EUVC #221 Sean O'Sullivan, SOSV on building a 1.5 bn behemoth to back planetary & human health with a global studio model
From coining the term cloud computing and allowing you to navigate the world to building a 1.5 bn first ticket deep tech firm, here's our interview with Sean O'Sullivan, the founder of SOSV.
From serving as a janitor to embracing his passions as a musician, filmmaker, and even running a humanitarian organization in Iraq, Sean O’Sullivan’s multifaceted nature reveals a remarkable tapestry of life experiences. Among the intriguing anecdotes is his encounter with a rare viral infection that affected his eye, providing a testament to resilience and adaptability. His ventures extended to the world of television, where he enjoyed a stint as a TV star in Ireland, further exemplifying his versatility.
In conclusion, Sean O'Sullivan's venture journey offers a tapestry of experiences, showcasing the significance of perseverance, long-term commitment, and a diverse entrepreneurial mindset. These insights have molded his investment philosophy, guiding SOSV's strategic approach to support startups in their earliest stages and nurture their growth through series B and series C, while emphasizing the immeasurable value of riding the wave with successful companies for the long haul.
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Sean’s Journey into Venture
Reflecting on his journey from humble beginnings as a janitor to his diverse ventures in the tech industry, Sean O'Sullivan's life exemplifies the power of seizing opportunities and the value of embracing both success and failure.
I figured out that you can't wait for something to be handed to you. You have to go and seize it.
Sean O'Sullivan's journey into tech commenced during his university days at Rensselaer Polytechnic Institute when he co-founded MapInfo, a pioneering company responsible for creating technology that facilitated computerized street maps. The company achieved immense success, going public in 1993. Despite eventually stepping away from MapInfo after its public debut, Sean's entrepreneurial spirit remained undeterred, leading him to explore the field of music before being drawn back into the tech industry.
Watch the full conversation about Sean’s journey here 👇
Lessons from Failure and Investing as a Super Angel
One of the defining moments in Sean's venture career came with the rise and fall of his startup, Netcentric, during the tumultuous dot-com bubble era. This experience exposed him to failure and the formidable challenges that entrepreneurs face.
"You learn as much from failing as you do from succeeding. It still hurt a lot, but that was my start into venture”
However, Sean courageously embraced the invaluable lessons gleaned from this adversity. Throughout his journey, he also emerged as an active super angel investor, providing early-stage funding to pre-seed startups. Several of these investments proved highly successful, generating substantial returns.
Lessons from investing in Netflix
Sean's investment into Netflix predates his tenure at SOSV and originated through a VC fund in which he was a limited partner. He recognized the company's potential when it was still operating with the red envelope model, a time preceding the digital distribution and streaming revolution.
"I bought like 2% of the company. If I'd held on to all of that, it would be worth several billion dollars."
Despite the stock market challenges Netflix faced after going public, Sean seized the opportunity and purchased a significant portion of his position at an extraordinarily low valuation. As the company transitioned into the streaming era, Sean remained steadfast in his belief and witnessed its remarkable success. Although he divested some of his investment over time, he acknowledges that had he held onto his entire stake, its worth would now be measured in billions.
The Formation of SOSV - A Formal Venture Capital Firm
As Sean's investments burgeoned, he recognized the need to formalize his role as a venture capitalist. This realization culminated in the establishment of SOSV, a dedicated venture capital firm with a strategic focus on investing in early-stage startups. The firm attracted like-minded partners and assembled a dedicated team, fostering capital deployment and unwavering support for the growth of their portfolio companies.
Sean taking a stance: Are VCs Adding Less Value Than They Think?
Venture capitalists (VCs) are a vital force in the thriving startup ecosystem, providing essential funding and guidance to young and promising companies. However, a recent quote from Sabina has ignited a thought-provoking debate: "VCs add way less value than they think."
During a candid discussion, we sought Sean O'Sullivan's perspective on Sabina's statement. Interestingly, Sean refrained from criticizing VCs and acknowledged the pivotal role they play in driving innovation and supporting startups. He understands that the venture capital world is fraught with uncertainties, with success hinging on various factors such as market conditions, timing, and the founders' ability to navigate challenges.
