Latest / Masters in Business / Carta CEO Henry Ward on Private Credit & Private Markets

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Carta CEO Henry Ward on Private Credit & Private Markets · Masters in Business

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Masters in
• 0:11
  Speaker 1: Business with Barry Ritholtz on Bloomberg Radio.
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  Speaker 2: This week on the podcast, you had another extra special guest.
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  Speaker 2: Henry Ward is CEO and co founder of Karta. They're
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  Speaker 2: the company that keeps track of cap tables, compensation, valuation,
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  Speaker 2: liquidity for over fifty thousand private companies.
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  Speaker 3: They work with eighty five.
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  Speaker 2: Hundred investment firms and over two and a half million
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  Speaker 2: equity holders to track all of this crucial information. It's
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  Speaker 2: kind of hard to imagine that they were doing this
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  Speaker 2: manually with stock certificates before Karter came along and digitized
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  Speaker 2: everything and put along on the cloud.
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  Speaker 3: Fascinating company. Fascinating guy.
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  Speaker 2: I thought this was really a great conversation with no
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  Speaker 2: further ado. The CEO and co founder of Cars, Henry Ward,
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  Speaker 2: Welcome to Bloomberg.
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  Speaker 4: Thanks for having me.
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  Speaker 2: But I want to start talking a little bit about
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  Speaker 2: your education and background. A bachelors in mathematics and computer
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  Speaker 2: science from University of Michigan Go Blue, and MSc in
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  Speaker 2: Market Finance from ed HC.
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  Speaker 3: I am less.
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  Speaker 2: Familiar with ed Heck than I am with you, Mish.
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  Speaker 3: What was the original career plan.
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  Speaker 2: You know.
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  Speaker 4: I went to you Versus in Michigan originally to be
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  Speaker 4: a math major. Technically, my degree on my transcript says
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  Speaker 4: the Bachelors of General Studies, because at that time to
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  Speaker 4: get a math degree you were in the Literature of
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  Speaker 4: Science and Arts college and you had to take two
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  Speaker 4: years of a foreign language. And I failed Japanese three times,
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  Speaker 4: tried Spanish, failed that twice. And my counselor was at
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  Speaker 4: the time I was supposed to go in the Marines,
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  Speaker 4: and they said, look, I said to my counselor, I
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  Speaker 4: just need to graduate. And they said, well, look, if
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  Speaker 4: you switched a general studies degree, you can graduate because
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  Speaker 4: you have enough credits. It's kind of a generalist degree
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  Speaker 4: because you took a bunch of math, computer science, and linguistics,
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  Speaker 4: and you can graduate next year. And I said, let's
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  Speaker 4: do that. So it was me and thirteen football players
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  Speaker 4: that graduated with a general studies degree that year. But
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  Speaker 4: my passion had always been math. I thought I'd be
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  Speaker 4: a mathematician. My roommate was a computer scientist. He got
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  Speaker 4: me into computers, and then I went in a software engineering.
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  Speaker 3: So two questions. First, did you end up in the Marines.
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  Speaker 4: I joined the Marines out of high school as an enlistedment.
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  Speaker 4: I went to Paris Island, and then I later went
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  Speaker 4: into what's called Platoon Leader's Course, which is like the
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  Speaker 4: Marine Corps version of Ratzia. I did that. But when
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  Speaker 4: I finally graduated, and sometimes I regret this, you know,
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  Speaker 4: you kind of look back at old decisions. And at
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  Speaker 4: the time, four years, four more years, and the Marine
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  Speaker 4: seemed like an eternity. Right now it seems like nothing.
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  Speaker 3: Book of an Eye gone, right.
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  Speaker 4: Yeah, I ended up deciding to pay back my my
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  Speaker 4: GI bill because this is two thousand. I graduated in
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  Speaker 4: nineteen ninety nine. My signing bonus paid off my entire
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  Speaker 4: college debt at the time, and I decided to go
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  Speaker 4: that route.
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  Speaker 3: So it was the signing bonus. Where'd you go?
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  Speaker 4: I went to a company called Trilogy out of Houston, Texas,
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  Speaker 4: and it was an incredibly formative experience for me. It
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  Speaker 4: was a very smart company. They were going to be
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  Speaker 4: the Google of the South. Provided reasons it didn't quite
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  Speaker 4: work out for them. The CEO is still there though,
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  Speaker 4: running Trilogy and it's a great private, privately held company.
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  Speaker 4: But yeah, that's what took me in Texas.
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  Speaker 2: So I hear you saying you didn't do well with languages,
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  Speaker 2: with Japanese, with Spanish. But am I reading this correctly?
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  Speaker 2: Did you get your masters your MSc in France?
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  Speaker 4: Yeah? I did because the business schools in France are
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  Speaker 4: mostly taught in English, and English is hard enough for me,
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  Speaker 4: so I had to stick with an English business school.
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  Speaker 4: The plan was never to go to business school. I
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  Speaker 4: wanted to ride my bicycle in southern France, a big
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  Speaker 4: tour de France. Watch here. I loved riding my bike.
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  Speaker 4: My fiance now x ex wife was like, well, hey,
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  Speaker 4: if we're going to go, I convinced her to come
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  Speaker 4: with me. We're going to be productive. Let's go to
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  Speaker 4: business school while you train for the iron Man and
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  Speaker 4: do all those things.
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  Speaker 1: And you do.
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  Speaker 4: Yeah, so we But it's a French business school, so
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  Speaker 4: there wasn't a lot of work. There was a lot
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  Speaker 4: of riding at a lot of eating bread. It was
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  Speaker 4: a great couple of years.
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  Speaker 2: So that's a kind of fascinating mix of technical, financial,
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  Speaker 2: financial training, marines and overseas study. How did that experience
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  Speaker 2: shape the way you think about building companies?
