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Carta and the future of liquidity

Jan-Erik Asplund

First, Karri Saarinen from Linear tweeted a screenshot of a Carta sales rep reaching out to a Linear investor to gauge their interest in selling their shares.

A few days later, Henry Ward, co-founder and CEO of Carta declared that Carta would exit the secondary business.

We teamed up with Sandhill Markets for a panel conversation about Carta, their kerfuffle with Linear, and the future of private liquidity, featuring:

  • Carta board member and Tribe Capital co-founder Arjun Sethi
  • Ex-COO of Forge Hari Raghavan
  • Caplight co-founder and CEO Javier Avalos

Transcript of the panel is below.

Our three key takeaways from the conversation:

Adam Hardej:

So Arjun, you’re the co-founder and Chief Investment Officer of Tribe Capital and you’re on the board at Carta. I’m interested to hear more from your perspective on that specifically. You also recently co-founded Termina, which is focused on—and you can maybe correct me—but collecting data on startups and using it to make investment decisions, which is in a bit of a similar vein to Tribe Capital. Is that right?

Arjun Sethi:

We're a quant tool, so most of our customers are actually mid-stage to late-stage private equity firms, venture capital funds, and hedge funds. It’s based on the same frameworks that we use for startup investing, born out of the Magic 8-Ball.


On to Hari Raghavan, the ex-COO of Forge and founder of AbstractOps. You’ve done a lot of work with a lot of different cap table providers, both on the migration side and the management side. And you’re generally a private market nerd of sorts based on the length of some of your posts.

Hari Raghavan: 

I think that’s a great way to put it. For no reason, I have just always been gravitated to everything to do with equity and back offices. I was Chief Operating Officer doing a lot of back office stuff when I was at Forge, and obviously equity was the bread and butter at that. Then, a lot of the stuff that we did at AbstractOps is tied to finance, legal, those kinds of things. I ran a lot of capital tables, I ran a lot of company back offices. 

Even now with the new company I just started, Autograph, it's very centered on overseeing headcount, managing people, managing compensation, helping people understand equity and future cost of hiring and those types of things.


Cool. And Javier, you guys knew each other from the Forge days, correct?

Javier Avalos:

We did.


The Forge Mafia is a big crew. I feel like everyone I meet worked at Forge at some point. But you are co-founder, CEO at Caplight, where you deal with the secondary trading aspect of this but also derivatives and a little bit more exotic stuff than just what straight brokers do.


That's right. I love talking about the exotic stuff, but just to keep it simple, what we do is aggregate pricing data from around the secondary market. We use that data to either facilitate additional trading where we're connecting broker dealers or to do fancy stuff like derivatives, which we think is super important to unlocking this asset class for hedging capability or just access. It’s pretty important market infrastructure. That’s a big part of our North Star from a mission and vision standpoint.


It's an awesome crew, and I’m super excited. Also, shoutout to Walter, CEO of Sacra, who do a lot of private markets research, for helping put this all together.

I know I shared this stuff with you guys before, but excited to talk and to pass the mic around a little bit around the Carta situation. It’s been a pretty crazy roller coaster and there's a lot of different opinions flying around—a lot of “Oh, they should have done this” or “They should have done that”. So we'll get into that a little bit. 

The cool part about the audience here too is that everyone is pretty familiar and people have been following this news cycle already.

I think that we can move through some of the early and the obvious, like the sequence of events and into the deeper whys and hows, which I'm excited about. 

After we get into the Carta stuff, it's really going to pretty naturally move into the conversation around, so if not Carta, then who? Everyone's been talking about this dream of CartaX and what happens with Carta unlocks the liquidity markets. And now, very quickly, as we all know, Henry has come out and said that Carta is just going to just get out of that business. 

I don't know how much we can discuss about that, but that’s the plan. Talk about Carta, talk about the future of liquidity. 

With that, Hari, do you want to maybe give us a little quick breakdown of everything that happened from two weeks ago to now—since you wrote a very well-received Twitter thread on this topic? How would you break it down?


