Nick Rudder: Tax. But not as you know it.

0:00Nick Rudder:It came to this realisation that being successful as a founder, like all the odds are against you anyway. You have to be contrarian to succeed. What did it actually feel turning around to a bunch of people who'd been champions and saying, hey, it's not the path we thought it was going to be. Terrified about the reaction that I would get. You actively fended off big name brands during that period. It's not that you didn't speak to people. It's like you denied access to speak. It creates this weird allure and mystery. Look, there's some great VCs, but a lot of them feed off FOMO. What is your philosophy on fundraising?

0:35Nick Rudder:You know, I haven't talked about fundraising strategy, and I feel like a lot of founders over-optimise on it. My next guest for Wild Hearts is a guy called Nick Rudder, and I think he's something of an intriguing character. On the one hand, as you will see in this conversation, he's somewhat of a poster child of a certain kind of founder. He's building in public in San Francisco. He's a Y Combinator alum. He closed a US$21 million fundraise backed by A16Z. Harry Stebbings offered him an angel check after just a seven-minute phone call. And he has a team who seem to genuinely love wearing matching merch.

1:14And yes, all of those things are true. But like any headline, they mask a messier reality in the background. He pivoted, but his was a proper one. He went from ed tech to tax tech. And his new company, Sphere, is an AI native tax compliance platform. When he went back to the drawing board, by the way, he was also moving countries to allow his wife to give birth to two high-risk twins, something they had to do because he couldn't get coverage in the US under the healthcare system there. Oh, and he's made a bit of a name for himself online, projecting a very different kind of dad-founder mode. In this conversation, Nick tells us the story of how ScholarSight became Sphere, his tips on how to do customer and product discovery on the cheap, how he got paying customers before he even had a working product, and his spicy takes on what VCs do well and what they don't.

2:09Let's dive in.

2:14Welcome, Nick. It's great to have you on Wild Hearts. our relationship goes back to the earlier version of your company as I was one of your sort of first users I took one of the scholar site courses but I'm really really excited to see where you've gone since then into sphere as we know it now but really the headlines kind of speak for themselves like you did Y Combinator in 22 for that product which was scholar site and ed tech product you then hard pivoted to a second product became a hot commodity in SF sort of fending off various you know big name brand uh investors and then you ultimately closed i think it was a usd 21 million dollar round is that right yep with a16z as the sort of lead there's a really really small number of aussies that have achieved those milestones and even fewer of them that have any sense of humility still about them so i really want to know let's start with the the obvious one which of these huge milestones felt the hardest to um yeah i'd say that definitely

3:13Nick Rudder:the hard pivot to the second product was the hardest. The first product did moderately well. We did okay in the batch and obviously came out of it with a great round. It was also at the time of a bit of a downturn in the market in 2021. And you were doing cohort-based learning, sort of online learning, but with very, very impressive, a very impressive set of sort of academic speakers. Yeah, we had a platform that would allow these industry experts to run live courses with companies around the world. So it was sort of like a white-collar upskilling platform. And the courses were quite varied. They were in different domains.

3:54Nick Rudder:A lot of the more popular ones were in technical domains. But, yeah, that product did well for a bit. It was, you know, EdTech was quite hot in the COVID era, and then it wasn't. And I think EdTech is a very hard market. kept working on that for another year and a half we just we just weren't growing our revenue it wasn't scalable and there was a few reasons why that didn't work and I can go into that later but you know at the end of that when I did decide to shut down that product you know all of our supporters basically disappeared my co-founder also left at the time so he went back to Australia and I went back to one person me building by myself and remember I'm also non-technical So, you know, I had to get pretty creative on Figma.

4:42Nick Rudder:And then I'd had to also convince other people to join me all over again. And at the same time of all of that, I went through some very personal things in my life. I had went through the birth of my two twins, who was a very rare pregnancy. It was quite intense. So the US health insurance wouldn't cover us at the time. Yeah, you moved back to the UK to have the kids, right? Yeah, we moved back to the UK all while trying to get this business off the ground. We were running out of money because for the time that we were in the US, we had racked up quite low bills. And so, yeah, I guess it was this perfect storm of struggle.

