Almost every technology company is a complex web of equity ownership from the founders to the investors to the employees. Managing that process is a combination of strike prices and share counts. While the status quo was an expensive lawyer and a complicated spreadsheet, Carta has stepped in to better manage that process.

Carta’s platform is built to manage financial and operational complexity. The company has accumulated an extensive network of venture-backed startups and venture investors. 95% of startups choose Carta as their cap table management software. Carta has built a robust network of VCs using Carta for its own portfolio management, who then ask portfolio companies to use it. VCs benefit from viewing their entire portfolio’s cap tables in one place and portfolio companies benefit from discounted rates for cap table management. Investors with more portfolio companies on Carta are 21x more likely to use Carta for their funds’ administration.

After capturing mindshare, Carta expanded its product suite with products like Carta Liquidity and Carta Total Compensation. Carta Liquidity offers a private stock exchange and builds on Carta’s equity management capabilities by unlocking liquidity for private companies. Carta Total Compensation is a compensation management tool. Carta was already involved in the compensation equation by managing employee stock options and extended that to a broader product to manage cash and equity compensation.

Henry Ward and Manu Kumar founded Carta in 2012 starting with equity management for private companies. Their long-term vision was to move towards creating a private stock exchange. Carta also offers fund administration for venture funds.

Before becoming an entrepreneur, Henry Ward worked on software for fixed-income traders. In 2011, he started a company called Secondsight to bring algorithmic fixed-income trading to retail investors. During his failed attempt to raise a seed round for Secondsight, Ward met investor Manu Kumar. Kumar later suggested Ward start a company to help manage stock certificates.

Several months later, in July 2012, Ward and Kumar co-founded eShares. As the company moved beyond digital stock certificates to 409A valuations and compliance, eShares rebranded to Carta in November 2017. The word “carta” means a charter, or a formal document for incorporation. A comprehensive word for the variety of products that Carta offers its customers. As of April 2023, Ward serves as Carta’s CEO, and Kumar serves as a board observer.

Equity Management

Carta provides comprehensive equity management for private companies, including cloud-based capitalization table (cap table) management software. A cap table tracks a company’s equity owners and requires updating when trading or issuing securities, like in a funding round. All venture-backed startups maintain cap tables to track ownership. Prior to cloud-based cap table software, companies used manual, time-consuming, and error-prone spreadsheets to manage their cap tables.

Carta’s other equity management products supplement the cap table offering and are crucial for startups. Due to tax laws, annual 409A valuations are required for nearly all tech companies with over 10 employees and more than $5 million in fundraising. 409A valuations value the equity on a company’s cap table. They determine the common share value for issuing tax-free option grants to employees.

With scenario modeling, companies and investors can analyze fundraising and exit options. They can understand how each possible option will affect existing shareholders. After playing out various scenarios, companies can communicate with stakeholders using features like investor updates, board consent, and board meeting management. Prospective investors can use Carta’s data rooms during their due diligence processes to view and share company information.

Carta ensures compliance with various rules. For example, it manages expensing of stock-based compensation in compliance with Accounting Standards Codification (ASC) 718. Companies can also easily prepare Form 3921 when employees exercise incentive stock options (ISOs). 409A audit support and account audit reports maintain audit readiness. Additionally, Carta identifies disqualifying dispositions. Disqualifying dispositions are ISO sales that occur less than two years since the grant or less than one year since exercise.

In April 2021, Carta announced its acquisition of YearEnd, a company offering tax advice to startup employees. Carta rebranded YearEnd as Carta Tax Advisory. Carta Tax Advisory helps stock-compensated employees understand their equity and manage it with an awareness of tax implications.

Before deciding to end its public market presence in Spring 2023, Carta allowed companies to continue using the platform for equity management even after going public. However, after struggling to successfully penetrate this segment, Carta began telling its public market customers that they would have to migrate off of the service by June 2023, marking an abrupt change to the company’s ambition of displacing the New York Stock Exchange.

Venture Capital

Carta introduced its Venture Capital module to better serve its venture network from the investor side. Investors can also form and launch funds with Carta Venture Capital and rely on Carta for their funds’ administration. They can go from thesis to capital call in six weeks. Besides their software products, Carta also offers 1-on-1 consulting to help with fund strategy.