So Carta has been working on CartaX since around 2018 or 2019. There was an unofficial launch in 2021, and if I recall correctly, they ran their own tender on it. They’ve brought on a few additional companies since then. 

I have no doubt that of course it was part of the big vision and fundraising narrative over the years. I'm sure the teams there that were helping to close deals, as salespeople are likely to do, had guidelines and expectations around what data they had access to, how they should use it, and all of those things. It seems pretty cut and dry that somebody broke the rules here. There appears to be some kind of “break the glass” mechanism for internal team members to access data. 

Obviously, it seems clear that a salesperson who's trying to email net new leads for closing a secondary deal should not have access to confidential cap table data because that is information that belongs to the company.

This all kind of blew up when Karri Saarinen (CEO of Linear) disclosed that a family member—whose email nobody should have known—had been emailed about buying their shares. 

I think the other thing worthy of concern is that it does appear to be the case that a lot of people have reported being contacted based on questionably confidential data over the years. 

It's hard to say if Karri's example is very cut and dry, but it does appear that if you set aggressive sales goals, salespeople will be salesing.


Shortly after that, then we get into the crisis communications era of this situation. Arjun, I don't know how much you can disclose from the investor side, but it very quickly turned into, “Okay, we need to handle this somehow.” Henry came out with a quick blog post that wasn't super aggressive on this never happening again. A lot of the reaction was that this isn't being taken as seriously as it should have.

Shortly after that came the announcement that they were just out of the secondary game completely. And it felt like a pretty rapid change of direction from “scandal” to “we're dealing with it” to “actually, we're just done with secondaries altogether”.

The last thing they said in terms of context—and something I was surprised by—is that their volumes in the secondary market were not super substantial. It wasn’t like they were cutting this massive part of their business—it's like, oh, maybe CartaX wasn't really working. 

Arjun, as someone who's obviously been close to the team for a really long time, when you were watching this all kind of play out and then ultimately with the announcement and stuff, what was your reaction and what do you think about where it all landed?


I'm not going to speak to the specifics of what's real and what's not, but look. The whole premise of Carta from day one was that if I have access to your cap table and if I'm able to build and provide services for you and your cap table, more so than what you would traditionally have through a chunky Excel-style process with your paralegals or lawyers, we’ll we able to build other better products on top of that.

That's always been the case. When it comes to secondary markets, it's less about wanting to own secondary markets and more about finding ways in which we can unlock liquidity because we think liquidity is healthier for the ecosystem and it's healthier for the owners of any cap table.

The mechanisms by which that happens are obviously the important piece and that's what a lot of people have been trying to figure out. It’s not something new that just happened over a weekend—it's something that we've been talking about for years, which is what is the best approach here.

I wouldn't necessarily call out that this is the end of liquidity in the ecosystem. It's more that we don't want Carta to be the same icky broker that everyone else is out there, where you’re just emailing random people all the time. I've been getting those emails for the last 15 years of my life from random people, and obviously there's industries that have bloomed because of it and firms that have bloomed because of it, but it's more about how you make sure you can be in alignment with your customers and continue to unlock what's best on behalf of the company. A big part of that is trust.


Someone on Twitter said that this created hostile takeover risk or that secondaries were somehow going to create a hostile takeover situation in the private markets, and I think it's worth saying that this is just alarmist and wrong. It's a huge breach of trust for sure—and as Hari said, sales be salesing and there's definitely incentives that probably got mixed up.

But it's a trust thing, not necessarily an actual ownership problem. Javier, I think that you can speak to this too, right? Caplight brokers transactions and is active in the market, but these are trades that are approved. No one's sneaking around with big blocks. Correct?


100%, as they should be. And maybe just to clarify for a second Caplight's role in this market. We're what's called an inter-dealer broker. While we do have a broker dealer, it's really for the purpose of connecting other brokers in the space to each other for the point of facilitating a secondary transaction. We would take a split of whatever that broker gets from his or her client. In many ways, I view our role as selling picks and shovels to these brokers.

