Carta’s Path to $500M ARR, Raising $1B, & Why PE is The Future | Henry Ward, CEO

0:00When boards generally get involved in product, that's usually a sign the company's going down. Yeah. Carta is good at two things. One is entering services industries and turning them into software industries. The second is we love doing things that people today do in spreadsheets that they shouldn't be doing. Service industries dominated with spreadsheets. That's like perfect for us. We've turned them all into software industries. So we love doing that. We're big fans of Peter Thiel's competition is for losers. If a lot of people are doing something, don't do it. Do the thing that nobody else is doing.

0:27The corollary of that is... You're the CEO of Carta. I hear you're getting really close to half a billion dollars in ARR. It's really exciting. Yeah, it's fantastic. It took us 10 years to get here. Hopefully the next half billion won't take 10 years. A lot of people want AI right now. How are you thinking about involving AI with Carta?

0:54Henry Ward, welcome to Sorcery. Thanks for having me. Great to be here. I'm so excited to have you on and also shout out to Tess. Thank you so much for the introduction and helping hooking this up. To start, you're the CEO of Carta. So I hear you're getting really close to half a billion dollars in ARR. How are you thinking about the growth of the business? Yeah, it's fantastic. It took us 10 years to get here. Super excited. You know, we were one of those classic, back in the old days, you would call it a triple, triple, double, double to 100 million. And we did that. And now we're, you know, 20 plus percent grower at scale.

1:28Hopefully the next half billion won't take 10 years. So, you know, we'll see. Every company has sort of these S-curves that they're going through. And we're on the second half of an S-curve in venture, but the beginning of an S-curve in private equity and private credit. And that's driving a lot of the, I think, the next two to five years of growth. You know, if we get to a billion bucks, I think it's because we caught fire in private equity. If we get to two to three billion bucks, it means we've gotten into other asset classes. So, yeah, so it's just the beginning for us. I think because Carta has scaled so large, people might forget that you guys were once a startup.

2:05I want to know who are some of your investors and what kind of funding have you reached to date? So we've raised shockingly about a billion bucks in total across, I think, seven rounds. So Union Square Ventures did our Series A, Spark Capital did our B, Menlo did our C, Meritech did our D, Tribe did our E with Andreessen Horowitz, Lightspeed did the next one, and Silver Lake Premier did our last one. So as we keep moving further up into the stack of private capital, we went from small seed funds to large venture funds to gross equity funds, and then most recently, private equity. We've got a board of seven.

2:52We've got people from like Will from Lightspeed. We've got Matt from Menlo, Mark from Andreessen Horowitz, Joe from Silver Lake, Barbara, who is the first female vice chair at Lehman and then RBS. So we've got a great board. It's been a fantastic, you know, the evolution of a board over a company's growth is something I, you know, I learned you don't get to do very often. And it's pretty amazing when you look at the board at an early stage and the board at late stage and pre-IPO. It's a very different dynamic. It's a different group of people to work with. And it's been fantastic. I've learned so much from this generation of the board.

3:32How do you think about the metrics to determine success in the business? So what are you measuring? I think you have over 2 ,500 venture funds. Yeah, about 2 ,500 venture funds, about 35 ,000 startups. we talk a lot about inputs. So, you know, the normal way to measure a business like ours is growth, you know, net new, expansion revenue, margins, sort of all the traditional stuff. And internally, I try never to talk about those things because those are the outputs of the business. We spend all our time talking about the inputs of the business and what are the various flywheels of Carta. So when we go into these internal meetings and our monthly business reviews, we have a network flywheel for the business.

4:17And it's basically the more securities, Carta securities, electronic securities that get accepted by investors, the more investors come on the platform, the more startups they refer to the platform, the more investors they bring. And that flywheel spins. We have a similar thesis on funds and LPs. The more funds that we manage on the platform, the more LPs get on the platform, the more they like the service, they bring more funds. And we have this flywheel that spins. So everything we do at Carta is about how do we build more of these flywheels. So even all the way down to, you know, sub product of cap tables with a small team, they have a flywheel that they're trying to drive and spin.