Carta Venture Capital handles fund administration so investors can focus on investing rather than back-office work. Carta’s experts help with compliance, reporting, taxes, and audits. Funds can receive ASC 820 valuations required every financial reporting period. Limited partners (LPs) are able to sign documents and view fund finances. Fund metrics also let investors see and evaluate fund performance. Investors can explore various potential outcomes with scenario modelling, and support for different special purpose vehicle (SPV) structures to provide them with investment flexibility.

International Acquisition

In June 2022, Carta announced its acquisition of Vauban, a platform for investors to launch and manage their funds and raise and deploy capital. Based in the United Kingdom, Vauban focuses on European ventures. The acquisition adds to Carta’s offerings for investors and provides Carta with a foundation for international growth. Over half of US-based special purpose vehicles and funds have a non-US-based LP, demonstrating the global nature of venture capital. As of August 2022, Vauban continues to operate as its own site. Vauban’s VC fund line closely resembles Carta’s Venture Capital line. Both allow investors to launch and manage funds.

As its name suggests, Vauban’s Deal-By-Deal line allows investors to form a group and then let individual investors participate on a deal-by-deal basis. Venture funds can create a co-investment program, allowing limited partners to co-invest in particular companies. Angel investors can form a syndicate. They can share deals with their networks and co-invest as they deem fit. Investment managers can also form a syndicate to fund a particular deal.

For founders, Vauban offers the Fundraiser SPV to bundle multiple investors, typically small ones, into one entity. It allows small stakeholders (e.g., customers) to become shareholders and reduces the number of entries on a company’s cap table.

Shortly after in September 2022, Carta announced its acquisition of Capdesk, a London-based equity management platform. At the time of acquisition, Capdesk boasted £90 billion of assets and over 3.5K companies on its platform, including Checkout.com, Gousto, and Wagestream. As opposed to Vauban, Capdesk focuses more on offering equity management solutions to startups instead of being involved in fund administration. Both of these acquisitions display Carta’s desire to expand geographically, especially in the UK and Europe.

Liquidity

Source: Carta

Carta Liquidity is Carta’s secondary market for private companies. Shareholders can transact and unlock the value of their equity before an exit. Companies often IPO to provide liquidity to shareholders. With Carta Liquidity, they can achieve liquidity without an IPO, allowing them to delay an IPO or forgo one altogether. Greater liquidity helps startups attract better talent by letting stock-compensated employees monetize their equity. With Carta Liquidity, companies can run tender offers, Carta Cross auctions, or bespoke trades. Carta automatically updates the cap tables for all transaction methods to reflect each transaction.

In a tender offer, either the company itself or a third party offers to purchase a certain number of shares at a fixed price approved by the company. Shareholders can then decide if they want to take part and sell some of their shares. A tender offer must remain open for at least 20 business days based on SEC rules. Companies can run tender offers allowing shareholders to cash in their equity.

Carta Cross auctions provide more flexibility than tender offers. They resemble a stock exchange with additional rules. Companies can control which entities transact and how much they transact. Buyers and sellers can access the same information as they would with a public company, although the information is secure and requires permission to access. Unlike a public stock exchange, companies can set a price range limiting the transaction price. Based on interest from buyers and sellers, Carta Liquidity sets a market-driven price to maximize trading. Transactions execute bilaterally (between the buyer and seller) and by default settle in 13 business days.

Carta itself conducted a Carta Cross auction in February 2021. Nine months prior, in May 2020, the company raised its Series F at a $3.1 billion valuation. Startup valuations move like step functions, changing only when raising a fresh round of funding. Tender offers anchor the stock price at the value of the previous funding round. In contrast, Carta Cross allows the price to shift to a market-driven number.

In Carta’s own Carta Cross auction, investors valued the company at $6.9 billion. Carta shareholders, including equity-compensated employees, sold their shares at over 2x the value they would have with a tender offer. The market price provided leverage to Carta for its next round of funding.

Instead of selecting a lead investor based on the best-offered valuation, Carta took the $6.9 billion market price to various investors and vetted them based on their ability to add value. In August 2021, the company announced a $500 million Series G led by Silver Lake. Carta’s auction and subsequent fundraising round serve as a model for other companies interested in Carta Liquidity.