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  Speaker 4: You know, I realized pretty quickly I'm not good at
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  Speaker 4: the military. My father was an army officer for a
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  Speaker 4: long time, and he used to tell me, you know,
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  Speaker 4: and the difference between military life and civilian life is
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  Speaker 4: in military life you're you're judged on the worst thing
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  Speaker 4: you do. In civilian life, for certainly, in startups, you're
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  Speaker 4: judge on the best thing you do. And I'm very
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  Speaker 4: much I do one or two things really well versus
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  Speaker 4: I do many things, you know, not wrong. And so
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  Speaker 4: I quickly realized the military was not not the right
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  Speaker 4: place for me. Investment banking was not the right place
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  Speaker 4: for me. I went to an investment bank after grad school,
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  Speaker 4: and then I discovered entrepreneurship sort of accidentally, and I realized,
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  Speaker 4: this is what I was meant to do, successful or unsuccessful,
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  Speaker 4: this is what I was meant to do.
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  Speaker 2: So, so let's talk about the predecessor firm to Karta
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  Speaker 2: second site, a portfolio optimization platform. You launched that not
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  Speaker 2: long after grad school. How did that experience influence how
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  Speaker 2: you approached the next venture. How did it affect what
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  Speaker 2: your plans were for scaling Karta?
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  Speaker 4: So the idea for a second site was it was
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  Speaker 4: like a wealth front or a better meant one of
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  Speaker 4: these robo advisors. But you know, Andy and Josh did
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  Speaker 4: a much better job than I did. My company failed,
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  Speaker 4: and what kind of rose out of the ashes of
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  Speaker 4: that was and I got through the Trapha depression after
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  Speaker 4: closing it was I couldn't imagine doing anything else as
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  Speaker 4: a completely failed founder. I just wanted to do it again.
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  Speaker 4: And Karta came out of that experience, and it was
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  Speaker 4: one of these interesting things where the conventional wisdom for
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  Speaker 4: founders is you fall in love with the problem, and
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  Speaker 4: entrepreneurship is a vehicle with which that solved that problem.
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  Speaker 4: I was different. I fell in love with entrepreneurship. I
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  Speaker 4: fell in love with building a startup, and I just
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  Speaker 4: needed a problem. The problem was a vehicle with which
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  Speaker 4: to be a founder, and that really shapes how Karda
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  Speaker 4: is today. We're a heat seeking missile going after any
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  Speaker 4: problem we can find to solve to keep the business
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  Speaker 4: moving forward. And I talk a lot to early stage
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  Speaker 4: founders about this is which one are you? Are you
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  Speaker 4: in love with the being a founder? Are you in
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  Speaker 4: love with the problem? And both come with strength and witnesses.
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  Speaker 4: If you're in love with being and the problem, you
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  Speaker 4: know you're passionate of the problem. You'll grind through the
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  Speaker 4: bad stages of being a founder to solve this problem.
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  Speaker 4: The downside is if the problem isn't actually that valuable,
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  Speaker 4: you kind of get stuck entrenched in this problem, and
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  Speaker 4: many founders burn and crash in that. The other side
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  Speaker 4: for me is, you know, because I'm not I'll do
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  Speaker 4: I'll work on any problem to move the company forward.
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  Speaker 4: There's often not a coherent strategy. It's like I'll grab
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  Speaker 4: a problem over here, I'll grab a problem over there,
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  Speaker 4: And you can see it in the kind of diversity
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  Speaker 4: for a five hundred million dollar business. We have a
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  Speaker 4: large number of SKUs and business lines, and it's because
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  Speaker 4: we shoot out a lot of different targets.
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  Speaker 2: So let's talk about the initial target. How did you
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  Speaker 2: come up with the idea?
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  Speaker 3: Hey, these cap.
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  Speaker 2: Tables, all the data around comp and valuation and VC investing,
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  Speaker 2: No one is really tracking this in a consistent, intelligent way.
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  Speaker 3: Like what was that aha moment?
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  Speaker 4: I was working with Menu Kumar over at Canine Ventures
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  Speaker 4: on my previous company, and when we shut that down
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  Speaker 4: and we were talking about what am I going to
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  Speaker 4: do next? He pointed out this cap table problem and
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  Speaker 4: was like, hey, this is a real problem. I think
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  Speaker 4: you should solve it. Really Yeah, yeah, I'll invest in it.
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  Speaker 4: And he gave me this problem set to go after
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  Speaker 4: and I spent a few months working on it and
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  Speaker 4: learning about it. What was really interesting was the first
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  Speaker 4: version of it was not cap table, so that's what
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  Speaker 4: everybody knows us for. The first version actually was PayPal
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  Speaker 4: for equity. It was instead of back then you used
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  Speaker 4: to mail a paper stock certificate, just like we used
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  Speaker 4: to do with the railroads, and your cost fifty dollars
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  Speaker 4: in FedEx pise in one hundred bucks for the paralegal
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  Speaker 4: to print it, and somebody had to file it in
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  Speaker 4: a cabinet. And we were like, we said, hey, why
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  Speaker 4: are we email or you know FedExing paper stock certificates.
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  Speaker 4: Let's just email it. And that was the initial idea,
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  Speaker 4: and we realized companies didn't care that much. We thought
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  Speaker 4: the competition was FedEx. They didn't care that much about it.
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  Speaker 4: But they said, well, hey, if you're emailing all this stuff,
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  Speaker 4: can you just put all of it into a table
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  Speaker 4: and show it to me. And we're like, yeah, we
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  Speaker 4: can do that. That sounds pretty good. That was the
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  Speaker 4: thing that had product market fit was just showing them
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  Speaker 4: everything we issued. And then once you had the cop table,
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  Speaker 4: the company my heat seeking missile instincts were like, well,
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  Speaker 4: what else could we do? And then we launched four
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  Speaker 4: nine A and stock ops and expense accounting and employee
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  Speaker 4: management and card total compensation and QSBS and suddenly you
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  Speaker 4: could do so many things around this core system of
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  Speaker 4: record called the cop table.