Reflecting on his own firm, SOSV, Sean emphasized their hands-on approach, offering founders access to physical deep tech development facilities and a global team of over 120 professionals dedicated to supporting young entrepreneurs, particularly during the critical pre-seed stage. This hands-on support is highly valued by the startups they back, but Sean reiterated a fundamental truth – it is always the founders' company; VCs are simply there to cheer them on.
"The founders own the vast majority of the equity of the company. They're the ones doing the 80 to 100-hour work weeks. It's really all about founders."
While VCs provide crucial support, Sean underscored that the ultimate success of a startup lies in the hands of its founders. Despite seeking recognition for their contributions, some VCs may appear to want to take credit for a startup's achievements. While VCs can indeed drive a company forward, Sean candidly acknowledged the reality that only one in 10 investments in a VC's fund typically leads to extraordinary returns. Many investments may result in partial valuations or even complete losses.
"The truth about VC is that you can be right one time out of 10 and be called a geniu ... And if you don't get it, you're out of business because the odds are always for asymmetrical returns in VC."
Sean's insights offer a nuanced understanding of the complex VC-founder dynamic. His take emphasizes that while VCs add significant value and support to young companies, the ultimate success and growth of startups depend on the passion, resilience, and ingenuity of their founders. As the startup journey unfolds, it is this intricate interplay between VCs and founders that shapes the trajectory of each venture, making the world of venture capital an exhilarating and rewarding realm for those willing to embrace its challenges and opportunities.
The Unconventional Approach of SOSV to Revolutionize Planetary and Human Health
The venture capital (VC) space has recently witnessed an escalating emphasis on planetary and human health. While established VC firms are increasing their allocations towards these sectors or growing their fund size, new General Partners (GPs) are surfacing, focusing primarily on these vital verticals. In this evolving landscape, SOSV, under the leadership of Sean O'Sullivan, stands out for its unique approach and long-time dedication to the space.
Watch the whole conversation on this below 👇
SOSV's Differentiated VC Model
Rather than strictly following the traditional VC model, SOSV provides a broad spectrum of hands-on support to startups, including infrastructure and core facilities. This deep engagement demands a more substantial level of investment, transcending beyond capital into the realms of knowledge, expertise, and resources. The studio model that SOSV employs is among the key components that differentiate it from competitors.
"We spent tens of millions of dollars building out these facilities so that people could actually build their prototypes, do vacuum form plastics and molding and injection machines and mechanical work with six robots that we have on site."
SOSV is among the top seed and pre-seed investors globally, investing in about 100 to 125 companies a year. Notably, it has also cemented its reputation as one of the most active Series A and Series B investors. To foster these startups, SOSV has developed numerous vertical accelerators, focusing on specific regions or sectors.
Investing in Infrastructure: Building the Future
An interesting aspect of SOSV's unique approach is its investment in infrastructure. O'Sullivan and his team have spent millions of dollars building facilities for startups to develop their prototypes, thereby enabling them to advance more rapidly. These capabilities include everything from pick and place machines for hardware startups, to wet labs for life sciences companies.
This focus on infrastructure is the outcome of a deliberate and long-term strategy. Recognizing the distinctive needs of hardware, software, and life sciences startups, SOSV decided to provide targeted, specialized support rather than a "one-size-fits-all" approach. For instance, for startups involved in hardware, they need to navigate the complexities of pick and place machines, mechanical and electrical engineering, frequency and FCC approvals, and so forth.
The state-of-the-art facilities provided by SOSV go beyond providing a space for startups to develop their products. They also act as hubs where startups can interact with other top-notch founders and investors, often leading to significant networking and collaboration opportunities.
A Global Footprint: Connecting the World
SOSV’s influence extends far beyond its home turf. It is a global investor, with investments in numerous countries and multiple accelerators located worldwide, from New York City to China. This international presence allows SOSV to support startups from diverse regions and give them access to global finance and technology hubs. Moreover, the firm's physical facilities offer a platform for founders to showcase their work to investors, fostering confidence and facilitating investment.
"The other benefit is that we have these facilities in New York City, New Jersey, and in San Francisco. So at the same time, this gives them access to capital that they never had before."