4:53So all of our internal KPIs are flywheel driven. So it's things like number of securities accepted, numbers of cap tables shared, number of capital commitments that we've processed, how much money we've moved, for a particular customer. And our thesis is if you just keep driving those things, the outputs will come. And that's traditionally been true for us. I think when we get into trouble or most companies get in trouble is when they focus on the outputs. They're trying to drive the numbers that are really outputs of something else. And what happens is they lose sight of what that something else is.

5:28And that's when the business starts to slow. Are there any kind of instances or examples that you've seen throughout your time as CEO of other companies doing that and focusing on the wrong things like outputs? We see it all the time. I see it in other companies and other startups, but I'll speak more to us. We make the mistake all the time, you know, because it's super easy to get excited about the outputs. We call it alpha versus beta. So we talk a lot. Alpha is what we consider things that we have control over and beta is things that we don't. So beta is like market. If we lose a customer because they're going out of business or the market's down, that's beta.

6:08It affects our outputs, but it's not something we can control. But if a customer leaves because they're unhappy or we made a mistake, that's alpha. If we sell a customer and convince them to come to Carta, that's alpha. We're doing something that wouldn't have happened if we didn't put in the effort. And so where we get into a lot of mistakes makes is when we start thinking about beta. We're like, oh, we had a good quarter. Was it alpha or beta, right? Do we have a good quarter because the market had a good quarter, or do we have a good quarter because we did the work? And sometimes the inverse is true.

6:41We had a bad quarter. Well, maybe we had a bad quarter in the vanity metrics because the market was down. But if you actually look at the stuff we had control over, we did a really good job. And having that discipline, it's so easy for executives and anything for companies to start worrying about the outputs, that you lose sight of the inputs. And we've made that mistake and we keep coming back and fixing it. Yeah. And Carta has evolved through many different products now. So I think you now have three different kinds of main product suites. Could you break those down? I think most people know Carta most from cap tables, getting in with startups.

7:20So where does that lead you to now? So it's really funny. If you go back to the early days, our first product wasn't even cap tables. It was electronic stock certificates. And the innovation back then was you had to mail these paper stock certificates. And our idea was instead of FedExing a paper stock certificate or putting it in the post, we would email it. It would be electronic. That was our big innovation, which sounds silly now. But that at the time was considered crazy. People thought it was illegal. And we're like, no, it's like PayPal, but for equity. And then the problem, of course, with that was, well, we were competing with FedEx.

8:00That was the competition. And everybody was like, how big is the market for emailing a stock certificate? And the answer was not very big. And then we got into cap tables. And the criticism there was how big is the market for cap tables? And very similar. It's bigger than people thought, but it's not enormous. and we just grew up with every product we launched had a fairly limited market size. And so I call us an innovation company. I think there's like two types of startups. There's innovation startups and execution startups. So an execution startup is like a rippling or a MongoDB where it's just like, if you build a better database or a better HRIS system, you have line of sight to billions in revenue.

8:40Like you don't have to worry. You just have to do better than the incumbents. You have to out-execute everybody else. In our world, we didn't have that luxury. Any one product, we didn't have line of sight to billions in revenue. And so we had to constantly build new products to expand the TAM, expand the market size. And so now it's true, we have three main business lines, cap tables for startups, fund accounting for private funds, and cap tables for private equity. And those are the main business lines, but we probably have 40 products because I say it's similar to music. There's a lot of like one hit wonders.

9:15You know, they did one song and disappeared. There's some people that can put together an album and there's very few people that can put together album after album after album. And what everybody listens to the song they love. Nobody knows about the 30 songs the artist released that nobody pays attention to. And that's like us. We built a lot of products. Three of them work really, really well. I think product portfolio management and companies is much like venture life sorcery is brought to you by brex the financial stack trusted by more than 30 000 companies including one in three venture-backed startups in the u.s nearly 40 percent of startups fail because they run out of cash brex is literally built to help founders avoid that unlike traditional banks that let your money sit idle shipping away at it with fees brex is designed to help you spend smarter and move faster their all-in-one solution combines checking treasury and FDIC protection into one powerful account.