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  Speaker 2: Huh so fascinating. What was it like scaling that? What
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  Speaker 2: sort of technology issues did you run into? How much
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  Speaker 2: of the data you were finding was it all hand
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  Speaker 2: assembled or was there any mass amount of data that
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  Speaker 2: made it easy to navigate? What were the next few steps?
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  Speaker 4: Like I often tell earlier stage founders, you know, being
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  Speaker 4: a you know, we're about two thousand employees now, the
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  Speaker 4: problems I deal with they're no different than the early stage.
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  Speaker 4: They're just bigger, faster, harder, but they're the same set
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  Speaker 4: of problems. I do the same thing every day that
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  Speaker 4: an early stage founder does, and it's really simple. Talk
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  Speaker 4: to customers, figure out their problems, solve the product, build
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  Speaker 4: the product to solve their problems, and make them happy.
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  Speaker 4: And that's just it. It's just rinse and repreat Everything
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  Speaker 4: else is just you know, overhead to building a building
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  Speaker 4: a company. And so these days, you know, I'm in
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  Speaker 4: New York for a few days. Half my meetings are
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  Speaker 4: our customer meetings.
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  Speaker 2: So this isn't just obviously public companies. This is public
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  Speaker 2: and private companies. How do they differ? My assumption is
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  Speaker 2: it's easy to track and access public companies data.
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  Speaker 3: What do you do on the private side?
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  Speaker 4: So public company data and you know, Bloomberg is a great,
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  Speaker 4: you know example of this is so ubiquitous, and how
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  Speaker 4: do we manage this incredible set of data across fassive
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  Speaker 4: ecosystems and networks in the public markets. Private markets is
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  Speaker 4: very different. It's it's private. There's no central place to
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  Speaker 4: access all this data. We have a lot of the
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  Speaker 4: data on what's happening in the private markets, particularly around
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  Speaker 4: venture capital and private equity, but because it's private, we
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  Speaker 4: can't share it. And that is the very unique interesting
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  Speaker 4: thing about what we do is we track all the
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  Speaker 4: much of the same data that like a Bloomberg would track,
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  Speaker 4: but we can't share it with anybody. And that's the
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  Speaker 4: that's many people have asked me, Hey, how come we
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  Speaker 4: haven't done blockchain? You know, blockchain seems like an obvious
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  Speaker 4: thing for a cap table to be put on. And
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  Speaker 4: the reason is our customers pay us to fix things
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  Speaker 4: when they're broken, and don't tell any about tell don't
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  Speaker 4: tell anybody about it. And blockchain is immutable and public,
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  Speaker 4: and that's that's the big difference between private and public.
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  Speaker 3: Really interesting.
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  Speaker 2: What was the hardest problem in assembling a private market
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  Speaker 2: set of data and cap tables across the whole technology ecosystem.
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  Speaker 4: The big issue we had early was what I'll call
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  Speaker 4: the de materialization of private stocks. So the model that
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  Speaker 4: we think we look at is when Nixon pulled us
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  Speaker 4: off the gold standard, he de materialized cash. You know,
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  Speaker 4: now the Federal Reserve could just create cash because cash
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  Speaker 4: was now put into the cloud. They could create money,
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  Speaker 4: they could do what they could move money around without
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  Speaker 4: actually moving physical inventory. They de materialized cash and gold
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  Speaker 4: and put it in the cloud. And this was in
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  Speaker 4: the seventies. We think of us as doing the same thing.
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  Speaker 4: Was everything in private markets until Karta was cash, it
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  Speaker 4: was paper equity, it was contracts, it was PDFs, it
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  Speaker 4: was documents, and we de materialized that. We put it
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  Speaker 4: all in the cloud. So now everything could be moved
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  Speaker 4: around seamlessly. Getting the ecosystem of venture capital to believe
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  Speaker 4: in the de materialization of private equity and private capital
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  Speaker 4: was the hardest part because it sounds crazy today, but
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  Speaker 4: in twenty twelve and thirteen, lawyers were like, no, but
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  Speaker 4: you have to have a green stock certificate within a
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  Speaker 4: broader around it, Like that's what we've been doing, literally
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  Speaker 4: for two hundred years. Like who are you to change this?
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  Speaker 4: I would have thought.
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  Speaker 2: If anybody would be amenable to let's go from physical
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  Speaker 2: paper to digital, it would be Silicon Valley venture capitalists.
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  Speaker 2: They were pushing back, or their lawyers were pushing back.
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  Speaker 4: The lawyers are pushing back, but even the adventure capitalists,
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  Speaker 4: because the venture capitalists are very interesting because they are
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  Speaker 4: stewards of what the future will be and prognosticators of it,
• 13:29
  Speaker 4: but they're not users of it. And it's one of
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  Speaker 4: these things I say a lot about AI is everybody
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  Speaker 4: thinks AI will change everybody's job except their own, and
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  Speaker 4: venture is the same, like, oh, you know, all the
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  Speaker 4: companies should be using technology, but we don't because we're professionals.
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  Speaker 2: We don't need it.
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  Speaker 3: Exactly, we're smarter than every Exactly what was the aha?
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  Speaker 2: Moment where that ecosystem that was kind of pushing back
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  Speaker 2: said oh this is really useful and helpful.
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  Speaker 3: Yes, let's materialized, let's go digital.
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  Speaker 4: It was the grassroots. The way we got it going
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  Speaker 4: was the grassroots efforts of startups saying hey, they didn't
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  Speaker 4: understand that they were buying into a de materialization model.
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  Speaker 4: But what they understood was, hey, I can track my
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  Speaker 4: cap table cheaper, faster, better on Karta than anything else.
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  Speaker 4: And so they just came to us. That was the wedge.
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  Speaker 4: Thet kind of the golden phrase is you know, come,
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  Speaker 4: come for the tools, stay for the network. So the tool,
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  Speaker 4: the wedge was just better cap table management for one
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  Speaker 4: tenth the cost. And then the network is once everybody
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  Speaker 4: started converging on the cap tables, it became the new standard.