With that clarification, I think that an important point that Arjun made is that it's tough to know where the secondary process starts and ends. There are certainly brokers who are going to broker, but it’s kind of impossible for me to decouple the settlement and processing of the actual transaction, like moving shares on a ledger from one party to another, from the actual transaction itself. From that standpoint, I think the progress that Carta has made for us all as a market over the past 10 years has been really incredible and we should all be grateful for that.

It's kind of impossible to see them fully being out of this liquidity process or secondary process because of that. They ultimately have the system of record for the atomic units that are pre-IPO shares, therefore, how can they not be somehow involved in transferring those units? 

I think that what this comes down to is who are your clients and who owns the client relationships. I think the signaling that Henry and the team at Carta are making is that they’re going to make that someone else's problem, because it conflicts way too much with their core client base. That’s probably the right call. 

The people who are going to have that problem are the brokers who have been participating in this ecosystem since it has existed. And now that role looks very much like public equity, or even a better example, high yield fixed income where surprisingly still only 30% of that market trades electronically, which makes you question, okay, what happened to that other 70%? That's brokering, that's sales folks who sit and call hedge funds and get them to do trades.

That's exactly what we’ve experienced in the secondary market. It just gets all wrapped up into this whole blanket statement of liquidity. So I think there's a lot. I think this event, if anything, is a really good opportunity to look at the behavior of the people who want to continue to be existing in this ecosystem and figure out just how to do better, frankly.


Yeah, I think the education around what it means to have a cap table, what it means to have a 409A, and options, and then shares and RSUs, it's not a tricky business. On what Javier is doing, I don't even think most people know what it means to have a call option, or why you need derivatives or liquidity to unlock something cool in the private markets. 

It's just, frankly, most people don't even know how the capital markets work. I think the main piece here, and it's been the pitch since day one, is how do you unlock value for shareholders, especially employees and founders for a company? At the end of the day, the company is at the center, the shares that they hold are at the center and that's the atomic unit that we're all trying to work off of and build multiple businesses from.


That's part of why it feels like a bit of a blow to have Carta decide that they’re not going to touch secondaries anymore. As Javier said, they're going to have to be involved one way or the other because they're managing it. People are going to want to move on and off the cap table. They've also really led the way on this in a lot of ways—and it seems like maybe a cultural blow in some ways, if not a volume blow.


I would separate a couple of things. 

The first thing I would separate is what's the core atomic value for any company at the end of the day. At least from a cap table standpoint, you have shares, that's the atomic value. What you can and cannot do with that is the key piece that keeps the company private or not. 

Carta has always been about the atomic value of those shares, who controls that, and what you can do to unlock them. That’s why they've been able to build multiple businesses on top of the cap table, including fund administration and others.

The goal, if you look at any of the presentations that Henry had in the past and what he thinks about, is how do you make it easier to have people own more? How do you enable owners to be able to unlock more of what they have, and to be able to facilitate and empower those people?

That includes employees, and I think a lot of people forget about. Founders and employees and the people at the company matter, the same way in which you think about how to do incentive alignment for the public markets. So for you to think about lending against your assets, all of those things can only happen if there is more liquidity unlocked in the ecosystem. That is and still is much a part of the vision, specifically around having an exchange or an auction system—the question is more around should that be vertically integrated or should that be empowered by other folks in the ecosystem?

I won't speak to that because that's the future of the vision around how the management team wants to build out the company, but you can't have any of that unless you are able to bring everything together on one system of record, and then that system of record can help empower anybody. 

When you think about what Javier wants to do, is his company better off to be able to provide derivatives and options for owners if they go and control their cap table? Well, the answer is yes, but you need to make sure that it's not disparate and sitting all over the place, you need to be able to go to one central location and understand where the underlying assets lie and the value of those assets in some cases.


One of the easiest ways to understand the secondary market is basically to map all the existing players against the equivalent public market participants. 