5:22Yeah. So, I mean, there's a lot to unpack there and I want to get into a bunch of threads. Maybe one that you kind of alluded to actually in your answer there is that all of your supporters went away. Can you share a little bit about, you know, how much of that was surprising to you? You'd been through YC, you understood what kind of cutthroat company building can look like, but what did it actually feel turning around to a bunch of people who'd been champions and saying, hey, it's not the path we thought it was going to be. Did any of their reaction surprise you?

5:52Nick Rudder:I definitely knew it wasn't going to be great, but I think I almost thought it would be worse than it was. When I did tell everyone that it was going to be this hard pivot, and I will also remind you that we didn't shut down the entity. We kept the same entity, the same funding, and we had pivoted it into what we are today. But I was terrified about the reaction that I would get and you know there were there were one or two people who would react how maybe you you would worry about an investor reacting and there were some things that you know were potentially a little bit public that weren't great and didn't make you feel good especially at the time when you're probably the lowest you've ever been but um I also was like amazed at how 95 % let's say you know were supportive and when I say they were supportive maybe maybe let's put it into buckets a lot of them were ambivalent i'd say maybe there was a much smaller i guess fraction of people who were genuinely supportive and wanted to see you succeed and that's maybe where i'm getting at when a lot of your supporters that maybe were all about you when you were you know hitting the highs of the last business sort of like go on to the next hot thing and that's a little bit like what sf is a little bit you know it can be quite a fickle town you know they they chase the the next craze and the next uh i guess wave of hype but there's the few that aren't and there's the few that will stick with you and i think you always remember those few and they're the ones you want around you at all time they're the ones you can trust so you you do learn very much like what makes a great investor a great person on your cap table a great advisor because they're the ones that'll stick with you when everything goes belly up.

7:41So say a bit more about that. Like, first of all, was that breakdown of people into buckets what you would have anticipated when you first partnered with these people? Like, did you get a sense of how they approached those things? And was there anything about like, were they more likely to be institutional so they understood like pivots happen? Or was it actually the angels or people who are personally connected to you that stuff by you? Was there any like pattern that you learned from there?

8:07Nick Rudder:Well, again, remember when I first raised this round, this was the first time I'd ever raised a seed round. So I was first time founder. You know, everyone's telling you that they're going to be your best friend and give you all the attention in the world. And, you know, I guess you believe that as a naive first time founder. And then you realize very quickly when things go south that that is not the case. In terms of who were the people who I guess most attuned to seeing the highs and lows, I'm not saying this of all funds but I think a lot of the funds fall into the ambivalent bucket they just sort of write it off and they're like great okay like that's you know it hasn't worked if it does work great like not not fussed about it I think a lot of the angels and I'm also going to put YC in this bucket especially like the super angels I'm talking about like the people who have really seen this before and they tend to be founders like they know they've gone through like this time and time again and like why cc all the time and they know that this is just part of the natural progression of a startup and it's like if you want to remove the risk of pivots then don't invest at seed because that is part and parcel of seed some of the best companies in silicon valley have come from pivots and it's just you've got to back the founder that's that's why that mantra is there and then i think the ones that sort of maybe react a bit poorly are the ones that just aren't you know maybe they come from a finance background maybe they're less sophisticated on having done a lot of these investments and seen it did you find that some people focused on like but you've still got revenue and you were like no that it's not growing as fast as it needed to no i don't think so because i i think we well it was interesting with our last businesses that we were making decent revenue when we um when we did decide to shut down like we were making$2 million in GMV.