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  Speaker 4: So now it's a weird world, just like it's a weird, weird,
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  Speaker 4: weird world to say that, you know, we had paper
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  Speaker 4: stocks or to give it so and that was the
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  Speaker 4: right way to do it. It is now a weird
• 14:46
  Speaker 4: world to say, oh, well, why wouldn't we put it
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  Speaker 4: in the database on the cloud.
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  Speaker 2: And that becomes a self reinforcing flywheel. You get a
• 14:53
  Speaker 2: critical mass and then you could go out in all
• 14:56
  Speaker 2: sorts of directions from that.
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  Speaker 4: That's right, and nobody knows that better than Bloomberg and
• 15:01
  Speaker 4: mister Bloomberg, because that's exactly what Bloomberg did.
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  Speaker 3: That's exactly right. Started with the data. Coming up, we
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  Speaker 3: continue our.
• 15:07
  Speaker 2: Conversation with Henry Ward, CEO and co founder of Karda,
• 15:12
  Speaker 2: talking about how a simple cap table management became an
• 15:16
  Speaker 2: essential part of the startup world.
• 15:19
  Speaker 3: I'm Barry Ridults.
• 15:20
  Speaker 2: You're listening to Masters of Business on Bloomberg Radio.
• 15:36
  Speaker 3: I'm Barry Ridolts.
• 15:37
  Speaker 2: You're listening to Masters in Business on Bloomberg Radio. My
• 15:40
  Speaker 2: extra special guest today is Henry Ward.
• 15:43
  Speaker 3: He is the CEO and co founder of Karta.
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  Speaker 2: They help manage cap tables and so much more when
• 15:51
  Speaker 2: it comes to both public and private corporate data.
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  Speaker 3: So let's talk a little bit about this.
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  Speaker 2: You start with a simple capital table management kind of
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  Speaker 2: unglamorous but sounds important.
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  Speaker 3: Essential.
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  Speaker 2: Hey, I need to know how many shareholders I have,
• 16:07
  Speaker 2: who owns what, what vcs, what employees own, how much stocked?
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  Speaker 2: Like I would have thought that was around for thirty
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  Speaker 2: forty years. How has nobody been doing that for you know,
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  Speaker 2: you could practically go back to, you know, the launch
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  Speaker 2: of Intel forty years ago.
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  Speaker 3: How has this not been a thing?
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  Speaker 4: One of the most common questions I got when I
• 16:33
  Speaker 4: was raising money in the early days for this idea was, hey,
• 16:37
  Speaker 4: this sounds kind of obvious. Why has nobody done this before?
• 16:41
  Speaker 4: And I my answer was somewhat cheeky, and I would say,
• 16:47
  Speaker 4: how would I know I'm doing it? And you know,
• 16:50
  Speaker 4: I'm the last person in the world that would know
• 16:53
  Speaker 4: the answer this. You should ask the six point nine
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  Speaker 4: billion other people in the world that haven't been who
• 16:58
  Speaker 4: chose not to, And I'm I'm a least qualified person.
• 17:02
  Speaker 4: I think it's just one of these innovator dilemma problems
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  Speaker 4: that the people that should have solved this should have
• 17:09
  Speaker 4: been the investment banks. It should have been the CC changes.
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  Speaker 4: Maybe I'm in the VCS. Yeah, somebody should have solved it.
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  Speaker 4: But you know, who's going to do paper stock certificates
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  Speaker 4: like it?
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  Speaker 2: Just it's so somebody had to have a clerk or
• 17:23
  Speaker 2: a junior researcher putting this together somewhere and had to
• 17:28
  Speaker 2: realize there was some value to both the firm and
• 17:32
  Speaker 2: various outside startups for it.
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  Speaker 3: It's kind of shocking for sure.
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  Speaker 4: But your point so well made, Bary is the kind
• 17:39
  Speaker 4: of person that would be filing paper stock certificates would
• 17:43
  Speaker 4: never come up with the idea of replacing them. And
• 17:46
  Speaker 4: so you need this. This is the magic of a founder,
• 17:49
  Speaker 4: a visionary founder, is you need that connection of they
• 17:53
  Speaker 4: know enough about technology to know what technology can do,
• 17:57
  Speaker 4: but they don't know enough about the current process us
• 18:00
  Speaker 4: that they think it's unchangeable. And that's the you know,
• 18:03
  Speaker 4: there's certain level of intelligence and a certain level of
• 18:05
  Speaker 4: stupidity that you need to get that chemical quotient right.
• 18:10
  Speaker 2: So how did you convince investors that hey, this is worthwhile,
• 18:15
  Speaker 2: this should exist. It doesn't please invest in this, it's
• 18:18
  Speaker 2: worth building.
• 18:19
  Speaker 4: Most investors said, hey, the even I believe you can
• 18:24
  Speaker 4: build a cap table product and make some money and
• 18:26
  Speaker 4: sell it, but the market size is too small. How
• 18:29
  Speaker 4: many cap tables can you actually sell? And the pitch was, well, hey,
• 18:33
  Speaker 4: this is this is a two part story. Part one
• 18:37
  Speaker 4: is win the cap tables. Part two is if you
• 18:40
  Speaker 4: win the cap tables, then we can go build at
• 18:42
  Speaker 4: the time what we call the NASDAQ for private markets,
• 18:45
  Speaker 4: the stock exchange to trade these shares, and our thesis
• 18:50
  Speaker 4: then was the reason why there were many stock market
• 18:52
  Speaker 4: companies before us, but none of them actually owned the settlement.
• 18:56
  Speaker 4: They hadn't owned the cap table itself, and so they
• 18:59
  Speaker 4: had the match and settle these things offline. And by
• 19:02
  Speaker 4: owning the cap table, we could digitize the entire settlement
• 19:06
  Speaker 4: process for these companies. But you had to do the
• 19:09
  Speaker 4: hard work of winning the cop table business first. We
• 19:12
  Speaker 4: were wrong. It turned out the cap table business was
• 19:14
  Speaker 4: way bigger than we and investors thought. Today it's a
• 19:18
  Speaker 4: three hundred and fifty million dollar business, but the stock
• 19:24
  Speaker 4: market that everybody thought was going to be, you know,
• 19:26
  Speaker 4: a billion dollar business is zero for us.