Part of the reason we don't see a secondary market yet is because the exchange or the electronic trading platform is the last thing that gets built. We think of the New York Stock Exchange as an electronic platform now, but it used to be people yelling with little chits on physical trading forms. Those are the equivalent of brokers cold calling people today. That comes first, that's part of the evolution of markets. 

If you actually take a giant step back, what Carta is doing is the equivalent of people managing ledgers with the State of Delaware saying, "Here's how many shares there are,” and giving them a piece of paper and pencil.

What Javier and Caplight are working on is Bloomberg. It's basically tools, data and communication for large market participants. 

What AngelList is doing is similar to what BlackRock is doing—it's basically aggregating large pools of capital and it’s more investment decision-making oriented, if you will. 

At some point there will be a Fidelity and a whole bunch of other things on top, but that has to come much later. So I agree with Arjun that you first have to come and identify the individual data points and then you build brick by brick by brick, and then ultimately it starts to work something like what the public markets are.


Just to circle back on the whole Carta drama—it doesn't sound like it was in the plan for them to drop that part of the business, because it seemed like a natural service to be in for them. Arjun, I won't pinpoint you too aggressively on it because I know you want to be sensitive to the things that you can or cannot share, but I was surprised to see it happen so fast.


Yeah, look, when you think about an order of operations for any company, or any ecosystem or market, it's more what should come first and what will happen last. Sometimes those things happen out of sync. 

When I think about public company services, you think about Computershare, or Broadridge, you think about Morgan Stanley, Fidelity, NASDAQ, and the NYSE. All of this whole ecosystem took 50 plus years in order to be able to build. 

The private markets has almost none of these services. When you think about private market services, you think about lawyers, Excel sheets, and Solium from back in the day. As you think about fund administration, you think about E-Trade, auditors, financial taxes, accounting—things that are a little bit more archaic and also specific to private markets.

Carta have been building a transparent, legible system of record on top of this ecosystem and then seeing what they can do on top of it. And it's a hard process. 

One of the greatest things, and this is where I'll obviously plug Henry and the team, is that they've been very consistent that they really understand this ecosystem, and they want to be able to help solve this either through them, their system, their platform, or other people being able to be empowered through their platform. It won't always be perfect, but that's the end goal. 

If you hit that end goal, then you're talking about trillions of dollars being unlocked in the ecosystem, and that might happen over the next five years or 25 years, I'm not sure, but these things don't happen overnight. And then also decisions to close something don't happen overnight.

It's more of that, "Hey, I've been thinking, thinking, thinking. What's the thing that I care about most? Well, I really care about trust more than anything else, which is that my companies trust me just like how you'd think about a bank, and especially in certain markets." Even more so in emerging markets, there are systems and a system of record that you have to trust and that they're building on behalf of you and for the betterment of you. And I think that's what the team was struggling with, which is how much should we lean in a certain direction versus continuing to stay with our core and make sure that we are doing everything on behalf of our customers? And the one thing I'll say is that, look, I buy a lot of companies in the secondary markets. It is hard. It's icky sometimes, and it's a very different game.

While you might have a really good relationship with the company, a lot of the times as a purchaser, I am apologizing to the company to say, "I'm really glad that we're partnering with you, but I also apologize for the way in which I invested into you." Because it's just hard. And I think a part of that is how do you make sure that you find alignment between all of the market participants so that at the end of the day, and I think everyone kind of forgets about it, which is how do the companies and the people at the companies become as successful as possible?


I can chime in here and just further that point. I think that this allure of commissions just creates short-term thinking and is almost too hard to resist for most people who enter this space. The importance of building with a ten-year vision really can't be understated. 

Carta has consistently done a good job of that. But I think a lot of new entrants in the space, they see a massively inefficient market. They see massive dollar signs in front of them, and I guess the allure of just going and chasing a deal and booking that as revenue is just too strong and it knocks you off that path. 

If you're building something and you're not spending a meaningful amount of time every single day thinking about how you 10x the overall size of this asset class, you're probably optimizing around a local outcome, and your revenues will probably grow fairly quickly and your client book will look good, but you're not really building something that is differentiated and is really furthering the space.