As of April 2023, bespoke trades are pending regulatory approval on Carta Liquidity. Bespoke trades are one-time company-approved custom transactions for fulfilling the specific needs of individual shareholders.

Compensation

In April 2021, Carta launched a compensation management software called Carta Total Compensation. Carta claims to possess “the largest set of private company equity and salary data.” Carta Total Compensation leverages Carta’s extensive employee compensation data to benchmark compensation.

In addition, companies can develop and iterate on a compensation plan. They can proactively address pay inequities with greater visibility into their employees’ data. Carta Total Compensation also uses Total Rewards Statements to communicate the total value of current and projected compensation to employees. Total Rewards Statements help employees visualize their compensation. With data-driven compensation decisions and clear communication powered by Carta Total Compensation, companies can attract and retain talent without overspending.

Customer

Carta’s ideal customers are early-stage startups. Early-stage startups will become paid customers as they grow. As startups become familiar with Carta they’re more likely to use Carta for other needs, like liquidity and compensation management, in the future. Notable Carta customers include Robinhood, Thumbtack, Tilray, and Flexport.

Market Size

Carta focuses primarily on VC firms and VC-backed businesses. The global venture capital market grew 11x between 2006 and 2021 and is projected to grow at a CAGR of 20.1% from 2022 to 2027. Growth in the VC market provides a larger base of potential Carta customers.

Some estimates believe the equity management market will grow from $500 million in 2021 to over $1 billion in 2030. In 2020, the investment management software market for venture capital and private equity was projected to grow at a 9.1% CAGR to over $5.7 billion by 2025.

Carta’s supplementary products further expand its opportunities. Nasdaq Private Market, a Carta Liquidity competitor, estimates the market for private market liquidity at $500 million to $1.5 billion. Pave, a Carta Total Compensation competitor, is a proxy for the value Carta can capture with Carta Total Compensation. Pave received a $1.6 billion valuation in its June 2022 Series C round.

Equity Management

Carta dominates cap table management with 95% market share as of Q1 2021 and a 4.3/5 rating on G2 as of April 2023. The company’s customers are 47% middle market and 47% small business. Its existing network of startups and investors makes it difficult for competitors to gain ground. The next most significant player is Shareworks by Morgan Stanley, with a 4.1/5 rating on G2. Shareworks focuses on larger companies than Carta, with a customer base composed of 41% middle-market companies and 34% enterprise companies.

A few earlier-stage startups, like Pulley, are also tackling equity management. On G2, Pulley has a 4.7/5 rating and ranks as the easiest-to-use equity management software. 86% of Pulley’s customers are small businesses, suggesting Pulley is more focused on early-stage companies than Carta. Pulley’s faster onboarding time of 7-10 days compared to Carta’s time of up to 90 days may provide an advantage in customer acquisition. Pulley also supports token cap tables, an essential feature for web3 startups.

Venture Capital

Competitors include Standish Management, Ultimus, Aduro Advisors, and AngelList. Their offerings are like Carta’s. Carta and Aduro seem the most focused on venture funds based on their websites. Standish markets itself to various private funds, including real estate, buyout, and VC funds. Ultimus goes a step further with its support for registered funds, such as mutual funds, ETFs, and private funds.

AngelList provides a similar hub for venture investors to Vauban. One major difference is that AngelList is more US-focused compared to Vauban, who is EU focused. AngelList also offers a wider scope of products. Like Carta, it provides equity management and fund administration. AngelList lacks a private stock exchange and compensation management software. However, they do offer banking services, such as deposit accounts, debit cards, and free wire transfers, to startups and transparently provides pricing on its website.

Liquidity

EquityZen, Forge, and most notably Nasdaq Private Market (NPM) are three Carta Liquidity competitors enabling liquidity for private companies. Companies already relying on Carta for cap table management may prefer Carta Liquidity for its seamless cap table integration. Carta Liquidity transactions update automatically in a company’s cap table.

Nasdaq Inc spun off NPM into a standalone company in June 2021. Nasdaq Inc remains the largest minority shareholder. Major banks like Goldman Sachs, Morgan Stanley, Citigroup, and SVB Financial Group (owner of Silicon Valley Bank) invested in NPM as part of the spin-off deal. The banks’ relationships with venture capitalists and startups may attract customers, and Nasdaq’s experience running an exchange may be a better experience for NPM users.