9:56Nick Rudder:We made 20%. So we were making about$400K of revenue. I think that everyone saw though that whilst that's a decent amount of money for a seed stage company, it wasn't going to grow and it didn't have that trajectory. And the other thing about marketplaces as well is that you don't have that recurring nature of SaaS revenue that compounds. It's starting from zero on the revenue every month. And so it was sort of, unless it's sort of going like this. And look, marketplace can also take a long time. They go like that for a bit and then suddenly there's an inflection point and it goes up. But I think we got a lot of conviction that that wasn't going to happen in our business because we thought that we could productize the creation of courses and sort of make it so that all these experts from around the world could create their own courses.

10:43Nick Rudder:But then you find out that not many people make good content. And so you end up creating the content and then you're a media business, which is not scalable. and it's then very hard to see a business where you want to spend the next 10 years creating something like that because you know it's not going to make that much impact. I'll also say that we talked to all of our competitors in the space as well at the time when we were thinking of shutting down and no one was making money. Yeah, I think that's when we decided to pull the plug. So let's move on to how all of that's informed your fundraising strategy.

11:17What is your philosophy on fundraising? and how much of that have you kind of like honed since that experience? So I believe in a few different things.

11:30Nick Rudder:So I think the fundraising has layers and it's like at the core, nothing else matters on your fundraising strategy unless you have the numbers. I love that you've put it in like as if it's a fake thing. Yeah, because it's sort of like, you know, Evan talks about fundraising strategy and I feel like a lot of founders like over-optimise on it and it's like, really if you don't have this core aspect all your effort is being wasted and like you're not focusing on the thing that matters which is the health and the traction in the business like if you don't have traction like strong top line growth ideally a good story around your unit economics that's the true north star that tells people that you have something people want and there's nothing that is truer and comes back to the core of all startups than that that sort of yc saying of like build something people want because yeah the biggest signal to that is someone is willing to part with their cash and and give it to you for that product and I think if you waste time on things that don't grow the numbers like chatting to vcs like going to events and conferences then you're just doing your business a disservice so I think that's the first thing is the core that the core must be you that's why again going back to IC they tell you during the batch like you need to spend 95 % of your time getting the numbers to an amazing place than spend the last 5 % talking to investors.

12:54Nick Rudder:Like it's just a waste otherwise. Is that true? Is that true even now, even in SF where we've got this like crazy world where what was A is now seed, what was seed is now pre-seed and the kind of willingness of investors to invest in idea stage founders, pre-revenue, pre-product? I think to be if there's a class of those businesses that have shown a very good signal that either you know you said pre you know the idea stage I'll talk to that in a sec but like a lot of those early stage AI companies have already shown insane growth in like a month or two right so that's still showing that there's traction there or maybe there's a leading indicator that suggests that's going to happen very soon then there's the idea stage I think that's a different bucket that frankly I don't live in that world because that's like okay I was x open AI or I was ex-DeepMind and so like you have that you know brand I don't have that I'm from Sydney and no one not even knows not many US people know who Macquarie was so you're like that's a really reputable brand in Australia and they're like I don't know what that means Macquarie yeah no yeah they have no idea what that is I I think that's a different class I I don't know how that works really but anyway go back to the funding strategy there's there's the core so that that I think is super key.

14:13Nick Rudder:Then I do think that there's a strategy around engaging investors. And I think that changes at different stages. And I think it's on top of the core. This is my approach. And I'm not saying it's the right approach. And maybe I don't have a counterfactual of how it would have worked if I didn't do this. But again, I sort of approached it like I didn't talk to anyone until I wanted to run my process. Well, let's be clear. You actively fended off big name brands during that period. It's not that you didn't speak to people. It's like you denied access to speaking to you, right? And I think that it creates this weird allure and mystery.