The way I think about that is very similar to the disparity and valuation that you get as a broker versus being the actual exchange or the actual infrastructure. So while Carta may be taking a step back from actually playing that role as a broker in the short term, revenue, or maybe that's a bad example in this case, looks weaker. From a valuation standpoint in the future, it could be actually a way better move. And this is something that we think about all the time at Caplight, because there are these opportunities that you want to chase after because you are venture backed. You need to show revenue, you need to show that your company is working. And we have consistently turned away these opportunities in favor of plugging those deals into the broker partners that are on our system so they can book that trade, collect almost a full fee, and we get only a portion of it.

The reason I think that that's important to continue to do is because what's far more valuable to us than that short-term revenue is the data that comes into the ecosystem. If you can consistently win that trust, and be the operating system that these brokers are using to cover their clients and do trades with each other with the company's support, you can build up that data system and actually do, in my view, what unlocks this asset class, which is bringing in really interesting financial products that can hedge and do things like structurally is not possible today, which should bring more institutional assets into the space, and overall make it easier for companies to raise money, and stay private and do all the great things that we want them to do. 

Going back to the core point, build with a long-term vision in this asset class, and if you want to kind of come in and make a quick buck, pick a different market or just be a broker.


The short term always seems sexy, but building for the long term is how you want to think about it.


A lot of this comes down to the fact that everyone got in over their skis during the valuations of 2021. What Javier was saying intersects with that dynamic because okay, your revenue numbers no longer justify your valuation. If you’re Carta at $350 million in revenue, today, it's multiples do not justify any kind of billion dollar valuation. 

That’s not unique to them. That's not a dig on Henry. That's what everyone did in 2020-2021, right? It's just natural human incentive. We did the same thing at AbstractOps and raised at a too-high valuation and we’ve had to put the company on steady dividend growth mode because for us to grow into that with the capital we had was just not possible. You take the allure of revenue where you could generate, theoretically, $50 million of revenue by closing 20 deals or 30 deals, but that's not a lot. You just have to do it the right way. 

You just have to have the right people and then you can close that. Now suddenly your growth is 20-30% year-on-year and you start to build a stronger base from which to grow. 

The short-term allure of growing revenue might be easier to resist if a company wasn’t already in over its skis, from a valuation standpoint. I think that's definitely part of what's playing a role. 

The second is that I haven't seen any decks or anything like that, but from what I understand from back in 2018, every round Carta did—the $800 million round, the $1.6 billion round, the $7 billion round—all of them were anticipating that CartaX was going to significantly move the needle for the company.

It’s like, “Okay, where do we go from here?” It requires you go back to the drawing board in terms of what is the next big platform. There's cap tables and then there's fund admin. Each of those are meaningful businesses. Each of them are nine figure businesses now. What's the next nine figure business?

Personally, what I would love to see as the consumer of these things in the market is something to compete with products like Computershare. I've spent hours and hours on the phone with them trying to get transfers done, and they're just really difficult to use. I would love for Carta to go take those dinosaurs down. And I think that there are multi-billion dollar revenue line items for each of those companies. I think that's a great opportunity. 

I think the problem is that, Arjun, when he was talking about the vision of the company, it was all about creating new owners, unlocking liquidity and creating more stuff for the private markets. That's a shift in strategy. That's actually going to public markets. But from what I understand, Carta actually pulled back from that. 

So now, I think this calls for a reassessment: do they want to go deeper into private markets and add on products in the private markets, or do they want to take their core, something they’ve already built well and do it for the public markets? It’s a different product—it's not just adding a few features and then it’s done.


Yeah. I'm going to push back a little bit because I just don't agree as someone who I led three rounds into Carta. Look, at the end of the day, what you want to invest in, as an investor and someone who's deployed billions of dollars, is you want to invest in compounding businesses that continue to retain and expand. 

