For the firm that calls itself “the first check in deep tech,” the last check for SOSV’s latest $306 million fund took a bit longer than founder Sean O’Sullivan would have liked. That’s probably less a reflection on the firm than an indictment of the macroeconomic environment: Ask any VC, and they’ll tell you the last couple years haven’t been the best time to fundraise.
“Given our track record, our rates of return, the proven successes, all the unicorns that have come out of SOSV in the past, you’d imagine we’d have closed it in three months,” O’Sullivan told TechCrunch in a recent interview. Instead, it took about a year and a half, with the most concerted effort occurring in the last six months, according to O’Sullivan.
“The caution that’s out there in the marketplace is the highest we’ve ever seen,” he said.
Despite the arduous and lengthy process, SOSV still managed to hit a new milestone:
At $306 million, the new fund makes it one of the largest pools of early stage deep tech venture capital to be raised in recent years.
“We’re concentrating and double doubling down on deep tech,” O’Sullivan said. “That concentration allows us to deal with an ever-expanding opportunity set inside of climate because there are so many industries in climate.”
The market’s caution is a reality of high interest rates, but to O’Sullivan, it’s also a sign that deep tech investing isn’t moving fast enough. Many investors have realized that the economy-wide effects of climate change present a range of opportunities. For O’Sullivan, investing in the sector is an imperative as well.
“This is really a war effort. We have to stop pretending this is just another investment theme of the day. This is an existential crisis for the planet,” he said. “So we’re treating it with that intensity, and with that velocity, that we think the rest of the industry needs.”
Velocity and intensity could mean placing more bets than before, as some firms and accelerators are doing. O’Sullivan is taking the “less is more” approach.
“We see other people heading in a different direction, where they try to cover all the landscape with like 200 companies in a cohort,” he said. “Instead of the accelerator origin point, we’re more like a studio these days. We’re doing a fewer number of companies, more like 80 deep tech companies per year. And we’re concentrating more capital and more attention and more service on them.”
Continued focus on biology
O’Sullivan said that over a decade ago, during the days in which SOSV was more like an accelerator, only about 20% to 30% of the startups in its programs were able to find follow-on funding. That bothered him, and over the years he’s changed the firm’s approach, including opening the Hax and IndieBio programs, two SOSV programs that nurture deep tech startups by providing them space to build and experiment in addition to operational support.
The result, O’Sullivan said, is that 60% to 70% of companies now find funding after SOSV’s initial pre-seed checks, which range from $250,000 to $500,000. In general, every $100 million the firm invests in startups attracts around $2 billion in follow-on capital, he added.
SOSV’s new fund will continue the firm’s focus on human and planetary health, an emerging trend among deep tech investors who have recognized that the two areas are closely intertwined. O’Sullivan said that SOSV intends to invest about 70% of the funds in climate tech companies, 25% in health tech, and the remaining 5% will be reserved for opportunistic investments.
The limited partners who are involved in the new fund include a mix of family offices, institutional investors and corporate venture capital, the latter of which contributed 25% of the total capital.
“The reason it’s so high is because so many corporations are the ones that need these decarbonization technologies,” O’Sullivan said.
The firm will continue to search for startups with a range of technologies, from robotics to minerals and biomaterials to biomanufacturing. SOSV will still put a focus on those that are using biology to tackle climate change. O’Sullivan believes that, in many cases, biological processes will win out. “Biology can be 30 to 300 times — even 3,000 times — more efficient than chemistry in terms of reducing the greenhouse gas production of these systems.”
Climate “is really a physical world problem. To tackle that, you need a greater level of efficiency in your means of production,” O’Sullivan said. “We have a special place to serve because we do deep tech, because we do get into the biology, we do get into the chemistry, the physics and the electronics. And that is all necessary to change the means of production.”