NPM partnered with Astrella, a cap table management provider, to integrate their companies’ secondary market transactions and cap tables. As of April 2023, NPM has processed over $43 billion in transactions for 600+ liquidity programs, including more than $13 billion in 2021. The size distribution of NPM’s customers resembles Carta’s Liquidity customers.

Source: NPM

Source: Carta Liquidity Report

Compensation

Pave is Carta’s primary competitor in the compensation management market for tech startups. Carta Total Compensation and Pave offer similar products. Pave divides its offering into three parts: Benchmark, Plan, and Communicate. Companies get access to Pave’s Benchmark module for free by connecting their HRIS and cap table data. In July 2022, Pave announced its acquisition of Option Impact, a startup compensation benchmarking competitor. The deal also included the Venture Capital Executive Compensation Survey (VCECS). Pave customers can access the Option Impact and VCECS data along with Pave’s own data. More data results in higher quality benchmarking and more robust competition for Carta’s compensation management products.

Pave also offers Communicate and Plan as annual subscriptions. Communicate resembles Carta Total Compensation’s Total Rewards Statement. Total Rewards Statement enables employees to visualize their total compensation. Subscribers to Plan can develop a compensation plan and receive greater visibility into employee data. Plan enables them to address pay inequities and target compensation to high performers.

Differentiation in the compensation management market centers on data for benchmarking. A company with a higher quality data set can provide a superior product and dominate the market. With 5,700 customers as of June 2022, Pave claims to be “the largest compensation provider for private companies in the world.” The more customers it has, the larger its data set grows, and the more challenging it becomes for Carta to offer a superior product.

Although Carta Total Compensation is newer, Carta benefits from an existing relationship with startups managing their cap tables. Cap tables contain employee equity data, contributing to Carta’s compensation data set. In contrast, Pave has to get companies to connect their compensation data. Even Pave’s acquisition of Option Impact, while increasing the size of their data set, doesn’t alleviate the need for Pave to convince companies to connect their HRIS and cap table management systems.

Carta initially attempted to sell a subscription, but startups viewed the price as too high. Henry Ward, the company’s founder and CEO, adapted by restructuring the pricing to a $20 fee per stock certificate. The traditional stock certificate issuing process could require paralegals and cost well over $100, so the new pricing model is more closely aligned with Carta’s value proposition. Carta later returned to a subscription model. A fee-per-stock certificate model concentrated revenue around funding events and disincentivizes companies from adding many small shareholders. A subscription model, in contrast, provides revenue regardless of funding events and does not discourage companies from adding many small shareholders.

Carta offers four tiers of plans for private company equity management: Launch, Build, Grow, and Scale. The free tier, “Launch,” provides cap table management for smaller, newer startups. Each higher tier is paid and unlocks additional features, such as 409A valuations, exit modeling, and expense reporting. Customers can separately add liquidity programs, complex 409As, and advanced modeling to their plans. The website does not provide pricing, and customers must contact the sales team to explore the paid tiers.

Source: Carta

Carta’s investor services product offers a free tier and two paid tiers. The free tier provides basic tracking of portfolio company ownership. The paid tiers add features like ASC 820 valuations, an LP portal, and scenario modeling. Like their equity management product, Carta does not list pricing for their investor services products and requires potential customers to contact their sales team.

Carta’s website also does not disclose pricing for Carta Liquidity or Carta Total Comp. EquityZen and Forge are two Carta Liquidity competitors that list pricing on their websites. They both charge a fee for each transaction. EquityZen’s fee ranges from 3% to 5%. Forge’s fee is 5% but may be higher for investments under $100,000.

Pave, Carta Total Compensation’s main competitor, offers benchmarking for free in exchange for company data. Carta may not need to request data for benchmarking, considering it already manages companies’ cap tables containing employee equity grant information. Pave offers its other products as annual subscriptions. Carta may replicate the yearly subscription model for all of Carta Total Compensation, including benchmarking.