14:55Nick Rudder:And like remember, VCs are just all, look, there's some great VCs, but a lot of them feed off FOMO. And I think that, you know, VCs ask around like, oh have you spoken to sphere oh no we haven't spoken to sphere have you spoken to sphere no and so no one's spoken to sphere and so then i think when you engage one of them because in the minute you engage one of them they're going to tell everyone then it creates this like you know i guess competitive dynamics that then help you get a better situation like uh you know in in the route but i do think that in order for that strategy to work the core needs to be there and people they find out about the core even if you're not talking about it like even people who you might think are not saying anything who are on your investor list that that stuff gets out and so like and also people just find out because like they can see your logos on your website and they hear about you providing a good product and so I think that strategy of like not talking to anyone and then talking to them at the right time like that works if you have the numbers and then later in the later rounds which i'm now being told about but like again i this is i'm not saying i'm an expert in a's and b's because like these are my first ones but you know i am told by a lot of folks i really respect you got to spend more time with investors to like you know they've got to have time to do their dd and so i've been doing that more but i do limit it to who you know people who maybe i trust or who have been introduced and because i don't want it to distract from the core again like i just think that that's the most important do you reckon uh that that's a philosophy that you could hold if you didn't have the brands of being a while yc company as a starter and now a16z like how much of a luxury is that as an approach do you reckon well i mean remember like pre-a16z like we were i i know like yc has a brand but like there's also now a lot of yc companies especially in silicon valley and i think that yc does help create more of that allure and mystery because it's like oh yeah they're a yc company oh we should definitely chat to them but yeah i think ultimately whether you're a yc company or you're not if you don't have the numbers the core like you won't get interest from investors there's loads of yc companies that don't raise so yeah i think it slightly helps but yeah the a16z thing that only came recently you know before that we were still applying that strategy pre-A16Z.

17:23Totally. So maybe share a bit about that because I think, you know, A16Z still has such cachet around it as a brand. What's it unlocked for you? Like, does it change conversations with potential customers? I mean, you are going after a lot of customers, you know, that are themselves A16Z or, you know, equivalent companies. Like, what's the uplift being beyond the money um from being an a16z company for you yeah look i i will say i i

17:52Nick Rudder:have nothing but good things to say about a16z like i i did used to think prior to a16z like i've got great investors at the seed as well but um prior to a16z like i was very happy if if investors did extra things for me and and like helped introduce customers but yeah a16z is a bit of a machine. I've created a lot of infrastructure to help their founders succeed. Having their brand associated with you definitely does give you a little bit of a halo effect. I think we're going up against competitors who are backed by Sequoia, backed by Benchmark, etc. And so, having that brand does help build trust in us.

18:35Nick Rudder:And remember, we sell a very trust-based product. It's like tax, you don't want to get it wrong. So, that really does help and it creates a bit of the halo it helps bring in those those bigger logos try allow them to have that trust in you but at the end of the day maybe it helps you get the meeting but then you know closing it keeping them you know on your books all that stuff is is up to you i guess so tldr is yes it helps um but it's definitely not the beyond end all and maybe just to go into that one level deeper for other funds who expend energy on platform for their portfolio companies you know ways of delivering value beyond the cash what's the one thing you've experienced and it may be from one of your other investors not even a16z that you're like that's the thing if you're going to do more of something do that what's the thing if i could wave a magic wand and ask like one investor to sort this out and do it really well, it's hiring.

19:38Nick Rudder:I'm still yet to see anyone really nail that, to be honest. But that is like the biggest thing on my mind right now. I think that is just would be such a value add. But honestly, outside of that, it's just customers. All I care about is like, if you can help, if I've got a whole list of key accounts and you can help me infiltrate those customers and you do it in a way where, you know, you've got people who are very well networked in that space who know those people, that is so valuable, especially like a series a the more every logo you win that's a big logo helps you you know get that edge over over other folks so yeah i i think if you could if you can do it do hiring that would be awesome if you just had like this elite squad of engineers that could like find the best engineers for you but i've never seen it happen and i've never heard of it happening and then customers and famously that was how a16z got in through your kind of fortress walls of i'm not speaking to investors right is i understand the the kind of partner that reached out to you managed to make an important and high level customer intro which is sort of what gave him the in to investing in sphere is that right it was it was a partnership intro curiously i'm not sure how he knew i was having an issue like on one of these partnerships but there you go i told you i told you before that things is a leaky bucket yeah exactly so he somehow he found out maybe he's just you know incredibly good at analyzing the situation but we were having an issue with one of our partners in terms of getting an integration with them he made the the right intro we got that integration it's incredibly valuable and then at that point it's just sort of like I'll take a meeting with you well it's not like I'm like okay fine but it's more you know this person's gone to bat for me and has shown that they will actually lift their finger and go help me achieve value for the business.