Carta has that. They continue to do that. Every market that they've ever gone into since they started, everyone always said it's a small market. And then lo and behold, you take a look at their core numbers for any of their core businesses. And so fund admin, you are essentially working with not just VCs, which I would say is a very small part of the market where you're like a private equity, you're working with people that have LLCs, real estate, you're talking about one of the largest asset classes in the world across the board and being able to service them.

So when I talk about having a system of record and having ownership of shares and what can you do with that, that alignment doesn't change. It's more about what's the timeline for that to happen and are you unlocking it yourself. Is that vertically integrated or are you a part of a platform that people can participate in? 

That's never changed because that's always been there since the Series A. And what I credit Henry and the team with is that everyone always thought it was crazy until it wasn't. Now people are thinking it's crazy for them not to do it. 

The vision hasn't really changed. It's more about what's the execution of the order of operations as you continue to get larger and larger. And the question might be, over the next 10 years as they continue to get bigger, what do they continue to enter into and what are all the services. All the services that you mentioned right now, I think it's more like you have to do that in order to have the best and most perfect system of record. I don't think of it as separate product.

Compensation and other businesses are just additive to the whole, which is if you have a system of record where you have an understanding of the full flow, what's called total compensation from shares to salaries, everything is there, then you're able to build more better products for your customers. And again, at the end of the day, what everyone always forgets about, which hasn't changed, it should always be the case, is that your customer is the company and all the shareholders that are underlying.


I'm definitely not deploying millions of dollars. I have invested in probably 150 early stage companies by this point in time, but I have found it really hard to wrap my head around businesses that are really one thing that keeps ballooning and then there's a constellation of products around them. What seems to be much more common in terms of really large companies is basically second acts, third acts, et cetera, that you tack on, right? Apple's a very easy example of this. There's the Mac and there's the iPod and then there's iPhone and iPad, et cetera.


I invest all over the world, so I don't think it's contrarian—for me, it's obvious is the ability to build multiple products in multiple business lines is something that people did post World War II all the way up to the nineties. 

Then there was this narrative which is you should only build one product that scales and that's it. And I don't believe in that, and that's not how I think about building businesses. At a certain point, if you have a monopoly in some cases around a system of record, you can build better products or adjacent products on top of it as long as you have trust. 

We helped co-found a company in Latin America called Kapital, and it's a bank, but what we do is  invoices, we do flex accounts, we do invoice factoring, we do all things that are one company line items here in the United States because of the market that we have here.

I think it depends on the context and the situation, but on the whole, it's not about having a second or third act. It's more about what are the products that you build that best serves your customers so you can continue to expand with them. That's really what it comes down to. 

The whole “one product, one company” scales to a certain extent, and that's good for certain sectors where you can grow at a high velocity with large distribution and reach, but that's not the case for a lot of companies, especially in financial services and financial markets.

That's more of my pushback on these pieces, which is like when we were leading any of the multiple rounds ourselves when I was writing the term sheet and thinking about Carta, it's more of that, hey, you have a system of record, you're continuing, expanding and compounding your products. That's awesome. What else can you continue to do? And it's not about tacking on a product or having a third act, it's just how do you continually improve the experience you have?


It sounds like the secondary business and the brokers were meant to be serving that same purpose, like what you said, right? Carta had this special information, and it wasn’t necessarily the wrong logic to use it, but trust is much more important. I guess that's how we can make sense of Henry's quick reaction—where it was important to nip this loss of trust in the bud at the expense of a line item.


Yeah, I think I go back to, in my opinion, trust is your currency no matter what you do, and especially for financial services or cap tables or deposits, et cetera, you cannot and should not lose any of that trust. 

Part of it is that, yes, we're in the startup ecosystems, we move fast and break things, but when it comes down to some of these products, trust and the trust of your customers in what you're building is of the utmost importance. And so I don't think that's ever changed for Henry and the way in which he thinks about it because again, that management and the way in which they've been building is all for their customers.


One thing I want to pull on that has come up and I think is a big thing is that there are different tools and things that can be implemented, but there seems to be a really big cultural trust issue still going on here. There’s this fear that you lose control of your cap table, and some of it maybe seems like an overreaction.