Unit Economics

Carta can support startups from inception to IPO. Once they outgrow Carta’s product for new startups, they pay recurring fees to stay with Carta—providing a high lifetime value. Carta’s adjacent products, like Carta Liquidity and Carta Total Compensation, further increase the lifetime value of each customer. One negative for Carta is that signing up for a paid tier is not self-serve and requires contacting its sales team. However, the existing network effect of their current products reduces customer acquisition and retention costs.

In November 2022, Carta CEO Henry Ward claimed the company was likely to reach $330 million in ARR by the end of 2022, a hefty increase from $150 million in 2021 and $50 million in early 2019. Ward also stated that overall company revenue was projected to land between $350 million and $360 million for 2022 and that Carta could start mapping out a path to break even in 2023. Between April 2020 and February 2023, Carta’s equity management business grew from over 15K to over 33K companies

In 2022, 91 companies initiated liquidity programs on Carta Liquidity, down almost 30% from 126 in 2021. Total dollars transacted in liquidity programs declined by 58% in 2022 from $7.4 billion in 2021 to $3.1 billion in 2022. Carta notes that this precipitous drop was mostly due to a tightening business environment in 2022 after a strong fundraising market in 2021 and that both total programs and total dollars transacted increased between 2020 and 2022. In April 2020, Tribe Capital claimed Carta’s fund administration business has become the fastest-growing fund administration business in history. As of August 2022, 1,750 firms managing $100 billion in assets rely on Carta for fund administration. Partners have formed 110 funds with Carta.

In May 2020, Carta announced a $180 million Series F led by Tribe Capital and Lightspeed Venture Partners at a $2.9 billion pre-money valuation. In February 2021, the company held an auction on Carta Liquidity to arrive at a market-determined pre-money valuation of $6.9 billion, a 46x recurring revenue multiple. It then leveraged that valuation to raise a $500 million Series G round led by Silver Lake. In an April 2020 essay, Tribe Capital wrote that it believed “the revenue opportunity [for Carta] from the current state isn’t 2-3x but rather is at least 10x if not 20-50x.” Carta was valued at $8.5 billion in January 2022 after employees sold stock in the startup to investors.

Source: Tribe Capital

In response to a slow private market funding environment and fears of a recession, Carta laid off 10% of its staff, estimated to be around 200 employees, in January 2023. Carta CEO Henry Ward noted the impacts of the slowdown on the company in an email to employees at the time of the layoffs:

Network of Venture Startups and Investors

Carta intentionally pursued extensive market penetration for venture-backed companies and their investors. The strategy is producing network effects leading to better customer acquisition and retention.

As early as 2016, some investors required their potential portfolio companies to use Carta for their cap tables. As of April 2023, Carta offers a VC partner program offering discounts to portfolio companies to use Carta. Investors with more portfolio companies on Carta are 21x more likely to pay for Carta’s fund administration product. The investors have instant visibility into the cap tables of all their portfolio companies.

The growing Carta network nudges future investors and startups to choose Carta and existing ones to remain with Carta, creating a long-term competitive moat. With the extensive and growing network, other products like Carta Liquidity and Carta Total Compensation can help Carta further monetize their customer base.

Private Stock Exchange

Carta is well-positioned to offer a private stock exchange because it already manages the cap tables of many companies. Shareholders of private companies can typically only liquidate their positions if the company exits (IPO or acquisition). Until then, shares are basically illiquid. As of December 2021, only 7% of seed-funded startups founded between 2011 and 2018 exited, with 0.8% exiting via IPO. According to another source, about 16% of tech startups founded between 2003 and 2013 were acquired. Exits also typically take many years, with a median of 5.7 years between initial VC funding and IPO exit for companies founded between 2000 and 2021.

In contrast, shareholders of exchange-listed public companies can transact at any time during stock market hours. Despite raising less than half the capital as private companies, public companies see 330 times more trading volume. However, an IPO brings financial and operational costs of its own. The IPO underwriting fee alone can cost 3.5 - 7.0% of gross IPO proceeds, and being public also brings great regulatory costs. A public company also cannot control who purchases its shares, opening it to the possibility of hostile shareholders.

Carta Liquidity combines the best of both worlds. Companies can provide liquidity to shareholders while avoiding the costs of an IPO and maintaining control over who transacts. Given the low rate of startup exits, greater liquidity helps attract top talent. Also, Carta Liquidity’s market-determined valuations allow companies to avoid haggling with investors’ over valuations. Carta itself validated this benefit by conducting a Carta Cross auction after its Series F round. The company then used the market price of its auction to raise a Series G at over twice the valuation of its Series F round.