21:36Nick Rudder:A lot of investors won't even do that. They won't even make intros. And I'm like, well, okay, cool. Well, that's just like an easy screen then, I guess. Okay, so let's go back a little bit to this big pivot that you did. Like as you alluded to earlier, you went from ed tech to international tax compliance tech. Yeah. it's not a super obvious turn of events i know that you've spoken before about how in you know scholar site you were actually living and breathing part of this problem of this sort of tax compliance issue but i'm interested in like how wide did you go when you're in this sort of the depths of like what next how wide was your product exploration before you landed there yeah so i thrashed around a lot when we first shut down the first business.

22:25Nick Rudder:We did what everyone pivoting ends up making a mistake of is just you just follow the thing that's hot. And it was the time when OpenAI had just released ChatGBT. So, it was like so much hot things like going around. And there's two main problems with that though. The first is you choose ideas that you know nothing about. You don't have a connection to the problem, nor do you know the buyer that you're selling to. and then the second is that because you thrash every time you thrash you are effectively starting completely from scratch like you need to learn that buyer you need to learn their problems how they think etc so like let's say you do something in like ai for sales teams and you thrash to something like i don't know ai for hr you're just starting from zero at that point whereas if you stay in one lane everything compounds and um yeah i i decided to give it i think like after thrashing for about six months and also this whole time like updating investors on how this is going you can imagine how embarrassing it is like sending out these investor updates every month it's just like anyway so we decided i decided to give it one shot and this this was also at the time when my co-founder had left and I sort of I don't know why it took me so long to do this but I focused in on the thing I knew which was finance you know I'd been at PwC I'd been at Macquarie I knew that buyer I knew what that world was and I had also had this massive issue in the last business as a marketplace you feel the problem of tax compliance very acutely you're liable for the tax on the whole gmb not just your take rate and so what happened was i i firstly stuck to the lane of talking to finance leaders that were in my network that were at sas companies in sf that's where i was based you know i wanted to do it in a very structured way because i wanted to make sure this was the right idea this was the last hail mary like you know i didn't have a technical co-founder i was like this is this has to work this time and sure enough tax kept coming up as something that was going to be a project that these finance leaders were going to invest in that year and that was like actually probably the best question I had in that whole discovery process it was like yeah talk us through that because you did what 60 discovery calls or something to that effect yeah and I had it in stages as well there was like the first 20 were disco discovery where it was like very open-ended trying to find like pattern match on the pain points and tax kit coming up and the key question that helped me to that first 20 was like what is a project that you're going to fund this year and it's like a direct question to like what i was telling you before it's like what truly matters is what someone's willing to part cash with and that tells you in a roundabout way like it's not like you're trying to sell something it's just like what is the project you're actually going to spend money on this year and that and then you can just pattern match after that and so tax get coming up the next 20 was about building a figma prototype but iterating on it so it's still discovery based and then you're trying to like fine tune it into something that's like close to being something that you can pitch and then the last 20 is trying to get lois on a figma prototype ideally contracts as well and and the beautiful thing is that because you've been in the same lane the whole time you go back to the first 20 you go back to the second 20 and so again it just compounds compounds compounds whereas if you were thrashing 20 each 20 people you you're just not going to learn anything so i'd love to um understand that more because it's worth sort of reiterating this was all you right like to your point you were building your own figma prototype it's not like you had engineers building any of this for you you didn't have anyone else doing sales or anything else you didn't have a product at this point i want to know um i guess how did you so you were getting LOIs off the back of a Figma prototype I think it's true to say that not everyone understood that wasn't in fact a product when you were showing them