I think we should take a step back, and Javier should have some input here. When you're a founder, you just want to execute. You just want to hit your milestones. I run two other companies right now. I don't want people in my business and I don't want to be completely transparent about everything I do until I hit a certain threshold. 

If your company is private, it’s private for a reason. But we have seen as the private markets have continued to scale, that folks are starting to talk about making private company products, financials, and performance a little bit more open so that people have the ability to sell, trade or lend against it.

I think it's important to separate what it means to be a private company and stay private versus be a private backed venture capital company that has a little bit more transparency. What you're hearing from some of those founders is that they may not want to participate in this ecosystem yet. They don't want anyone to think about what their share count looks like or how they’re performing. They just want to be heads down and build. I think that's really important, especially for some of the companies that are out there that build things that are stealth in some cases or heavy on capex, right? It's just the milestones it takes in order to build a rocket or defense company—it’s a very different mindset than building a SaaS company with 20% month-over-month growth.


I'll chime in here. I think there's this narrative around secondaries and people who are building in the secondary market that the companies want to do this for their employees because they want to be employee and shareholder friendly. And I think that in absolute terms, you can't succeed building with this vision in mind if you can't figure out a way to make it make sense for the companies as well. You need to clear that layer of trust first and foremost.

I also feel pretty strongly, and this is mainly from personal experience, that many companies aren't ready to make this a top five priority for them. I think that's kind of Arjun's point. 

Maybe you get there at a stage in your company's life, if you're so lucky, where you're consistently having shareholders who have made so much in paper wealth that they need to monetize that, or investors are just constantly pounding on your door to get access to your stock and you're not ready to do a primary round.

There's a place in time for it, but this narrative that companies, if they're not offering their employees or their cap table systematic liquidity, are therefore not shareholder or company employee friendly, I think that is wrong. I think that if you're trying to build with that in mind and expecting action from the companies, you're going to run into a brick wall. 

Actually that's what, in a way, that this may be a simplification, but this is probably what happened a little bit with Carta. The fact that they had to start calling on cap tables because they needed to get revenue to work and not every company was willing to do the CartaX thing, I think that kind of validates the statement I just made

Ultimately, it comes back to trust. How do you build this secondary market liquidity landscape when the companies aren't going to be your absolute champion, but you still need them to cooperate with it, it needs to make sense for them? I think it goes back to building trust with the product that you're making. Carta’s cap table product was an amazing tool that you can certainly build a network around. What other products need to exist in this asset class where the users of those products don't feel like the stuff they're using the product for is turning against them?

An example of that is that we built a CRM tool that brokers can use. It's custom-built for doing secondary market transactions. The brokers only trust us to put their sensitive information in there because they know we're not going and trying to call on the exact same client that they're trying to call on. That's why it's super important that we consistently show that, no, we're not using your information against you because the second you violate that trust, you never get it back.

Then the other part of this is another huge player in this ecosystem are brokers. This might be contrarian, but I think brokers are going to be around in this market for at least five years. It's the same reason that real estate agents still exist. Unless you're building with those folks in mind and the value that they bring to the table, I think you're missing the point. I think that's not to say broker behavior is good. In fact, I think there are many cowboys. I think the first thing that we can do as a market is acknowledge brokers are important. Build them tools, get them to start behaving in some sort of systematic way, allow people to rate which ones are good and bad, and then you can have the market naturally select the groups that they want to work with.

I think this problem is super complex. It's multilayered, and if you think there's one quick fix, you're just off.


It's also why it's so exciting. It's so big, there's so many people, and there are so many participants. Brokers are not going away. It's more about how do you make sure that it's transparent so that they are well-behaved in the ecosystem on behalf of your constituents who are your companies.


There's a thing that I think, Hari, I think you wrote about a little bit in the Carta conundrum. I think the thing that becomes hard though as we talk about all this is that there seems to be, in both at the individuals level and then in a broader way, hard alignment problems between when the company wants and what the executive team wants. If an employee or investor with lots of shares wants liquidity, it can create these ugly situations. 


