When Sean O’Sullivan, Founder and Managing Partner of SOSV, gave his talk entitled “Innovation at Scale” at the Princeton Tech Meetup, most audience members knew very little about SOSV in advance. In his talk O’Sullivan acknowledged the higher public profiles of the YCombinator and Techstars accelerators that SOSV runs with. But once he began his remarks, attendees started to appreciate the impressive entrepreneurial journey O’Sullivan is on and the global success that the SOSV accelerator has had.
SOSV is an accelerator venture fund that runs intensive programs to help entrepreneurs with their startups, while providing them with funding. According to O’Sullivan, SOSV has a long list of achievements that places them within the top 5% of venture capital firms globally. This is accomplished through multiple accelerators located globally from San Francisco to China where they established that country’s very first accelerator.
As shared by O’Sullivan, SOSV is the most active life sciences investor globally---a top position achieved through a relatively small investment of $50 million annually that is spread over forty to fifty early stage ventures. Via Food-X they are the number one food accelerator and they also rank in the top ten for most innovative companies in food. Via its HAX accelerator they are number one in hardware with 170 startups that includes IoT, robots, connected devices, medical devices and others. When taking into account all factors, they are globally the number two most active seed investor and the number one most active early stage investor.
But SOSV’s accomplishments extend even further to include being at the top of the world’s venture capital firms in concentration of funded female founders, reaching 38% of their portfolio companies having either a female CEO or female member of the startup team.
“Our model of investing in so many companies, in so many different sectors, and in so many different parts of the world is very disruptive,” O’Sullivan said.
Delving into the nature of disruptive innovation, he quoted Buckminster Fuller, stating: “You never change things fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”
In his first startup O’Sullivan lived the disruptive innovation model he described. He began his entrepreneurial path over two plus decades ago at Rensselaer Polytech Institute where he created the first street mapping service for personal computers, disrupting the established paper based map industry at that time-- best known via Rand McNally. His company garnered early users, while Google later gained billions of users.
At the age of 28 O’Sullivan took his company public and then exited to begin another journey that included becoming a serial entrepreneur and then a venture capitalist.
At the Meetup O’Sullivan shared one of the toughest challenges a disruptive innovator faces. For those who are thinking about a long lasting impact, he referenced Mahatma Ghandi: “At first they ignore you. Then they ridicule you. Then they attack you. Then, finally you win.”
So, disruptive innovation seems to be a bit of a contact sport in O’Sullivan’s view and he went a bit further, forewarning listeners about having to “deal with a lot of haters” once success comes. He gave some tongue in cheek one liners to counter such attacks and then waded into the accelerator model which is the vehicle for what is termed “innovation at scale”.
“It’s about creating vibrant communities of co-founders that share their experiences and share the accelerator co-working space in order to learn from each other and to grow and speed the development of startups,” O’Sullivan said.
Unlike co-working spaces, accelerators typically have a sponsor of the facility such as a venture capital firm who will fund the startups in the cohort in exchange for equity. After going through intensive training for a number of months, the graduating cohort is usually presented publicly via a demo day that is intended to attract follow-on capital.
In SOSV’s case they typically take a small equity piece in their accelerator companies in exchange for a $50k to $100k investment. Their equity stake ranges from 5% to 12%, making sure to leave room for other later investors. It is the later Series A Round that typically goes to the “hot shots” of the startup world, according to O’Sullivan. He noted that about 1200 ventures a year achieve that round which ranges from $5 to $20 million in capital.
“We are trying to disrupt the model for how innovation and startups can succeed,” O’Sullivan said.
In O’Sullivan’s view SOSV’s success affirms the accelerator model that he feels is having a significant impact on startups’ success. Another measure is the investor money that is now moving to accelerator startups. While only 6% of Series A funding went to accelerator startups just a few years ago, it soon will reach 50%. That is a dramatic shift.
“That is proving out that accelerators are really an effective way of giving startups a better chance to go further, faster, to get introduced, to get past the gatekeepers of the industry, to get some external validation that makes it more possible to get that seed round of capital and to get commercial traction,” O’Sullivan asserted.
Only a handful of accelerators do what SOSV does and that includes YCombinator, Techstars, and 500 Startups. In addition to separating themselves out by having multiple accelerators segmented by industry sectors and geography, SOSV was the first to go vertical, building wetlabs for their life sciences accelerators.
“The scientists have the ideas but are not at the point in their careers where they can get backed by someone who has the $30 million in capital. They cannot get the NIH grants,” O’Sullivan stated. SOSV’s life science accelerators seek to unleash the innovation of scientists, particularly when the universities are unable to offer them what they need both in terms of infrastructure and funding.
Where is the investor success for accelerator startups? Very few of the startups ever go public, according to Sullivan. The return on investment primarily comes from the sale of the ventures in a range of $20 million to $70 million which cashes out the entrepreneurs and SOSV, while also giving liquidity to the fund to invest again.
“The best thing to do is to find the winners and stay with them for all time. Let them run, run, run all-day long,” O’Sullivan said, succinctly summing up why SOSV has been so successful.