you know you were demoing something you knew was a Figma prototype they may not have grokked it except I understand there was one customer who figured it out um what did that conversation look like it's either one of two things happened either yeah it was so good that people didn't realize that it was I don't know how true that is though maybe they'd never built in figma that can help maybe yeah and then the second was just like oh they knew it was figma but they didn't really care because it was like i guess the prospect of what was being shown like would have solved their problem i feel like i'm really good at figma now but i don't know if i'm like that good at figma what happened was with that particular situation it was like a series b sas company also by the way at this point though we had already sold five or six contracts and we were just continuing to sell on figma like we i was just like well why would we need to build a demo environment like this does i haven't heard anyone come up with it yet probably was an issue for some people they just never were they were too nice to ever say anything but yeah this guy we got onto the call the guy basically was like oh can you click into this oh can you click into that and you know he's clearly knows that this is Figma and you're like that's a holding button but I'm not going to tell you I I can't I'm sorry and he basically just snapped and we didn't snap he's I wouldn't say he was rude but he was pretty firm it's just like I'm never going to buy off someone who's like pitching me on a Figma prototype so like you know grow up and let me know when you build a product and I'm like okay have you gone back to speak to him I don't think I have to be honest but I think at that point though we did build a demo environment and uh I did have engineers at that point and we uh we sorted that out pretty quick well I mean good for you it takes you know chutzpah to get to that point for sure um I'm interested in actually like quite practically what did it look like managing expectations from customers so you were selling this Figma prototype without necessarily the product did you have to sort of jazz hands your way to we'll have your instance ready for you on x date like what did the actual process post LOI pre having the product running what did that look like yeah so the beautiful thing about sphere is that it's a very modular product um you can sign people up for a select number of regions uh let's say they want compliance in west virginia new york and and california right and so and also for a specific set of products so maybe they just want tax calculation in those regions not filing and and remittance and whatnot we offer many things now and so at first those contracts were just for one product and one set of regions and so we tell customers like you know even in the LOI it's it's sort of like we agree to provide you this product as of this date and the date was always like two three weeks in the future and then we would just work like night and day to just sprint and get it done and so it was very much like yeah I guess building the plane as you're flying it the thing is that like it is a lot of upfront investment it's quite intense at the beginning but every time you set up one of those rails in a region like you would set up california you set up new york then you can just rinse and repeat over every customer and you know i think the thing that made us quite differentiated as well as we were the only ones to do that internationally like lots of people had done it in the u.s but no one had done it internationally and so it took a lot of time to set up in each region but yeah in terms of managing expectations it was just that the key is to not bite off more than you can chew if you were to if i was to sort of have tried to close lovable at that stage with you know i don't know 20 30 40 regions like that would have just killed us and one thing i think our customers appreciate is always delivering on the date that you say say you're going to deliver i think like that really fosters that trust and yeah i think that's one thing that is we never like if there's ever something that we say we're going to do as a deliverable, we always deliver it before that day.

30:23Nick Rudder:And then that always makes them feel good, I guess. Yeah. I mean, this is the interesting thing, right? You are selling to a type of customer. So it's worth sort of saying for the audience, you've had phenomenal success selling into a bunch of AI native companies, like many of the names people will recognize, Replit, 11 Labs and others. I'm interested in sort of two things, actually, two parts to this. One is what's it taught you about product expectations of these customers and how translatable are their ways of buying to the kind of universe of mainstream businesses you'll ultimately want to sell to.

30:59And then I've got a sort of sub question I'd love to pick your brains about.