10:11You can send and receive money globally at lightning speeds, get 20 times the standard FDIC coverage through their partner banks, and even high yield from day one. With same day and even same hour liquidity, access your funds anytime. Companies like Scale AI, DoorDash, Service Titan, HIMSS, Anthropic, Flexport, Robinhood, and Plaid trust and use Brex. Start today at brex.com slash sorcery. That's B-R-E-X dot com slash sorcery. Given that you started with that initial wedge and maybe the market wasn't that small, how do you think about growing through those markets and getting multi-billion dollars in revenue?

10:50Yeah. So we're big fans of the Peter Thiel's competition is for losers. And if a lot of people are doing something, don't do it. Do the thing that nobody else is doing. And that implicit or the corollary of that is if nobody else is doing it, it's probably because people think it's a bad idea or the TAM's not big enough to be interesting. So by definition, anything we go after, because nobody else is interested in it, everybody thinks it's a bad idea. That is the curse of Carta. Everyone's like, that is a stupid idea. Everything we do, people think is stupid. And so the way you get around that is you start with these small markets that you can quickly dominate.

11:29So cap tables was one small market. Nobody cared about it. Stupid idea. But we could quickly win because nobody cared about it. We're the only ones that cared about it. Literally in the world. If you if you are a great engineer that got passionate about cap tables in 2015, there was one company you could work for and it was us. That was it. So but there were only like three of those engineers. You know, so we got them all. We had a monopoly on engineers that wanted to do cap tables. And so you win this small market, but you win it very quickly. And then you concentrically grow out of it. And it's the Peter Thiel uses the Facebook example.

12:04You know, Facebook started on college campuses. Worst market. Students don't have any money. Nobody cares. It's college, like all this kind of stuff. But he just won these campuses really quickly. And he did it at Harvard, then he went to Stanford, then he went to Berkeley. And then he started to concentrically grow out of the campuses and get into the alumni groups and connect the campuses and so on. And that's always been our thesis is start in small markets, win something that nobody else cares about, and then concentrically grow. The challenge, of course, is the risk of doing something that's got a big market that everybody cares about is you're one of many.

12:39We call it a one of N market. The risk for us is you can win these small markets, but can you expand out of them? And we call them end of one markets where there's one and only one winner, but then can use that as a base to expand the TAM. And we've done that with cap tables, fund administration, private equity, private credit. That's been our playbook. And so far, it's worked. And you've expanded now into private equity, private credit. Those categories might have not been served before, but now you're serving them a product. Why did you get so excited about the opportunity there? I would say CART is good at two things.

13:13One is entering services industries and turning them to software industries. CapTables was a service industry before we got into it. 49A was a service industry. Fund administration was a service industry. We've turned them all into software industries. So we love doing that. The second is we love doing things that people today do in spreadsheets that they shouldn't be doing. And if you look, CapTable is a spreadsheet problem. Value at 49A was a spreadsheet problem. Fund accounting is a spreadsheet problem. Private credit is a spreadsheet problem. Private equity is a spreadsheet problem. And all we do is we take those spreadsheets and we move them into the cloud.

13:47And so when we saw these other problem sets that they were seeing in private equity and private credit, we're like, service industries dominated with spreadsheets. That's like perfect for us. We are the best in the world at taking on those kinds of problems. And what's really exciting is the market size of private equity is six to eight times the size of venture. And then it's another three or four times private equity and private credit. And then you can go to infrastructure and real estate. You just start knocking down these dominoes. It's really interesting in my small market to concentrically grow out.

14:18You know, we thought the small market was cap tables. The small market was actually venture. Venture is a very small market when you look at alternatives as an asset class. And this is a great market for us to learn because it's a hard, hard market. It's small, high velocity, a lot of change, high transaction volumes. If you can build a software company selling to startups, you can build a software company selling to anybody. I was going to say, I mean, I've read a couple of your recent reports. There was one on the LP market for VCs, and that's pretty much cut in half in the last year or so. That industry is just volatile by nature.

