core. The other way is to do it by extracting value by getting yourself into the middle of some business that, where you can pull money out, you know, like a FinTech business or not to say all FinTech businesses are bad or anything. But, you know, like where you're just sort of inserting yourself into the equation and extracting money, you know, a broker or something like that.
Not saying all business brokers are bad or whatever. But I think there are enough opportunities to create 10X improvements in how economies work or five X improvements in how economies work so that we can continue to advance the state of human existence. And if you make money along the way, you can continue to improve your ability to continue to back more and more of those companies and have more impact on people. So that's where our focus is.
Why do you even need to talk about impact?
It's true. You don't need to talk about impact. We don't need to talk about impact. Our decks don't go out saying we're impact investor. We just talk about our returns. We're mostly going to financial institutions and things like that and they're just looking for the returns. I think they can feel good about selecting us and there is a whole range of people that are investing with impact-focus thinking that they could be going after concessionary returns. You don't need to go after concessionary returns.
It sickens me sometimes to see people taking advantage of these financial models. On Wall Street, there are statistics that indicate that 10% of the people on Wall Street are sociopaths that they would sell their mother. Now looking at that number, that means there's 90% of people that are not sociopaths on Wall Street. But even so, that's a very high representation of sociopaths. And in the general society, it's around two or 3% sociopaths who don't care about the impact on other human beings.
Sometimes you look at some of these businesses and you're like, "Wow, they really just don't care what the impact of these payday loans or, or how they're making poor people go bankrupt or driving people into homelessness or anything else. And that would drive me freaking nuts. And I, I think that most of the people listening to this audience, 97% of the people listening to this would be sickened by people that don't have some ethical basis for their investment.
I'd say that most VCs are the proudest about the investments that they're making that have an ethical value. And I think if you're early in your career if you're in your 20s and you think it's all about chasing the almighty dollar and getting the highest return you have some growing up to do. And if you're in your 50s and you haven't grown up yet, well then, sorry, you missed the boat.
Does the government play a role? What's your world view on how to make the clean future a reality? And I know, look SOSV is going to do what SOSV can do and you're doing a lot, but SOSV aside, like how do we get there?
The one thing I'm encouraged by is we're not a very big player. We have a billion and two in assets under management, but for every 100 million that we invest, there's about two billion that follows on into our companies. So like I feel great about that. And so we are seeing a huge amount of leverage from later stage VCs that are coming and backing the companies that are coming out of our programs. And I wanna feel very proud about that but that's still just a drop in the bucket.
But you're right. We have to inject more ethics into our public discourse and our responsibility and we're not seeing great leadership. We're not certainly from a political standpoint you've seen a tremendous disregard for reality for a very long time and then ethics sort of went out the window. Sorry to offend anyone who's a big supporter of Trump, but he was a big liar, cheater, misogynist, in his daily business life even before he was a president.
This is a problem to laud these people as being successful when they're not successful. They're actually almost evil incarnate in that they're creating a model for people to say, "Oh, that's what success looks like." That is not what success looks like. If you're impoverishing others, whether you're running a casino and driving all your suppliers and, and, and whatnot out of business before you bankrupt the casino and bankrupt the state that backed it these are not people we can be proud of.
I don't know how to fix it because it seems like people are getting away with stuff, right? Trump is still not in prison for what he did in New Jersey with the casino system, not to mention all the other suppliers he stiffed along the way. This is nothing to do with his presidency and everything to do with the fact that he was a bad businessman for many years and lies and all the new things that came out about his accounting firm now no longer standing behind his accounts for the last 20 years. Mazars just announced yesterday.
We have to have a greater and higher standard for life and ethics and I don't know how that happens. I don't know how that happens. [laughs] And now this has become a very philosophical talk, but I can tell you it's at the root of it.
People have to take responsibility for the decisions that they make and they need to take those responsibilities about the pollution that they're adding to the environment, through the processes that aren't good enough. I have to say that most individuals are in favor of taking those steps towards taking responsibility. I just wish we had better leadership in general that would follow through on that, on those responsibilities and not let people get away with it when they don't take responsibility.
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