31:03Nick Rudder:So the question is like, what are the product expectations of these customers? Yeah. I mean, you might argue like there's magic in all of these AI companies. Like you've built magic in Tram, which is the sort of unsexy, but hugely important way of understanding like interoperability of tax standards worldwide would be a kind of sure bastardized description of what tram is but you know and there and there is beauty in the product as well but you're also selling to some of the most magical companies out there so like i guess what i'm interested in is like there's a huge gaping hole um between their product expectations i would guess and what impresses them relative to even your average customer let alone you know the long tail that's true yeah i think in terms of the product expectations one thing is that those companies move extremely fast so you need to move just as fast as them which can be really demanding they also expect expect like a very white glove service like they want things like 24 7 slack channels they don't want tickets like that's a very old school way of dealing with cs that is not an ai native like modern way of dealing with cs as being part of this new wave of sass like cx like customer experience is so important they there is this new standard now like things need to delight it you know and if you don't have that cx that has that you know you are put it immediately at a disadvantage you're almost viewed as like you know the the sass 1.0 so that's like another thing that's that's incredibly important i think buying behaviors the good which is another thing that sort of differentiates them is they are willing to definitely take a risk on you if you have differentiated value that's quite different to like an older school provider who will be probably a bit more risk averse and also they just move more quickly through the sales cycle and is it probably is it true to say some of them wouldn't have had your like wouldn't have been working with a competitor anyway like they are growing quickly enough that you are their first tax compliance platform that they're working with so it's not like they're comparing you to the their feature matching you against yeah but the ai native companies are always new builds or largely new builds for us whereas like a more established player that might be coming up for ipo or something it's always a rip and replace a very different strategy as well it's like we have to highly leverage the modular play there where it's like maybe we'll do the international filings first and then we'll do international tax calc and then we'll do everything we have to do a much bit more of a land and expand play there whereas with ai native they don't have tax in place and you need to handhold them through that process because they likely won't have a head of tax they'll likely have you know maybe a finance lead probably an ops person who just won't know anything about tax so that's why the white glove of services are important but also where the opportunity for value creation for that customer is so massive yeah I was going to say it's still massive for us on the like more established company side though because the way that those companies have dealt with cross-border compliance is they have this patchwork of solutions because there's no global solution so they'll have like something in place for us but then they'll use all this like patchwork of local advisors businesses outside of the US.

34:27Nick Rudder:Maybe they have an international solution that does Europe only and it's just a mess and like nothing talks to each other. It's incredibly expensive. Data's all siloed. And so with us, it's a play of like, we'll just consolidate everything and you have it all on the one platform. Whereas I feel like an AI native company just sort of expects that. Anyway, so yeah. Yeah, interesting. So I'm kind of interested to go further into what this sort buyer profile looks like. So, I mean, you've come from the world of finance. You alluded to this earlier, but as you know, they tend to be like the CFO types tend to be like the hardest to impress parts of most businesses.

35:04There's a certain kind of professional cynicism that they invest time in and a kind of identity around, you know, holding back. They're not easy to delight, I think as customers, typically, I'm really interested in how you deliver a service that you've said this earlier, it's all about trust. Like you have to deliver for these types of customers. They really believe in it. What's the kind of approach that you've taken to that as a buyer? And in particular, I'm interested in the part of this, which is like the human and loop piece, which is like, by definition, if they're getting stuff, if you're advising them incorrectly on tax compliance, the downside risk is huge for these companies.

35:45So I'd love your next layer on how Sphere thinks about AI meets human in the loop. Yeah.

35:52Nick Rudder:Well, just on the topic of the buyer profile, I feel like I've had very good training trying to impress my boss at Macquarie. So that's why I think that, like, I was very much made for this business because I've had some good training there. But in terms of, yeah, how you build trust and this intersection of AI and tax, which is a controversial combination, like you don't, whenever you talk, when we first sort of came out with the whole idea of the AI-native tax engine, there was almost a split between some tax people being like, oh, this is obvious, like this is the way it's going to go and some people having a full-on allergic reaction to it.

