Sphere: The Global Tax Compliance Platform

1. 0:00 – 0:32

   Intro

   1. NRNicholas Rudder0:00

      Being upfront, that was the most turbulent point of my life, I would say. Co-founder had left. I had 95% of the people that believed in me in the last business sort of vanished into thin air. I had no personal money in the bank, like, literally had a, a few grand, and, uh, no technical co-founder, having to convince investors that, you know, I had this in the bag. And then on top of that, as if that wasn't enough, my wife actually became pregnant with our twins. Very high risk, actually. US health insurance refused

2. 0:32 – 2:05

   Nick’s Journey Into “Pivot Hell”

   1. NRNicholas Rudder0:32

      to cover us. And so, you know, we were getting- We had to get scanned every week. We would get all these bills in the mail for about 10K a pop, and honestly, we were gonna go bankrupt.

   2. AEAaron Epstein0:44

      [upbeat music] All right, I am excited to welcome Nick from Sphere, fresh off of a $21 million Series A led by Andreessen Horowitz. Uh, Nick, thank you for joining.

   3. NRNicholas Rudder0:54

      Cheers. Thank you.

   4. AEAaron Epstein0:55

      Maybe to start, uh, tell us a little bit about, uh, what Sphere is and, uh, the current state of the business.

   5. NRNicholas Rudder1:00

      Uh, yeah. So Sphere is an AI-powered global tax compliance platform. We focus on a particular type of tax, which is indirect tax. So sales tax in the US, VAT in Europe, GST in, uh, places like India and Australia. So we help companies like Lovable, ElevenLabs, Replit, Windsurf, with specifically getting registered at tax authorities, um, calculating tax at the point of transaction, filing the right tax returns, and paying global tax remittance. Um, we just raised $21 million round led by Andreessen Horowitz. Uh, and really the idea of that is just to double down on the global opportunity.

   6. AEAaron Epstein1:34

      Yeah. Amazing. Things are going really well now, but it wasn't always like that. [laughs]

   7. NRNicholas Rudder1:38

      No, it was not.

   8. AEAaron Epstein1:39

      And, uh, yeah, I think it'd be really interesting to kinda go back to the early days-

   9. NRNicholas Rudder1:43

      Yeah

   10. AEAaron Epstein1:43

       ... and maybe tell us a little bit about, um, you applied to YC with a different idea.

   11. NRNicholas Rudder1:48

       Yep.

   12. AEAaron Epstein1:49

       Um, you know, maybe tell us, uh, your background, how you came up with that idea, and how you met your co-founder.

   13. NRNicholas Rudder1:54

       So basically, my background is in finance. So I was at PwC, uh, Macquarie, which is an Australian bank, um, back in the day. I ended up leaving, you know, financial

3. 2:05 – 3:48

   Finding the Real Problem: Global Tax

   1. NRNicholas Rudder2:05

      advisory because, you know, it was a bit lifeless. Um, really wanted to build something, and yeah, I ended up going and building a edtech marketplace of all things. The story behind that is I had a pretty lackluster MBA experience, thought I could build something better, and really what it was was a platform that allowed industry experts to run live courses with companies around the world. And, uh, I did that with a person that I knew from back home in Australia. Uh, we had some mutual connections. I will say, we, I largely didn't know him at the time, but, uh, you know, we started working together, um, and we got into YC. Uh, and things went, um, pretty well in YC. Uh, we grew quite quickly. Uh, we got to about, you know, over the, the year after we finished YC, we got to about a million and a half in GMV. Uh, we took about 20% take rate, so we were making about 300K, uh, ARR at the time.

   2. AEAaron Epstein2:58

      Okay.

   3. NRNicholas Rudder2:59

      Yeah.

   4. AEAaron Epstein2:59

      Yeah, and so, I mean, things were going well-

   5. NRNicholas Rudder3:01

      Yeah

   6. AEAaron Epstein3:01

      ... and then, uh, you were growing, but then you made the decision actually to pivot from that idea. And so maybe from the outside, it seemed like things were going well. You had revenues growing, like substantial revenue, a couple, a few hundred thousand dollars. And to ultimately make the decision to pivot, walk us through your thought process there and why this wasn't the business that you wanted to spend the next 10 years working on.