• 19:29
  Speaker 3: That's unbelievable.
• 19:31
  Speaker 2: The you know, vcs love to toss around tam total
• 19:35
  Speaker 2: addressable market again, kind of shocking that people right in
• 19:39
  Speaker 2: the middle of this, surrounded by tens of thousands of
• 19:42
  Speaker 2: companies in California and Silicon Valley, completely underestimated the total
• 19:48
  Speaker 2: addressable market.
• 19:49
  Speaker 3: That's just shocking to me.
• 19:51
  Speaker 2: Let's talk about the income stream you set up. In
• 19:56
  Speaker 2: the beginning, this was a fee per stock certificate business.
• 20:01
  Speaker 2: You guys changed this to a subscription model. Tell us
• 20:04
  Speaker 2: about the factors that drove those changes and how it
• 20:07
  Speaker 2: affected the steadiness of your income stream.
• 20:11
  Speaker 4: Yeah, so we thought we were competing against FedEx, and
• 20:15
  Speaker 4: so instead of paying sixty dollars to FedEx, to FedEx
• 20:17
  Speaker 4: the stocks are dada, You'll pay us twenty dollars to
• 20:19
  Speaker 4: email it. It worked that people would pay for it.
• 20:23
  Speaker 4: What was really hard about it, though, is it's a
• 20:25
  Speaker 4: transactional business. It's very hard to manage the transactional business,
• 20:30
  Speaker 4: and it was very volatile. And we also quickly realized
• 20:32
  Speaker 4: that we wanted to move to a subscription based business
• 20:37
  Speaker 4: because we needed to bundle other things that were more
• 20:39
  Speaker 4: subscription based, like foreign NA evaluations and expense accounting and
• 20:42
  Speaker 4: other services we were doing. But we were two years
• 20:46
  Speaker 4: in and you know, at the time, I think we
• 20:47
  Speaker 4: had maybe two thousand customers that were all paying us
• 20:51
  Speaker 4: twenty bucks. And we realized this was like a crucible
• 20:54
  Speaker 4: moment for us. If we didn't change the business model,
• 20:56
  Speaker 4: we wouldn't survive, and we emailed all of our customers
• 21:02
  Speaker 4: from me. I emailed all two thousand customers and I said, hey,
• 21:05
  Speaker 4: I made a mistake. I priced this wrong for you,
• 21:09
  Speaker 4: and I need to change from the twenty dollars per
• 21:12
  Speaker 4: certificate to x dollars per year, and everybody had a
• 21:18
  Speaker 4: price that we custom already set up for them, so
• 21:21
  Speaker 4: we didn't even ask them. We just said, we're moving
• 21:23
  Speaker 4: you starting next month to the subscription model. And it
• 21:27
  Speaker 4: was a very scary, scary thing to do because you
• 21:30
  Speaker 4: don't know what your customers are going to do. You
• 21:31
  Speaker 4: literally changed the agreement in the mid flight, and I
• 21:35
  Speaker 4: explained in this long email. I said, I made a mistake.
• 21:38
  Speaker 4: If I keep charging you this way, I'm going to
• 21:40
  Speaker 4: go out of business and I need to move you
• 21:43
  Speaker 4: over to this and I'm very sorry I made this mistake.
• 21:47
  Speaker 4: I hope I understand if you decide to leave us,
• 21:51
  Speaker 4: but I hope you won't. And it was remarkable. We
• 21:56
  Speaker 4: lost almost no customers and I have some of these
• 21:59
  Speaker 4: saved and framed where customers came back and said, you know,
• 22:03
  Speaker 4: we're so glad you did this, because we were wondering
• 22:05
  Speaker 4: if you were going to run out of business like
• 22:07
  Speaker 4: we thought. You know, this pricing was wrong, it didn't
• 22:10
  Speaker 4: make any sense.
• 22:11
  Speaker 2: The subscription model allows them to just keep doing repeat
• 22:15
  Speaker 2: business and no one has to track. Oh, we did
• 22:18
  Speaker 2: these six companies and it's however much it is, No
• 22:22
  Speaker 2: here's a monthly fee, and we can do. As many
• 22:24
  Speaker 2: companies as we.
• 22:25
  Speaker 4: Have, they have a monthly actually annual fee. For most
• 22:29
  Speaker 4: of them, they pay annually. They were new and based
• 22:32
  Speaker 4: on the size of the cap table. At that renewal,
• 22:34
  Speaker 4: they just get a renewal notice. And it's interesting, you know,
• 22:38
  Speaker 4: eight years ago we were ten x cheaper than the lawyers.
• 22:43
  Speaker 4: Now we're still eight x cheaper than the lawyers. But
• 22:46
  Speaker 4: now it's just a different different world. People are used
• 22:48
  Speaker 4: to software now and it's you know, ten years ago
• 22:52
  Speaker 4: is a weird thing for these companies to pay a
• 22:54
  Speaker 4: subscription fee for legal software, and today it's super super common.
• 22:58
  Speaker 3: Do you really think about this as lee software.
• 23:01
  Speaker 2: I mean, it obviously has ramifications in law, but it
• 23:06
  Speaker 2: really seems more like it's a combination of Hey, it's business,
• 23:10
  Speaker 2: it's investing, its accounting. How do you contextualize what space
• 23:16
  Speaker 2: you're actually in.
• 23:18
  Speaker 4: It's a great question. I think we started as legal software,
• 23:21
  Speaker 4: and people thought of us as legal software. I think
• 23:25
  Speaker 4: over the first five years we transitioned the concept of
• 23:28
  Speaker 4: cap table from a legal solution to a financial solution.