14:54It's driven by a lot of market tailwinds and different kinds of market constraints. Of course, you would go to private equity. Of course, you would go to private credit. It's much more of a sound business. Do you still put a lot of emphasis on venture? Like, how is that evolving with so much volatility? Venture is very volatile as an asset class because it's the tail end of the whip. It's the last asset class allocators allocate to. So they start with bonds, then they go to public equities. then they'll go to real estate, you know, then they'll go to credit, private credit, then they'll go to private equity and they have any more money left, then they'll add some torque and venture.

15:31And then it's last in, you know, first out, it's like as soon as LIFO, as soon as they want to pull back, the first thing they pull back is venture and then private equity, and they work their way back. So venture has always been super volatile. We don't mind that because we enjoy the highs and I think we've done quite well. Even when the market turns, we continue to grow. So we find ways to create value. What's really exciting about the other asset classes is venture is unique in a lot of ways, but it's really just an extension of private equity. Like it's not, you know, from investing in startups and the culture is very different, but in terms of building infrastructure for how to run a startup, running a venture fund, not that different from running a private equity fund when you think about core infrastructure.

16:17So what we've been very fortunate is all of the work that we've done in venture is now exportable into these other asset classes. And that's why we've spent the last two years becoming private equity experts. My expectation, my hope is in three to five years, how Carta is sort of synonymous with infrastructure for venture in three to five years will be synonymous with infrastructure for PE. Are there like, do you have to go after different approaches for those industries? I'm sure because you mentioned, and I know this too, but like, because venture is such a wonky asset class, internally, they act like startups.

16:51Private equity is more institutional. So do you adapt your approach for servicing these companies throughout that? Or is the product pretty linear? The product is not that different. What's really different is the go-to-market motion. We started with a sales team that sold, you know,$6 ,000 cap tables to 24-year-old founders in hoodies, you know, in Soma. And now we're selling million-dollar accounting solutions to middle-aged CFOs in Midtown. Like, it's just a very different sales motion. So that's been the biggest probably challenge for us to adapt to a new industry. Another way of thinking about our business is we're very much a network business.

17:35and we try to build networks directly into the product. And so obviously our first network was cap table to investor. Our second network is investor to LP or fund to LP. What makes venture unique as an asset class for us is that it has what I'll call a global topology. You know, you bring a company on to Carta because all the investors are minority holders. They bring a bunch of investors. They bring 20 investors. And then those 20 investors hopefully recommend some startups which bring more investors. And you get this very complex web of a global topology. In private equity, it's different. A KKR portfolio company that buys Car to CapTable software doesn't help us with a Carlyle portfolio company.

18:15They're just completely separate. A KKR portfolio company that we sell helps us get another KKR portfolio company. There is what we call a local network effect versus global network effect. And the way that the analogy we use is Airbnb versus Uber. So Airbnb, we look at as a global topology. So an apartment in Paris helps me in San Francisco. A car in Paris doesn't really help me in San Francisco. And so Airbnb has to kind of protect this global network effect. Uber has a different problem where they have to protect these local cities, right? Each city is a network effect. And that's why Lyft and Uber and Didi and all these other ride sharing companies competed at a city level.

18:56What's interesting about venture versus private equity is we have very strong global network effect in venture, which I think has helped with our durability there. But now when we go to market and private equity, it's a local network. We have to win firm by firm by firm. We can't just win the market. And it's a very different go to market and product strategy in these local topologies. From your experience, maybe this is more philosophical, but how do you think about product market fit? In today's high-speed business world, staying ahead means using the smartest tools possible, including the powerful capabilities of artificial intelligence.

19:31Meet Turing Intelligence. Turing builds customizable AI systems designed to solve your mission-critical challenges no matter your industry. From expert guidance to tailored projects, Turing helps top companies realize AI that's more capable, more adaptable, and more effective. With Turing, discover how AI can accelerate your business growth. To learn more, visit Turing.com slash sorcery, spelt S-O-U-R-C-E-R-Y. That's Turing.com slash sorcery. I love the, you can't get people to move if you have a 2x better product. It's got to be a 10x better product. However you define that, that's another Teal thing or Andreessen thing.