   7. NRNicholas Rudder3:22

      Look, the reason why we pivoted was quite simple. We had made, uh, an assumption around the business that turned out to be false. Um, we basically thought that we could push the creation of courses, the content, onto instructors. We could productize it so that they can come onto the platform, they can build their own courses, and they could sell to these companies. But the problem was when you s- push that onto creators, they end, they tend to end up creating pretty terrible

4. 3:48 – 5:42

   Selling the First 10 Contracts

   1. NRNicholas Rudder3:48

      content.

   2. AEAaron Epstein3:48

      [laughs]

   3. NRNicholas Rudder3:49

      And so you had to get very involved in the creation of it. Um, it basically ends up becoming a media business, and it's not very scalable. Um, and I would say that in combination with the fact that edtech is a very hard market. Like, edtech is hard to, you know, make a really big business in. Um, and we had talked to a lot of our competitors when we ca- went through this whole decision process. No one was really making substantial revenue, and so we sort of decided, like, "This is not gonna be a hundred million dollar business," and we didn't wanna spend the next 10 years of our life on it, so we shut it down.

   4. AEAaron Epstein4:22

      And so what was that process like? You've made the decision that you should pivot. Um, did you have another idea in mind, or did that kind of start this pivot journey-

   5. NRNicholas Rudder4:30

      Yeah

   6. AEAaron Epstein4:30

      ... uh, of finding the right idea?

   7. NRNicholas Rudder4:32

      So, no, we did not have [laughs] an idea in mind. Um, and we went through what everyone calls pivot hell. Um, and I would say that we did it very poorly, uh, at first. We basically gravitated to whatever was hot at the time. And at the time, this was when OpenAI had released ChatGPT, and it was all the AI craze. And so we thrashed about in different sort of, um, ideas. We did AI agents for sales at one point. We did AI-generated integrations, which we did in design partnership with another YC company. And the problem with that is that basically you end up, A, selling or going into spaces that you know very little about and where you don't know the customer, um, and B, like, you know, none of the learnings compound. You end up sort of starting from scratch every time you thrash. And so it's very hard to iterate and learn and find something that's, like, that pain point. It was only really actually until my co-founder left, because at the time, we were trying to find things that overlapped in, uh, in interest areas.

5. 5:42 – 7:10

   Why Trust Matters More Than Product

   1. NRNicholas Rudder5:42

      It's only when my co-founder left that I managed to solve those two things where I was like, "Look, what do I know? I know finance, so I'm gonna focus in finance. I'm gonna talk only to CFOs." And that's when things started to go right, because then the learnings compounded. I was able to sort of iterate on something that-Actually solve their needs

   2. AEAaron Epstein6:01

      And talk about that a little bit. I, I remember, um, doing office hours with you and kind of like a low point-

   3. NRNicholas Rudder6:07

      Yeah

   4. AEAaron Epstein6:07

      ... for you. Your co-founder had decided to leave.

   5. NRNicholas Rudder6:10

      Mm-hmm.

   6. AEAaron Epstein6:11

      You still had not figured out the right idea to work on.

   7. NRNicholas Rudder6:14

      Yeah.

   8. AEAaron Epstein6:14

      You had some money in the bank from what you had raised around Demo Day.

   9. NRNicholas Rudder6:17

      Yeah.

   10. AEAaron Epstein6:17

       But I see a lot of founders in that position, and they're just like, "The cards are stacked against me. I give up."

   11. NRNicholas Rudder6:23

       Yeah.

   12. AEAaron Epstein6:23

       "I'm just gonna go get a job somewhere." Like, that was almost the easy thing for you to do.

   13. NRNicholas Rudder6:27

       Yeah.

   14. AEAaron Epstein6:27

       And I very specif- I remember where I was when I was talking to you, and I remember you were just like, "Yeah, I'm not fazed. I'm gonna keep going with this until I figure it out," and like, "I don't have an idea. I don't have a co-founder. But I'm gonna figure this out."