• 23:33
  Speaker 4: So we sort of categorize ourselves in the fintech world.
• 23:37
  Speaker 4: I think today when you look at cap tables, our
• 23:39
  Speaker 4: fund administration and fund accounting business, our LP business, and
• 23:44
  Speaker 4: all the software that we sell as a platform into
• 23:47
  Speaker 4: private private equity, private credit, venture capital. I think of
• 23:52
  Speaker 4: us as now as a software infrastructure business, you know
• 23:55
  Speaker 4: we sell We're more similar to a net suite or
• 24:00
  Speaker 4: even a Google suite than we are to a legal
• 24:02
  Speaker 4: tech company.
• 24:03
  Speaker 2: Or makes a lot of sense and save on legal fees.
• 24:07
  Speaker 2: So back, let's call it about eight years ago. You
• 24:11
  Speaker 2: were called e shares.
• 24:13
  Speaker 3: Which kind of intuitively makes a lot of sense. What
• 24:17
  Speaker 3: was behind the rebranding?
• 24:18
  Speaker 2: Why did you go from e shares to karta in
• 24:21
  Speaker 2: twenty seventeen.
• 24:23
  Speaker 4: The We liked e shares because it was an electronic share,
• 24:27
  Speaker 4: you know, instead of paper, and it made a ton
• 24:29
  Speaker 4: of sense. In twenty seventeen, we kind of realized we
• 24:31
  Speaker 4: wanted to do way more than electronic shares, so we
• 24:34
  Speaker 4: knew we needed a new name. We were also pushed
• 24:38
  Speaker 4: on it because we didn't own e shares dot com.
• 24:41
  Speaker 4: We owned e Sharesinc. Dot com and there was a
• 24:44
  Speaker 4: domain squadron on e shares dot com.
• 24:47
  Speaker 3: What did they want for it?
• 24:49
  Speaker 4: They wanted initially? I think it was a million bucks
• 24:53
  Speaker 4: when we had we had two million dollars raised total,
• 24:57
  Speaker 4: and then as soon as we raised more money, it
• 24:59
  Speaker 4: became ten million dollars. And so it was just every
• 25:02
  Speaker 4: single time we were trying to get more and we
• 25:04
  Speaker 4: just couldn't couldn't do business. And so we decided we
• 25:07
  Speaker 4: need to change the name, and we came up with
• 25:09
  Speaker 4: Karta and we were able to buy it for I
• 25:11
  Speaker 4: think seventy five thousand bucks.
• 25:12
  Speaker 2: And wow, that's fantastic. Did the shares ever get solved?
• 25:17
  Speaker 4: I don't think so. It's a great question. I don't
• 25:19
  Speaker 4: know if it's still I haven't been there in a
• 25:21
  Speaker 4: long time.
• 25:21
  Speaker 2: It just goes to show you, you know, you have
• 25:23
  Speaker 2: to leave a little bit on money on the table.
• 25:25
  Speaker 2: If you try and squeeze every last penny ends up
• 25:27
  Speaker 2: with nothing exactly. So you guys, I mentioned in the
• 25:31
  Speaker 2: original introduction Karter serves fifty thousand companies, eighty five hundred firms,
• 25:37
  Speaker 2: millions and millions of equity holders. Starting out with that
• 25:41
  Speaker 2: first two million dollar raise, it appears that you've scaled
• 25:45
  Speaker 2: from a little niche solution to a giant platform for
• 25:50
  Speaker 2: private companies.
• 25:52
  Speaker 3: What was the biggest growth pains in that scaling that up.
• 25:56
  Speaker 4: It's all of them. We scaling a company. I think.
• 26:01
  Speaker 4: I love Jensen and Nvidia. And I got to see
• 26:04
  Speaker 4: him speak and you know, someone asked him about what
• 26:07
  Speaker 4: do you do it again? And you know, he's one
• 26:09
  Speaker 4: of the most successful entrepreneurs of our generation. And he goes,
• 26:12
  Speaker 4: if I knew what it would take, I wouldn't have
• 26:14
  Speaker 4: done it again. Really, and yeah, and you know it's
• 26:19
  Speaker 4: I think Mark and Reeson calls it. It's it's eating
• 26:21
  Speaker 4: glass until you enjoy the taste of your own blood.
• 26:25
  Speaker 4: So it's you know, every day there's sort of this
• 26:28
  Speaker 4: funny thing where people are like, well, what was it
• 26:30
  Speaker 4: like to scale? And I'm like, I'm still doing it,
• 26:32
  Speaker 4: like you know, and and it's you know, getting in
• 26:37
  Speaker 4: at you know, ten o'clock last night from a four
• 26:40
  Speaker 4: am start. It's you know, talking to customers, it's hiring, firing,
• 26:45
  Speaker 4: you know, uncomfortable conversations, you know, bored mechanics. It's it's
• 26:48
  Speaker 4: all the same. It's just more harder, faster.
• 26:51
  Speaker 2: Is in Reason's quote, eating glass till you like the
• 26:54
  Speaker 2: taste of your own blood.
• 26:55
  Speaker 3: Is that accurate or is it a little hyperbolic?
• 26:58
  Speaker 1: Uh?
• 26:58
  Speaker 4: You know? I think so I talk a lot to
• 27:01
  Speaker 4: founders about this where the founders that want to be
• 27:04
  Speaker 4: founders for the money. We all know that the expected
• 27:07
  Speaker 4: value of being an entrepreneurs is below pursuing a career,
• 27:11
  Speaker 4: far far below the better business.
• 27:13
  Speaker 2: Well, such a large percentage fail at the gate, so
• 27:17
  Speaker 2: we all the survivorship bias of we see the ones
• 27:20
  Speaker 2: that have succeeded. That's just the top of the iceberg.
• 27:23
  Speaker 2: You don't see everything below the waterline.