36:33What was the allergy though? Like tax is rule-based.

36:36Nick Rudder:Like actually, you could go. There's a lot of interpretation. And I think like the reason why there's allergic reactions to it is because, you know, when you think about the sheer volume of, I guess, trade law that's out there, you know, the nuances, the rate of change, a lot of these older school tax people just can't fathom a technology that can understand that understand the nuances the the social norms the geopolitics the you know all these things that and and reason on it to give a particular determination on a set of products like it just really doesn't compute because it's previously just been such a human based business if you think about trade law like all of it is a set of rules that are out there on the internet and unstructured formats hard to find places different languages and that is the perfect use case for ai to come in and to look apply those rules reason on them monitor them to the specific characteristics of a product catalog that a business sells like yes it's not easy i'm not saying and it has to be sort of the system needs to be built out in nuanced ways in each region with the help of local tax experts as well by the way but yeah that's why there's an allergic reaction.

37:57Nick Rudder:I think it's just been a very entrenched industry that's been extremely professional services orientated up until now. Yeah, going back to your point on like, I guess, how we sort of facilitate trust from maybe the naysayers and how we're sort of trying to build that category in this space. The way that we've built our system is that there are these inherent guardrails in place. So TRAM, the name of the system, the tax review and assessment model, it's a series of models, not just one model. It's like, you know, we have a set of scrapers that will scrape the statute law, the administrative guidance, the case precedence in each region.

38:31Nick Rudder:We have a series of lower order models that will chunk up the tax law to say like this bits for SAS, this bits for electronics, this bits for beverages. And then we have a higher order model, which is one of the frontier models that we fine tune that does the job of a tax researcher to say, okay, well, based on the law and this tax code, which represents a certain set of characteristics of the SAS product, this is how it would be taxed. And here are the backing citations. Now, we don't just trust the model to do it, though. The whole point is that these outputs get reviewed by a human tax research team, right?

39:10Nick Rudder:And they review the outputs and they provide feedback on the outputs. We do that on purpose because that data is used to fine tune the model further and increase the first shot accuracy as a form of guardrail to make sure that nothing goes wrong. And then so that means that it's not as though the AI is like, you know, it's instant. Like we still have that expert review layer, but it provides that safety and it also provides this data mode to our model. Yeah, and I think if you ask me like where this is going over time, I think we're sort of in this stage, just like the rest of the AI products are, where we're in this assistive stage.

39:46Nick Rudder:Even coding agents right now are assistive. They don't fully go off by themselves and produce code autonomously. We'll get there. Everyone's on the same page, so that's going to happen. But right now we're in the assistive phase, and I think we're just in the same phase when it comes to trade law research. Yeah, interesting. I'm then kind of interested to understand pricing in that world, right? So one of the things that's quite curious about these AI native businesses is that a lot of the kind of playbooks, the pricing playbooks that played out really, really well for SaaS just don't work as easily for an AI native company.

40:23One is the sort of per seat based pricing, which is at risk if exactly what you're doing is moving from an assistive model to something potentially that could be a replacement for a role type within a business. So you want to avoid that. And also a lot of the fastest growing companies are actually not necessarily growing headcount at the same rate anyway. So that kind of relationship between growing company

40:45Nick Rudder:and growing sort of labor force isn't one you can bank on. And at the other end, like sort of tokenized pricing is also not very well understood and also a moving feast for most companies anyway. I'd love your insights into how you thought about pricing. You talked about modular earlier. Talk to us a little bit about, you know, where you've landed for now, at least, for Sphere? Well, the one thing to understand here is that like the cost structure of your business will obviously massively impact how you price. And the good thing to understand about Sphere is that so a lot of these AI companies have a huge cost of goods sold line because all of their AI, all the tokens are coming in as AI spend.