Data Value

Carta stores large amounts of potentially valuable data from its customers, including employee compensation and funding that can help develop new products. The company already created Carta Total Compensation for compensation benchmarking using the compensation data. Carta also analyzes aggregated data to provide publicly available insight into private market trends, such as changes in VC activity and company headcount by stage.

Private Companies Going Public

After failing to catch on, Carta began shutting down its offering for public companies by reaching out directly to its public customers in early 2023. Without this offering, private companies will have to migrate off of the Carta platform at the time of their IPO, meaning that Carta will not be able to retain the most successful private customers on its platform. Carta’s offering for public companies had problems and lagged behind multiple competitors, including Computershare and Morgan Stanley, which have product offerings that better cater to companies making this transition. Therefore, while a risk for Carta going forward, the immediate impact of this decision will likely not be large, as these issues prevented its public market offering from becoming an important part of Carta’s core business.

Distraction from Core Products

Carta provides a more extensive range of products than its competitors. For instance, Shareworks does not offer compensation management software, Pulley does not provide fund administration, and AngelList does not offer a private stock exchange. Pave focuses only on compensation benchmarking.

Competitors’ narrower focus may produce higher quality products, pulling customers away from Carta. Despite its dominance in the equity management market, Carta has only the eighth highest satisfaction score on G2 as of August 2022. If competitors offer better products, unsatisfied Carta customers may leave. New startups may look at reviews like those on G2 and choose one of the top options. Yin Wu, the founder of Pulley, said in October 2020 that investors wanted a better cap table product, suggesting investors found Carta unsatisfactory for their needs.

Lack of Token Support

Web3 startups sometimes raise funds and track ownership with cryptocurrencies instead of traditional equity. Cryptocurrencies can allow for voting rights, staking, and lending. They also provide liquidity through centralized and decentralized cryptocurrency exchanges without the need for a stock exchange.

Carta competitors like Pulley support both token cap tables and traditional cap tables. Other competitors like LiquiFi focus only on cryptocurrency cap tables.

Ethereum, the blockchain with the second highest market cap, experienced over 440 initial coin offerings (ICOs), raising over $10 billion in the first half of 2018. As of August 2022, Carta does not support cryptocurrency cap tables.

Workplace Environment Concerns

An August 2020 article published in the New York Times detailed complaints by over a dozen current and former Carta employees about the company. The employees, many of whom were women, said they were disparaged and excluded from meetings and then blamed for those problems. When they raised concerns about the mistreatment, their professional careers suffered, including pay cuts and firings.

Multiple employees have filed lawsuits against Carta. For example, Emily Kramer, Carta’s former Vice President of Marketing, sued the company in July 2020. She claims Carta paid her less than her male colleagues in the lawsuit. She also claims the CEO and co-founder, Henry Ward, used vulgar language towards her, an incident resulting in her exit from the company. Carta denies Kramer’s claims. The lawsuit was settled unconditionally in February 2023, although it is unclear whether monetary reparations were included as part of the settlement.

In October 2022, former Carta CTO Jerry Talton wrote a letter to the company’s board accusing CEO Henry Ward of various misdeeds, including dismissing reports of abusive behavior at the company and firing women for discriminatory reasons. Following his letter, Carta placed Talton on administrative leave before firing him in December 2022 and then levying a lawsuit against him a week later for alleged wrongdoings of his own. The company hired a third-party law firm to investigate Ward after Talton’s letter, but has not commented on the outcome of the investigation and as of April 2023, the legal battles between Talton and Carta continue.

The allegations against Carta and its CEO Henry Ward may cause legal issues, hiring difficulties, and negative press.

Source: Henry Ward

Carta handles financial and operational complexities for venture-backed companies and the funds investing in them. It has built an extensive network of startups and investors by managing cap tables, equity, and back-office work. As that network has grown it has been able to extend its reach with its existing customers by offering products like Carta Total Compensation and Carta Liquidity. For both products, Carta has an existing advantage because it's managing its customer's equity data, whether that's extending into creating liquidity for that equity or benchmarking equity compensation.