Partnering with Stakeholders and LPs: Fostering Ecosystems
SOSV's mission and impact have also drawn the support of state agencies, which view the firm as a vehicle for economic development. For example, New York State granted SOSV $25 million to help build out their wet lab, reflecting the state's confidence in SOSV's potential to stimulate local economic growth.
"For them, it makes a lot of sense, given our success ratio of turning startups into unicorns."
As for Limited Partners (LPs), SOSV tends to work with those who are enthusiastic about the sectors in which the firm operates. It has around 200 LPs across its various funds, including major corporations looking for fresh ideas, financial institutions, and family offices.
“We really are focused in human and planetary health, with planetary health being 65% of what we do, really changing the means of production of how we produce the products that we consume as a society and as a world."
In conclusion, SOSV's unique approach to VC, its global reach, and its partnerships with various stakeholders all contribute to its success in generating outsized returns. By investing not only in companies but also in infrastructure and support, SOSV is helping to drive innovations in planetary and human health, thereby setting a unique example in the VC industry.
Shout-out to Co-investors & LPs: A Word from Sean O’Sullivan💌
Sean used the opportunity to use our shout-out segment to emphasize the crucial role his co-investors and LPs have played in the success of his endeavors. He recognized that picking a single investor to highlight would be an arduous task, given the vast network of committed professionals he has worked with over the years.
However, he did spotlight two investors who have greatly contributed to the evolution and success of SOSV. He started by recognizing Ashwaath Mehra, an investor who has been on two of SOSV’s LPAC committees and has been associated with the company since the third fund.
Beyond investing in the fund, Mehra has gone above and beyond to lead and fill out rounds, while actively providing his support and advice to over a dozen startups. O'Sullivan commended him for his leadership and his tireless commitment to backing their startups.
“And just to give you an idea, like on that first fund, I put in a hundred million dollars of my own money into SOSV and I thought I was going to raise like a $300 million fund or something like that. Nobody showed up. It was like me with my hundred million dollars."
Next, he recalled Alex Hawkinson from Tiedemann, the very first institutional investor to support SOSV's initial fund. Despite O'Sullivan's own substantial investment of $100 million, the fund’s unconventional model and diverse geographical outreach initially attracted skepticism. However, Hawkinson’s faith in the venture remained unwavering. Not only did he invest in the first fund, but he also tripled his investment for the next, roping in other institutions along the way. O'Sullivan expressed his profound gratitude for Hawkinson's trust and his pivotal role in bringing institutional investment into SOSV.
The conversation underscored the significance of the first institutional investment for any fund and how it can be a game-changer. The stories shared by O'Sullivan serve as a testament to the fact that professional relationships in the investment world are as crucial as the financial contributions made. As SOSV continues to evolve, O'Sullivan's words reinforce the invaluable role that investors like Mehra and Hawkinson play in shaping a company’s journey.
Sean’s Top Three Learnings from Building SOSV
In a recent interview with Andreas Munk Holm, Sean O’Sullivan, founder and managing partner of SOSV, a venture capital firm with $1.5 billion assets under management, shared his three core learnings from his journey building SOSV into a behemoth.
Watch them all here 👇 or read on
1. Do not pursue the flash in the pan.
By the time you get to try to copy the latest craze (social media, crypto, generative AI), if you weren’t amongst the first movers, you’ll just burn money.
O’Sullivan emphasized the danger of following trendy investment areas. While it's tempting to pursue the "hot new thing", by the time an area becomes hot in the venture capital market, it is often too late to invest. Derivative investments - investing in companies that aim to replicate the success of another - often occur once a sector heats up. O'Sullivan warns against this strategy, particularly when these trends reach a stage where pre-seed rounds are valued at hundreds of millions. Using generative AI as an example, O'Sullivan highlighted how essential it is to be among the first movers in order to avoid wasting resources.
2. Focus on People with Substance Over Flash
Steady on. There are a lot of flashy people that come in with lots of money, saying lots of arrogant things, who haven’t really done anything. It’s not just Donald Trump, in fact about 10% of Wall Street are narcissistic psychopaths. If there is anything to learn in life, it’s about doing rather than saying.