   15. NRNicholas Rudder6:41

       Yeah.

   16. AEAaron Epstein6:41

       And so, like from your perspective, what was that moment like? And did you ever consider going to get a job somewhere or anything like that? Or how did you think through that time?

   17. NRNicholas Rudder6:51

       I will say, like being upfront, that was the most turbulent point of my life, I would say. Uh, as you said, co-founder had left. Um, I had 95% of the people that believed in me in the last business sort of vanished into thin air. I had no personal money in the bank,

6. 7:10 – 9:02

   What Makes Global Tax So Hard

   1. NRNicholas Rudder7:10

      like literally had a, a few grand, and, uh, no technical co-founder, having to convince investors that, you know, I had this in the bag. And then on top of that, as if that wasn't enough, uh, my wife actually became pregnant with our twins. And the thing about these twins were they're actually a very rare type of twin. Uh, they're like one in 80,000 twin pregnancies, very high risk actually. Thing is that like these, these twins are so rare, in fact, that, um, our health- US health insurance refused to cover us. And so, you know, we were getting... We had to get scanned every week. We would get these, uh, checks in the mail or these bills in the mail for about 10K a pop, and honestly, we were gonna go bankrupt. And so we had to leave the US, uh, and go to the UK, where my wife is a citizen, to have these twins and live in a Ronald McDonald charity house that was in the hospital, all the while hiring engineers, uh, building the product, you know, ringing tax authorities. Um, and, you know, I think it was one of the most intense experiences of my life. But I think what was important was that, to your question of like why did I sort of keep going, I think it was two things. I think the first was that, um, you know, I wanted to prove to the 95% that didn't believe in me that I had this. I wanted to prove to the 5% that did believe me, and I wanted to prove to myself that I could do it. And the second thing is that I didn't have a choice. Like, I was in a corner with no money, um, and only one way out, and was to fight my way out. And so that is just the person that I am, and, and I guess we're here today.

   2. AEAaron Epstein8:50

      That's something that's always stood out to me about you, is that determination, and I've seen people with lots of money and a lot going for them decide to give up. And then I've seen people, and you're the first one that really

7. 9:02 – 11:20

   How Sphere Automates Cross-Border Compliance

   1. AEAaron Epstein9:02

      comes to mind for me, that have n- not much going for them and a lot working against them, and the thought of giving up and moving to something else just never crosses their mind.

   2. NRNicholas Rudder9:12

      Yeah.

   3. AEAaron Epstein9:12

      Talk about, you know, going from that and, and finding the idea, you know, that it, it has eventually turned into Sphere, and starting to kind of build momentum and convincing yourself that like, "Oh, actually, I think this is gonna be the thing that's ultimately gonna stick and ultimately gonna work."

   4. NRNicholas Rudder9:26

      So, you know, while this is all happening, yeah, I decided to revert back to finance. You know, that's what I knew. That's what I was good at. Those are the people that I understood. Um, and so I, I had also interestingly had a very painful experience in Scholarseye, the, the last business, the o- online end tech marketplace, where, you know, we ran into quite a few sales tax, VAT, GST issues because marketplaces have that problem very acutely.

   5. AEAaron Epstein9:55

      Mm.

   6. NRNicholas Rudder9:55

      You have to cover the whole tax on the entire GMV, not just your take rate.

   7. AEAaron Epstein9:59

      Yep.