20:11And so we think a lot about how do we make a 10x better product? If it's not going to be 10x better, it's not worth doing. And once you get to a 10X better product, how you know you've got it is it just sells itself. Like you don't need to train salespeople. It just, people just want it. And they take it, you know, they'll find a way to buy it. I remember in the early days of cap tables, people used to buy over the phone back then. And somehow we messed up the phone system so that it would just hang up on people if they tried to press two for sales. And we didn't know for a month because people were just finding another way to buy it.

20:46The only way we found is somebody came through the support channel and was like, I've been trying to give you money for three weeks, but nobody will take it. And that's when you knew like you had something. And so the best thing, you know, I spent a lot of time on with the sales teams and go to market. But arguably, that's a that's actually means I don't have a great enough product because if I had a really good enough product, I wouldn't need to spend time with sales. Like and I should be spending all my time building a 10x better product. Do you think sales and go-to-market can sometimes give us a false impression that you have product market fit?

21:19A hundred percent. And it's one of the biggest mistakes that startups and CEOs when they launch new products make is they have such a great sales motion. They can push a product out to market that doesn't have a strong product market fit, but it feels like it does initially. And then it'll go up and then it'll stop. And we've had a couple of products like that. The product wasn't 10x better. It was just the sales execution was good. We've always been a chart our own way. So when everybody was going left, we'd go right. I don't think we ever really got pulled by external hype, market hype. We definitely distracted ourselves.

21:57We'd have, oh, this is a great product idea. Let's try it. And it didn't work. Oh, let's try this. Let's try that. We have tons of ideas. The nice thing about our business is we have a lot of optionality. Once you own the cap table, you can do a lot of different things. Once you own the fund accounting, you can do a lot of different things. And so our challenge has always been, how do we pick ideas? And then how much effort do you put behind one before you give up? And that's the consummate challenge. We think it's a good idea. Do you work on it for a month? Do you work on it for a year? Do you work on it with two engineers?

22:28Do you work on it with 50? Trying to figure out that balance is always the trick. in general, we'll try lots of ideas. And we're really good at sort of the poker of knowing when to draw the next card and then pay another dollar to draw the next card and knowing when to fold them. I think that's something we do quite well. I was listening to this A16Z podcast where you were talking about your relationship with Mark Andreessen. Could you share a little bit more on that? He's on our board. He's been there since 2019. And he's great. I usually get an hour, a quarter with him. I go have breakfast with him and talk to him about what's going on in the company.

23:17And it's one of the best, best hours I spend each quarter. I learn a ton from him. I've never met somebody that's understood the founder journey better than he does. Almost every problem I have, he's like, oh, here's what they did over at Facebook or here or whatever. He's seen it all. So he's been a phenomenal person on the board. Another one is Joe at Silver Lake. So like, I'm just a tech CEO. But now we're doing so much more than tech. We're doing fintech. We're doing services. We're doing this, that. We're doing M &A. We're just doing a million other things that you don't learn to do as an early stage founder.

23:55I'm learning as I go. And nobody does institutionalization of a company and M &A better than the PE people. And so I learned a ton from him and Silver Lake on how to do M &A because we'll probably do two or three deals this year, another two or three next year, and then how to institutionalize the company. That's been super helpful too. How has your mindset shifted throughout time? you know I think one of the big inflection points for me was as an early stage founder your job is build a product and sell it that's great and so you spend a lot of time building and then you try to sell it and that's the right playbook when you get to this stage what you realize is your your job is still to build products and sell them that that is the most important thing you do but your job is also to build a company that can do it for you and that's actually really hard it's hard enough to build a product that people want.

24:52It's really hard enough to build an institution that can build a product that people want. Like Apple, you know, does it so well. It's amazing how good they just institutionalize it. You know, they just know how to do it. It doesn't take one person over there like it used to with Steve. But that's where I try to spend a lot of my time is how do you do company building versus product building? You can also make the same mistake which is, you know, you also get a lot of founders that just love being a founder, but building a company. They love the hiring and the events and the marketing and the, you know, and they lose sight of the only thing you need to do is build something people want.