• 27:25
  Speaker 4: One hundred percent. And then when you see the ones
• 27:27
  Speaker 4: that succeeded, sort of by definition, the ones that succeeded
• 27:31
  Speaker 4: made it look easy, right, because it's like we're on
• 27:34
  Speaker 4: podcasts doing doing all of these things.
• 27:36
  Speaker 2: They found the right niche, they pivoted appropriately, they built
• 27:39
  Speaker 2: what was needed, and the market rewarded.
• 27:41
  Speaker 4: That's exactly how. That's exactly right. And when I look
• 27:44
  Speaker 4: at my history, I know how lucky I got. Like
• 27:48
  Speaker 4: there's so many forks in the road that boy, if
• 27:51
  Speaker 4: I had flipped heads instead of tails, I would not
• 27:53
  Speaker 4: be here. And I had to flip you know, I
• 27:55
  Speaker 4: had to flip tails thirty two times in a row
• 27:58
  Speaker 4: to get to where I am.
• 28:00
  Speaker 2: I'm let me interrupt you a second, because I just
• 28:02
  Speaker 2: have to share this. So I've done five hundred and
• 28:05
  Speaker 2: fifty six hundred of these and I've heard that exact
• 28:08
  Speaker 2: thing over and over again. And the first couple of
• 28:12
  Speaker 2: times I heard it, especially from billionaires, I'm like, yeah, yeah,
• 28:16
  Speaker 2: false humility. But then when I start hearing it from
• 28:19
  Speaker 2: more people, from guys like you who are in the
• 28:22
  Speaker 2: trenches chewing on glass, It's like, and my own experience
• 28:25
  Speaker 2: as an entrepreneur, you really smart, and hard work is
• 28:29
  Speaker 2: just table stakes. You really have to get lucky, and
• 28:33
  Speaker 2: people don't understand the role of serendipity in how things
• 28:37
  Speaker 2: work out.
• 28:38
  Speaker 4: One of my favorite other quotes is both Duringham the
• 28:41
  Speaker 4: Comedia said, you know, don't take advice from successful people,
• 28:46
  Speaker 4: because it's like listening to Taylor Swift's they follow your dreams.
• 28:51
  Speaker 4: Or the lottery winner goes, you know what you should do,
• 28:53
  Speaker 4: so everything you own and buy lottery tickets.
• 28:55
  Speaker 3: That's right, that's an XKCD.
• 28:58
  Speaker 2: They told me I would never win, but I kept
• 29:00
  Speaker 2: out right here I am today exactly. No, it's one
• 29:03
  Speaker 2: hundred percent true. Listen, there's so much more signal in
• 29:06
  Speaker 2: the failures than the wrong and the success is because
• 29:09
  Speaker 2: success maybe it was skill, maybe was luck.
• 29:12
  Speaker 3: We don't know.
• 29:12
  Speaker 4: Yeah, And what I try to coach, like in my
• 29:15
  Speaker 4: Angel investments is I call it, you know, the love
• 29:19
  Speaker 4: of the game. And so you know, you see founders
• 29:21
  Speaker 4: that I want to be successful. I want to be
• 29:22
  Speaker 4: successful founder. I want to make the money, you know.
• 29:25
  Speaker 4: And what I always tell them is like, hey, the
• 29:26
  Speaker 4: problem with money. Doing this for the money is most
• 29:31
  Speaker 4: of your journey, if not all, you're poor your seed stage,
• 29:34
  Speaker 4: early stage, you're just poor. And so if you're doing
• 29:36
  Speaker 4: it for the money, you kind of quickly lose motivation
• 29:39
  Speaker 4: because you're poor for years, right, and then let's say
• 29:42
  Speaker 4: you're one of the lucky for you to get successful. Well,
• 29:45
  Speaker 4: now you're rich. And so if you do it for
• 29:47
  Speaker 4: the money, now you have no reason to do it
• 29:50
  Speaker 4: anymore because you've got the money. And the people that
• 29:54
  Speaker 4: are successful over time in this business do it for
• 29:56
  Speaker 4: the love of the game, like I. You know, I
• 29:59
  Speaker 4: do it because I of chewing glass.
• 30:01
  Speaker 2: You know, my wife and I were having a conversation
• 30:03
  Speaker 2: the other day about when we were poor, and I
• 30:05
  Speaker 2: mean really poor. And the really challenging thing is when
• 30:11
  Speaker 2: you're in the thick of it, you don't know that
• 30:13
  Speaker 2: it's going to work out.
• 30:14
  Speaker 3: You have no idea. Hey, am I going to get
• 30:16
  Speaker 3: that lucky break?
• 30:17
  Speaker 2: Is the right client, partner, customer going to come along
• 30:21
  Speaker 2: and give me that critical mass to go to the
• 30:24
  Speaker 2: next level. So not only you poor, but the outcome
• 30:29
  Speaker 2: is wholly unknown. And so if you don't love it,
• 30:32
  Speaker 2: then what are you?
• 30:33
  Speaker 3: What are you doing?
• 30:34
  Speaker 4: It's right, you're poor, and you're it's you're living in
• 30:37
  Speaker 4: constant uncertainty. Uncertainty absolutely, And I think what people forget is,
• 30:40
  Speaker 4: you know, I'm not poor anymore, but I still live
• 30:43
  Speaker 4: in uncertainty, and you know, I don't know what's going
• 30:45
  Speaker 4: to happen. You know, I'm trying to build a bigger business,
• 30:48
  Speaker 4: you know, and and the water water mark keeps going up,
• 30:51
  Speaker 4: and so like if if in three years the water
• 30:54
  Speaker 4: mark isn't higher, I will feel like I failed the
• 30:56
  Speaker 4: last three years. And I think that's the you know,
• 30:59
  Speaker 4: that's the essence of being entrepreneurs. The watermark keeps going
• 31:02
  Speaker 4: up and you keep going up.
• 31:04
  Speaker 3: Really quite fascinating.