   8. NRNicholas Rudder9:59

      And so I think it was the, the combination of, you know, that finance background, the problem that I had sorta lived, that made me sorta center on this thesis or idea space of like how do you help businesses expand across the world by removing a lot of this cross-border compliance out of the equation? So it's a, it's a broad statement, right? Like, it was a broad area. It could've meant, it could've meant 100 different things. And so what I did is I was very methodical in like how to find like a solution or a pain point that was big enough in that space, and it came in stages. Like, what I did first was, okay, I had this thesis, and I did 20 initial calls, and the calls were very, uh... I treated it like a sales, uh, funnel, where I just reached out to a bunch of CFOs in reputable SaaS startups, and it, that first 20 was all very discovery based. It was like, you know, "What are these areas that you sorta have problems with when you expand internationally?" And that allowed me to sort of pattern match. And what came out of it was that, yeah, tax became more and more of an issue. And, and so I was seeing that across multiple businesses. I then created a Figma prototype around a couple of different variations of what that could be, and then I did the next 20 calls, um, basically showing people that Figma prototype and getting feedback on it and iterating,

8. 11:20 – 14:04

   Going From Stealth to Series A

   1. NRNicholas Rudder11:20

      and every night just tweaking the Figma prototype. And they were high fidelity as well. Like, it almost felt like it was a real product too. So I put a, a lot of effort into that. And then the last 20, it was like, you know, at the end of that, the second stage, I sorta knew that there was a, a certain solution that sorta had come out of this pain point around cr- cross-border compliance, and it was clear that, you know, some of the existing vendors weren't doing international well. Um, they were outsourcing it to service-based providers. And so the last 20 was about selling, and it was importantly like not YC companies. It was these SaaS businesses that, like, I could demo the Figma prototype to, and the aim of that was to get LOIs. And I got five LOIs out of those 20 callsAnd, and that's what gave me conviction. I'd say the key learning in all of that was because I'd focused in the finance space and in this thesis area, everything compounded, and I could go back to the first 20 to sort of run those demos past them. And so, like it sort of avoided those issues I had with the thrashing, uh, which I talked about earlier.

   2. AEAaron Epstein12:25

      Something that stands out to me is that, um, you know, the first ideas that you were, you know, cycling through in pivot hell were all just kind of like random theoretical ideas-

   3. NRNicholas Rudder12:34

      Yeah

   4. AEAaron Epstein12:34

      ... that you had no experience with. And, and here you just kind of went back to what you knew.

   5. NRNicholas Rudder12:38

      Yeah.

   6. AEAaron Epstein12:38

      And that helped you get on the right track. It wasn't the exact idea that you started with, but through the conversations you were able to find it, but you came to this problem space because it was both your background and something that you had lived personally with your prior product it sounds like.

   7. NRNicholas Rudder12:52

      Yeah, 100%. I, I think, like, it's so easy for founders to go for the flashy thing that is hot in the market, but those areas tend to be, like, hypercompetitive and saturated, whereas, you know, if you go back to what you know, um, you know, not only are you gonna be able to tap your network, but you're gonna be able to talk to that customer better, you're gonna be able to understand, like, what they care about more. And importantly, also, you've gotta like the person that you're sorta selling to.

   8. AEAaron Epstein13:22

      Yeah. I, I, I've definitely felt that even in building, you know, my own company is-

   9. NRNicholas Rudder13:26

      Yeah

   10. AEAaron Epstein13:26

       ... you know, when you're focused on people that you don't wanna spend, you don't enjoy, you don't get energy from, like-

   11. NRNicholas Rudder13:31

       Yeah

   12. AEAaron Epstein13:31

       ... being around them, it's really hard. And when you find that, and you're, you're solving problems for people that you, like, deeply care about-

   13. NRNicholas Rudder13:38

       Yeah

   14. AEAaron Epstein13:38

       ... everyone's always like, "Yeah, I care about my customers," but, like, when you deeply care about them, you're, you're really motivated to spend more time with them.

   15. NRNicholas Rudder13:44

       Yeah. I think, like, for example, I told you, like, one of the, you know, ideas we looked at was AI agents for, for sales teams. I mean, like, that's sort of the classic tar pit for many founders 'cause everyone's like, "Oh, you know, I did a startup, and sales is really hard."

   16. AEAaron Epstein13:58

       Yeah.

   17. NRNicholas Rudder13:58

       But, like, do you actually care about selling to salespeople? Like, are you a salesperson, or was it just

9. 14:04 – 17:58

   Building an AI-Native Tax Engine

   1. NRNicholas Rudder14:04

      that, yeah, I mean, sales is hard, and sure, it would be great to make it better. But with me, I think, like, really c- that come to Jesus moment of like I've just gotta go back to, like, what I know and what I'm comfortable with and who I understand to a T, and I think that was sort of the, the unlock for me.