In the venture capital world, there is no shortage of people who present themselves flashily, often without any substantial achievement to back up their claims. O'Sullivan pointed to the importance of ignoring these individuals and instead, looking for entrepreneurs who have a proven track record of creating something valuable. It's about doing rather than saying, and this means examining what they've achieved, not what they claim they will do.
3. If you’re going to be huge in venture, it’s a multi-decade game
If you’re going to be huge in venture, it’s a multi-decade game. The first decade is as an entrepreneur, doing the work. The second is, as an investor, just learning all the stages. You have to have many exits, all the way from start to growth, to M&A or IPO, to understand how you have to play the game from the start. The third decade is capitalizing on your learnings and your network from the second decade.
🔫 The Quickfire Round 🔫
Question 1: What advice would you give your 10 year younger self, Sean?
Firstly, ensure you are no pushover. Setting high standards for yourself and your organization encourages everyone to deliver their best work. This is a point of pride, and a marker of true success. It's not just about setting the standards, but also about ensuring they are met without compromise. By doing this, everyone within the organization will realize that they have contributed to something worthwhile, knowing they've done the best work of their lives.
Secondly, it's important to adopt the principle of 'finish what you start.' In our eagerness to achieve and innovate, we often juggle too many tasks at once, failing to complete any. Identify your priorities, focus on what matters, and see it through to the end. Completing one project successfully is better than leaving several half-done.
Lastly, don't shy away from cutting your losses when necessary. It can be tough, especially when a significant amount of money has been invested into a company or a project. However, if it becomes evident that it's a fundamental failure, or if there are issues of dishonesty or insincerity from founders, it's better to salvage what you can and move on. Recognizing when to let go is a critical part of maintaining the health and growth of your portfolio. By embracing these principles, you equip yourself with the resilience and pragmatism necessary to navigate the volatile business landscape.
Question 2: What are your top tips for emerging VCs that are fundraising?
In the complex landscape of fundraising, particularly in this challenging climate, it's important to strategize effectively. Fundraising has become a prolonged process, taking more time than ever before. So, what's the approach to navigate these turbulent waters?
I'd recommend focusing your efforts to raise as much funding as you can over a span of 12 months. This period should give you ample time to make connections, pitch your vision, and secure investors. But once this timeline is up, stop the active pursuit of additional funding.
Instead, shift your attention to utilizing the funds you've acquired. The objective now becomes to effectively back the businesses you've decided to invest in. Use the resources available to you to support these ventures, enabling their growth and development.
In essence, a well-balanced approach is essential.
Allocate a defined period to fundraise, but then give yourself space to stop fundraising and focus on putting that money to work.
This way, you maintain the equilibrium between securing funds and actively driving business growth.
Question 3: What's the most counterintuitive thing you've learned since you've been in venture?
In the venture capital world, there's a common belief that winners can be spotted from the very first meeting. However, the reality is far from this. As we have discussed, the venture game is one of odds; if you're correct one out of 10 times, you're considered a genius in this field. Predicting which of your startup investments will bring the high returns and essentially return the fund is a daunting task.
I would urge you to trust your intuition and back your investments to the full extent of your conviction. But remember, it's crucial to diversify your portfolio. The importance of spreading your bets cannot be understated. You might find it astonishing how often it's the underdog - an unproven team - that ends up winning the race.
While we all like to think we have a sixth sense for spotting winners, it's crucial to keep a grounded approach, understanding that each investment carries its own risks and potential rewards. The venture capital game is less about betting on sure winners and more about betting on potential, often hidden in the most unexpected places.
Watch Sean’s replies to the quickfire here 👀
Sean’s Controversial statement
Entrepreneurship is a blood sport. The founders are constantly battling in the arena and ultimately the majority of them are not going to be successful in changing the world (in that particular startup, anyway). They leave a piece of themselves out on the field. Our job as venture capitalists is to be coach and confidant, helping the company fight the good fight, helping the founder get up after being knocked down, and, to some extent, helping them realize when the fight is over. We hope that every time, even if the company fails, the founder succeeds, by having tried and having grown through the battle.
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