a16z leads $21m series a into ai-native tax compliance software sphere

The Evolution of Sphere: From Edtech Marketplace to Global Tax Compliance Solution

Nicholas Rudder encountered a recurring challenge while developing his previous startup, ScholarSite – an educational marketplace – namely, the complexities of taxation.

Rudder explained to TechCrunch that marketplaces bear responsibility for tax calculations based on their gross merchandise value, not merely their commission. Consequently, each new country presented a complex network of registrations, filings, deadlines, and potential liabilities. This became a significant distraction, diverting his focus from core business development towards navigating intricate international compliance regulations.

From ScholarSite to Sphere: A Pivotal Shift

As Rudder and co-founder Adrian Sarstedt considered winding down ScholarSite (later rebranded as Sphere), Rudder resolved to repurpose the company’s name and redirect its focus towards a novel solution.

He recognized a growing need: the increasing globalization of businesses was not matched by a corresponding advancement in compliance infrastructure.

In 2023, Rudder initiated Sphere as a tax software provider, designed to assist companies in maintaining compliance as they expand internationally. The company specifically targets businesses in the Series B to IPO stages with a global customer base, according to Rudder.

Automating Global Tax Compliance

“Our core function is to facilitate the collection of tax on customer transactions,” Rudder stated. He elaborated that businesses are obligated to collect applicable taxes on purchases and remit these funds to the relevant authorities on a monthly or quarterly basis.

Sphere streamlines this process by automating “registration, calculation, filing, and remittance obligations for companies,” he clarified.

The company operated in stealth mode for two years prior to its official launch, and its current clientele includes platforms like Lovable and Replit, specializing in vibe-coding, as well as ElevenLabs, an AI voice technology company.

Securing Series A Funding

Initially established as an edtech marketplace and having secured $4.3 million in seed funding, Sphere has now transitioned into a tax platform. On Tuesday, the company announced a $21 million Series A funding round led by a16z.

Rudder asserts that the product can be implemented in under 24 hours. It integrates with prominent billing platforms, such as Stripe and Campfire, enabling Sphere to access a company’s transaction data and evaluate its global tax obligations.

Introducing TRAM: Sphere’s AI-Powered Tax Engine

The determination of a transaction’s taxability is handled by Sphere’s AI tax review and assessment model engine, known as TRAM. This engine, Rudder explained, “ingests and codifies the rules in every jurisdiction and creates a set of tax determinations” – including whether an item is taxable and the rationale behind that decision, supported by relevant citations.

Sphere’s team of experts then reviews and validates the outputs generated by TRAM before integrating them into a tax engine that applies taxes to transactions in real-time.

“This portion of the system does not utilize AI, ensuring a complete absence of potential inaccuracies or ‘hallucinations’,” Rudder emphasized.

Comprehensive Tax Management Features

Sphere also actively monitors a company’s tax liabilities across different regions. It is directly integrated with over 100 tax authorities worldwide, allowing companies to register for various tax jurisdictions directly through the Sphere platform.

“Upon submitting a registration, we forward the information to the tax authorities and inform the company when their registration is approved and they can begin collecting tax in that region,” Rudder explained.

Furthermore, Sphere assists with filing and remittance. It automatically generates tax returns and submissions, debits the necessary funds from the customer’s bank account, and remits the tax payments to the appropriate authorities. This is the solution Rudder sought while building his initial company.

Competitive Landscape and Future Growth

The market includes established players like Anrok and Avalara.

While Stripe also offers a global tax calculation and collection service, Rudder views Stripe as a partner rather than a competitor.

“Sphere is one of only three tax vendors globally with a native integration to Stripe’s Billing and Checkout products,” he noted, adding that Sphere offers capabilities that Stripe does not, such as providing complete end-to-end compliance lifecycle management.

Funding and Expansion Plans

Rudder described the funding process as “unintentional,” stating that he was already seeking investment but recognized the need for rapid execution.

“Upon meeting with a16z and learning about their success with similar companies in the compliance and fintech sectors, we were confident they were the ideal partner,” Rudder said.

Marc Andrusko, a partner at a16z, revealed that the firm first encountered Rudder during his work on ScholarSite. “Although we didn’t finalize a deal for that venture, it was evident that Nick possessed the skills, determination, and drive to be an exceptional founder,” Andrusko told TechCrunch.

Years later, Andrusko’s team learned of the promising progress of a new company called Sphere. “It took only five minutes to realize it was Nick’s new venture post-pivot, and we immediately reached out for an update.”

Andrusko was particularly impressed by Sphere’s deep integration with local regulatory frameworks.

“Unlike many legacy players and newer venture-backed competitors who often rely on third-party consulting firms for certain geographies, Sphere invested the time to build integrations into local systems and leverage AI automations to manage the entire sales tax compliance process end-to-end,” Andrusko stated.

YC and Felicis Ventures also participated in the funding round. The new capital will be allocated to expanding infrastructure for connecting with more local tax authorities, growing the AI and engineering team, and establishing an international sales team.

“My goal is for this product to become the essential tool that finance teams rely on when expanding into new markets,” Rudder concluded. “Not just for indirect tax, but for all forms of transactional compliance they may not even be aware of.”

Note: This article has been updated to reflect that Adrian Sarstedt is no longer with the company.