   2. AEAaron Epstein14:22

      Even beyond that, you know, you were selling to really big logos and-

   3. NRNicholas Rudder14:26

      Yeah

   4. AEAaron Epstein14:26

      ... and big customers before you had this fully kind of polished product that could do all the things that they want. Um, talk about your thought process in selling it ahead of the product actually being, you know, fully built.

   5. NRNicholas Rudder14:39

      It was very important to me that I sold before I built. So remember, I didn't have a technical co-founder. [laughs]

   6. AEAaron Epstein14:46

      Right.

   7. NRNicholas Rudder14:46

      So I didn't really have a choice here. And so, um, you know, I was very much doing that before I even had any engineering talent on board. And I will say off that Figma prototype, I talked about LOIs before, but we sold our first 10 contracts, like the proper, you know, binding contracts, off that Figma prototype. It stopped when I got absolutely rinsed by a CFO who said, "I'm not buying from someone who's, um, who's selling to me off a Figma prototype." [laughs] So that it got to a point where it was too much. But my point is that, like, if the idea is good enough, you should be able to sell off a Figma prototype. And the way that we sold into these big logos early on, there was sort of three things that allowed us to do it. The first was we genuinely had something that was differentiated. Like, no one was doing international tax compliance, and what I was competing against was pen and paper. And so some of these bigger companies were willing to take a risk on an earlier stage business to solve this problem, so that was, like, one way in which we got in. The second, uh, way I'd say is, as I mentioned, like, I am a finance person, so I understand, you know, how to sell to these people.

   8. AEAaron Epstein16:00

      Mm-hmm.

   9. NRNicholas Rudder16:00

      I... They're, they're very particular. They're numbers-driven. They're hyper-rational. They like, they like everything to balance. They like polish. And so that, I think I sorta spoke their language and managed to get them comfortable and get them over the line. And then the last thing, which is more of a tactical thing around the product, was that it's very modular. Basically, what you can do is you can use Sphere for one or two regions or one or two features. Let's say like registration and filing instead of registration, filing, and calculation. And so people, so, like, the ElevenLabs, the, the Runway AIs, like they could try one or two regions. They could see how, how it was, and we had a lot of confidence that, like, they were gonna much prefer it to what they were using, whether it was pen and paper or whether it was an incumbent. And then once we were in, we just expanded, and we kicked out the incumbent. We kicked out the, the local advisor.

   10. AEAaron Epstein16:54

       Mm.

   11. NRNicholas Rudder16:54

       And so it allowed us to sort of, th- them to de-risk the decision, and then it was really land and expand.

   12. AEAaron Epstein17:01

       It sounds like if I were to sum that up, you found a burning problem that had not been solved because people were using pen and paper.

   13. NRNicholas Rudder17:07

       Yeah.

   14. AEAaron Epstein17:07

       You really got people to trust you more than anything else.

   15. NRNicholas Rudder17:10

       Yeah.

   16. AEAaron Epstein17:10

       Like, at that stage, there wasn't really a product that they could try, and they were making a bet on you, and so being able to speak their language and-

   17. NRNicholas Rudder17:17

       Yeah

   18. AEAaron Epstein17:17

       ... show that you understood them was, was really impactful. And then making it very low risk for them to try you-

   19. NRNicholas Rudder17:24

       Yeah

   20. AEAaron Epstein17:24

       ... um, at the end of the day, that seemed to open up a lot for you. Talk about how that's changed how you sell today. You've got, you know, a full-featured product that's really great, that does a lot of things that nobody else in the market can do.

   21. NRNicholas Rudder17:34

       Mm.

   22. AEAaron Epstein17:34

       Has that changed your sales process now?

