a16z leads a $21M Series A into native AI-driven tax compliance software Sphere

When Nicholas Ruder created his latest startup, an educational marketplace called ScholarSite, he kept facing the same problem: taxes.

“Markets are responsible for taxes on gross merchandise value (GMV) and not just the purchase rate, so each new country means a maze of registrations, filings, deadlines and risks,” Rudder told TechCrunch. “It became a constant distraction. Instead of building the business, I was spending time deciphering international compliance rules that I never wanted to become an expert on.”

While he and co-founder Adrian Sarstedt looked to shut down ScholarSite (later renamed Sphere), Rudder decided to keep the name but transform the product into something new.

“The world was going global, but the compliance infrastructure had not kept up,” Rudder said.

In 2023, he alone launched Sphere as a supplier of tax software that helps companies stay compliant as they expand across borders. Ruder said the company is targeting Series B to IPO-stage companies with a global customer base.

“We help companies collect taxes on customer transactions,” he continued, explaining that companies must collect taxes on purchases and remit them to the authorities every month or quarterly.

Sphere helps “automate registration, accounting, filing and transfer obligations for businesses,” he said. Sphere spent two years incognito before officially launching, and clients now include attractive programming platforms Lovable and Replit, as well as AI audio company ElevenLabs.

As an educational technology marketplace, it has raised a seed round of $4.3 million. On Tuesday, Sphere, a tax platform, announced a $21 million Series A led by a16z.

Rudder says it takes less than 24 hours to set up the product. It integrates with major billing platforms, such as Stripe and Campfire, allowing Sphere to pull in a company’s transaction data and assess global tax exposure, he said. Calculating the taxability of a transaction is where Sphere’s AI-based tax review and assessment model engine comes in – or in other words, TRAM, he said.

“TRAM takes in and codifies the rules in each jurisdiction and creates a set of tax determinations” — such as whether or not something can be taxed — “along with reasoned citations and support for that decision,” explained Rudder, the company’s CEO.

The human team at Sphere reviews, approves, and approves the TRAM output so it can be pushed to a tax engine that applies tax to transactions in real time.

“This part of the system has no artificial intelligence, so there is little chance of hallucinations occurring.”

Sphere also monitors how much tax a company owes in any region, and is directly integrated into over 100 tax jurisdictions in the world, so companies can register with various tax jurisdictions directly through Sphere.

“Once the registration is submitted, we send that information to the tax authorities and tell the company when their registration will be processed and when they can start collecting taxes in that area,” Ruder said.

Finally, Sphere helps save files and conversions. Rudder said it automatically creates and files tax returns, deducts the tax returns from its clients’ bank accounts and pays tax authorities. It’s the product he wanted when he was building his first company.

Others in this market include long-time players Anrok and Avalara.

Although Stripe also has a global tax accounting and collection service, Rudder does not consider Stripe a competitor but rather a partner.

“Sphere is one of only three tax resellers globally that has native integration with Stripe’s Billing and Checkout products,” he said, adding that the company also has use cases that Stripe doesn’t have, such as the ability to achieve an end-to-end compliance lifecycle.

Rudder described his financing process as “unintentional.” He said he was looking forward to a raise at the time, but knew he needed to move quickly to implement his ambitions.

“When we met a16z and heard what they had done for similar companies in compliance and fintech, we knew they were the right partner,” Rudder said.

Mark Andrusco, a partner at a16z, said the venture capital firm first met Rudder when he was working at ScholarSite. “Although we didn’t get to the term sheet for this business, it was clear that Nick had the strength, determination, and leadership needed to be an exceptional founder,” Andrusco told TechCrunch.

A few years later, Andrusco said the team began hearing whispers about how successful a new company called Sphere would be. “It took all of five minutes to work out that this was Nick’s new business hub, and we reached out immediately for an update.”

One aspect of the work that impressed Andrusco was how integrated Sphere was into local geographies.

“While legacy players and many new competitors to venture-backed startups often hand clients off to outside consulting firms to manage specific geographies, Sphere has taken the time to build integrations into local rail as well as AI automation that allows it to fully streamline the entire sales tax compliance process from start to finish,” Andrusco said.

YC and Felicis Ventures also participated in the round. The new capital will be used to build more infrastructure to communicate with more local tax authorities; Expand the artificial intelligence and engineering team, and build an international sales team.

“I want this product to be the indispensable tool that finance teams look to when they want to expand into a new market,” Ruder said. “Not just for indirect taxes, but for every form of transaction compliance, they may not even realize they are exposed to it.”

This piece has been updated to clarify that Sarstedt is no longer with the company.