A whole host of thoughts on this. I could get on my soapbox forever.

I think being employee-friendly is as important as being founder-friendly. Speaking as an early employee and then a founder, I can tell you founders get plenty of credit. Early employees don't get shit. Pardon my French, right?

I think it's really important to recognize, I mean founders get founder preferred shares in companies and stuff like that where it's like different treatment of secondaries and all this other stuff. I think it's really important to recognize the village. Two people in a room did not build the whole company. It took the first five, the first 10, the first 50, you name it.

I think it's important to recognize that founders and execs, it is part of their moral obligation—they’re fiduciaries to the company, but they also have a duty of care to the people who help build that company and bring it to where it is.

There's a certain point where a company stops becoming a venture-backed company and it starts to look more like a private equity or pre-IPO company, if you will. It usually happens around when they hit a unicorn valuation, give or take, around six to seven years into the company's life. The earliest employees probably joined year two or three, just finished vesting, they've left, they want to exercise, and they have a $400,000 tax bill.

In my time at Forge days, we helped people who wanted to buy houses but we also helped out people whose kids had cerebral palsy. They're like, "My treatment's going to be like $250,000 and I don't have any liquidity." These are real people with real problems. Sorry, the company at that stage, if the company's a $5 billion company and has not held any tenders, does not get to say from a moral standpoint, "Sorry." You've been around for eight years and the promise you made—the social contract you had with your early employees— was that if you bust your ass, work hard, and we build something great together, then we're going to go public and we’re going to pay you back in multiples.

A company that's private for 12 years no longer has a standing to say, "We're not going to allow this." I think there's a point in time, six, seven, eight years in, where you actually switch to behaving differently. We actually naturally see this in the market. This is not like a controversial stance. SpaceX does this. Every 6 to 12 months they do a tender. Stripe does this. Airbnb was doing it, back in those days. Uber was doing it, although less frequently.

Every company at that point does it, it's just they have to be dragged kicking and streaming into doing it. I'm just like, no, there needs to be a policy. There needs to be an understanding. There's founders pledges and there's a whole bunch of other ways of having an understanding of “Here's how we're going to operate as a company. Here's our value system”. I think there needs to be a value system about equity. I think people need to say, "Here's how we're going to treat it."


I think we forget that the fiduciary duty of the founders and the management team is to the shareholders. That’s the most important part. As a aside, you have to think about how you keep your employees incentivized and—depending on what your timeline and life cycle looks like—in order for them to continue to execute to build the best products in order for them to perform.

I think it's really important to think in that way, which is why you want to have liquidity in the first place. I don't think companies, in my opinion, are dragged kicking and screaming to do these liquidity things. It's more they don't want to go public. What are the rules that you have in place for them to continue to stay private and execute? Do we want SpaceX to be a public company? I think Elon's talked about this a lot. There's pros and cons to it, but one of the reasons why SpaceX does so well is because they're private.

Those are the nuances that are really important. You want to make sure that your employees, similar to your founders, aren't thinking about how much they get paid, but about how to execute and perform. Liquidity is an aspect of that, not the central piece. You don't go to a startup to say, "I can't wait to get rich." I know some people did. We have that during the highs and lows of any market. But I run two private companies. I want those companies to stay private as long as possible. But I also want to be able to alleviate and incentivize the people around the table so that they have liquidity at a certain timeframe, but it's on behalf of making sure I'm doing my duty to increase shareholder value.


I'll just add one thing. I'm the contrarian on that front. I don't believe the sole responsibility of a set of executives is fiduciary responsibility. I think that's what makes the pitchforks come out and everyone thinks corporations are evil. I think there's more to it. There's stakeholder value, more broadly. I think the employees, whether or not they're stockholders, are a constituent, are a stakeholder. Customers and suppliers are too. But with that asterisk, I completely agree with what you said, Arjun, which is this is a tool in the toolbox to make sure you're building the best possible company, and you're enabling collective outcomes.

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