   23. NRNicholas Rudder17:36

       Um, I'd say it's, it's pretty, pretty similar. I think, you know, one thing we definitely, that has changed is we've started to move more upmarket, and then trust becomes more and more of a factor there. So you've gotta have all the bells and whistles that, that come with trust, which is, you know, you've gotta have the right security measures. You've gotta

10. 17:58 – 21:51

    Advice for Founders Solving Hard Problems

    1. NRNicholas Rudder17:58

       show that, like, you deal with, like, other customers that have the same transaction volume as them. Um, you've gotta provide referrals, uh, and reference customers, which we use, and we sorta weaponize actually. But yeah, I'd say moving upmarket, it's just been-We have to show that trust more and more. It was sort of central to the initial, um, sales in the early days, but I think, like, there's just more checking of the boxes as, as you move up, upmarket. I will say also that since we have grown and since word has gotten out about the international functionality that we have, things have pretty shifted quite a lot. Like, we used to be 100% outbound. We're now 70% inbound.

    2. AEAaron Epstein18:40

       Mm.

    3. NRNicholas Rudder18:40

       So I think that has been helpful, and, you know, has changed our go-to-market quite a lot. Yeah, I'd say it really does still center around trust, which was the same in the early days.

    4. AEAaron Epstein18:52

       And what does the future for Sphere look like?

    5. NRNicholas Rudder18:54

       There's two things about Sphere that make us different to other folks on the market. The first is that we spent 18 months in stealth with these initial design partners building out these integrations into over 100 tax authorities across the US and globally so that we can properly automate registration, calculation, and filing end to end. There's no other vendor on the market that does that. They outsource a lot of it to local advisors, which is a pretty terrible customer experience. It's a lot of manual back and forth, costs three to four times the price. The other key thing that cha- differentiates us is we've basically built the world's first AI-native tax engine, and what that does is it collects, codifies, and monitors tax law globally so that we can apply the right tax treatment to any product wherever it is sold around the world.

    6. AEAaron Epstein19:43

       Hmm.

    7. NRNicholas Rudder19:44

       Now, that is a key piece of technology that really is completely innovative. Like, there's a lot of people in this space saying that they use AI, but they're using it for, like, ancillary use cases like categorizing, you know, correspondence from the tax authorities. Like, this is rebuilding the tax engine with AI at the core. And what that translates to in terms of the future of Sphere is that right now we're just talking about indirect tax, but there are all these other compliance areas that businesses need when they expand internationally that are at the adjacency of indirect tax, things like withholding tax, input tax, which is the tax on expenses, tariffs, which are obviously super topical-

    8. AEAaron Epstein20:24

       Mm-hmm

    9. NRNicholas Rudder20:24

       ... because of Trump. TRAM, our proprietary tax review and assessment model, the AI-native tax engine, it can expand very quickly into those areas. So we see this as, like, a full revenue-based cross-border compliance engine versus just an indirect tax engine. And what Deel did for payroll compliance, we're gonna do for revenue-based compliance.

    10. AEAaron Epstein20:45

        It's huge. There's a lot of founders out there that are maybe going through pivot hell right now.

    11. NRNicholas Rudder20:49

        Yeah. [laughs]

    12. AEAaron Epstein20:50

        And so my hope is that your story can be an inspiration, uh, for them, that, like, there is, you know, a lot of really good stuff waiting for you on the other side. Any advice that you would share or that you wish somebody shared with you when you were going through that that would make that process easier?

    13. NRNicholas Rudder21:05

        I would say it's all a mental game, and so many people will tell you, will try and make you rationalize that quitting is the right option, and that, you know, "Oh, but there's all these factors that, like, are specific to your situation, so it's okay to quit," and... But I would say the 0.001% of founders that end up, you know, sticking it through, that's what separates the wheat from the chaff. So I would say stick in there, it does get better, and focus in on what you know and what you're good at.

    14. AEAaron Epstein21:41

        Well, Nick-

    15. NRNicholas Rudder21:41

        Thank you

    16. AEAaron Epstein21:42

        ... thank you for joining.

    17. NRNicholas Rudder21:42

        Cheers. Appreciate it. [outro music]

Episode duration: 21:52