• 31:06
  Speaker 2: I want to dive into the world of private companies
• 31:10
  Speaker 2: and alts, but before we do that, I just had
• 31:13
  Speaker 2: to ask you a data question. My assumption is accessing
• 31:18
  Speaker 2: reliable and clean data has to be the lifeblood of
• 31:21
  Speaker 2: what you're doing. How challenging is that? How many different
• 31:25
  Speaker 2: inputs do you guys have to track?
• 31:27
  Speaker 4: At Karta, I have a perspective on software and data
• 31:31
  Speaker 4: businesses that might be a bit provocative, which is I'll
• 31:34
  Speaker 4: make this statement that software businesses cannot be data businesses.
• 31:39
  Speaker 4: And the reason is if a software business has customer data,
• 31:45
  Speaker 4: they get that customer data by selling software and service
• 31:48
  Speaker 4: to this customer. And if they monetize that data. On
• 31:51
  Speaker 4: the other side, if their left hand is we will
• 31:55
  Speaker 4: keep your data confidential and as part of our software
• 32:00
  Speaker 4: service to you. But then with the right hand they're
• 32:02
  Speaker 4: selling that data, it cannibalizes their software business because the
• 32:05
  Speaker 4: customers won't trust them now because they're now giving them
• 32:08
  Speaker 4: their data. Which is why Karta does not have a
• 32:10
  Speaker 4: data product. We have tons of data, we do not
• 32:13
  Speaker 4: have a monetizable data product. Interesting, we only sell workflow
• 32:17
  Speaker 4: or business operations software. It's hard to think of a
• 32:23
  Speaker 4: business that sells actual software and also sells data. I
• 32:28
  Speaker 4: can't think of any even Bloomberg started really as a
• 32:30
  Speaker 4: data business. The non existence non existence of something that
• 32:34
  Speaker 4: is not proof that it cannot exist. But my best
• 32:37
  Speaker 4: example of why my theory that software businesses and data
• 32:40
  Speaker 4: businesses cannot coexist in one company is Salesforce. If anybody
• 32:46
  Speaker 4: would launch a data product so funny, it would be Salesforce,
• 32:49
  Speaker 4: And in thirty years they have not, and I don't
• 32:53
  Speaker 4: think they ever will. And I think the day Salesforce
• 32:56
  Speaker 4: launches a successful data business, I will be eating my
• 32:59
  Speaker 4: words and I will be wrong. But I don't think
• 33:01
  Speaker 4: software businesses can become data businesses.
• 33:03
  Speaker 3: I would imagine that.
• 33:04
  Speaker 2: So we use in my shop, we use Salesforce as
• 33:07
  Speaker 2: our CRM, very customizable, and they have specific industries that
• 33:14
  Speaker 2: they market towards and customize. But the moment it feels
• 33:18
  Speaker 2: like your data is being reused, every single one of
• 33:22
  Speaker 2: their competitors would say, we keep your data safe, we
• 33:25
  Speaker 2: don't monetize the data, give them up on them, come
• 33:28
  Speaker 2: to us where we respect privacy. I mean, I think
• 33:31
  Speaker 2: the moment anybody tries that their competition is all over.
• 33:35
  Speaker 4: There, and you would agree because suddenly you're now on
• 33:37
  Speaker 4: every list of every vendor trying to sell software to
• 33:40
  Speaker 4: bury and they know everything about you because Salesforce gave
• 33:42
  Speaker 4: them your data.
• 33:44
  Speaker 2: Not only that, but it's not quite hippa but the
• 33:47
  Speaker 2: SEC has privacy requirements, things you're not allowed to share
• 33:50
  Speaker 2: when you're supposed to know your client. You have all
• 33:52
  Speaker 2: this data, and if one of your vendors is reusing
• 33:56
  Speaker 2: that repurposing that data for their own ends, wait that
• 34:00
  Speaker 2: not only are you violating our privacy agreement, you're putting
• 34:04
  Speaker 2: me underwater with the SEC.
• 34:06
  Speaker 3: They may come yell at me, I don't need that often,
• 34:09
  Speaker 3: go to your competition.
• 34:10
  Speaker 2: Kind of interesting, So let's pivot towards the private markets
• 34:15
  Speaker 2: because it's so interesting. You've testified before Congress that startups
• 34:21
  Speaker 2: and growth companies back by private capital, that's where most
• 34:25
  Speaker 2: of the new job growth comes in the United States.
• 34:28
  Speaker 4: Explain, Yeah, you know, public markets is actually a shrinking industry.
• 34:34
  Speaker 4: You know, there's fewer public companies today than there were
• 34:37
  Speaker 4: ten years ago by quite a big margin. But the
• 34:41
  Speaker 4: number of private companies is growing astronomically, and that's largely
• 34:46
  Speaker 4: fueled by there's a lot more private capital than there
• 34:49
  Speaker 4: used to be to fund these businesses, and there's less
• 34:51
  Speaker 4: reasons to go public now. So I think I think
• 34:55
  Speaker 4: that will continue to be true. I think it's structurally true.
• 34:58
  Speaker 4: When I go to the hill and to our legislators.
• 35:03
  Speaker 4: The common response is, well, we just have to push
• 35:05
  Speaker 4: more companies to go public. I think it's their belief
• 35:10
  Speaker 4: is the public markets is a great product for everyday
• 35:14
  Speaker 4: Americans to access growth equity. And I think they're right.
• 35:18
  Speaker 4: It is a good product for it. The problem is
• 35:20
  Speaker 4: it's not. It's a shrinking product, and most of the
• 35:23
  Speaker 4: growth is being happened is happening in the private markets,
• 35:26
  Speaker 4: and their attempts to get these companies to go public
• 35:29
  Speaker 4: so that there can be retail access to them isn't working.
• 35:32
  Speaker 4: It's a little bit like you know the river's coming
• 35:35
  Speaker 4: and you've got like one tiny little dam trying to
• 35:37
  Speaker 4: hold the water back.
• 35:38
  Speaker 2: Let me share a data point that I bet a
• 35:40
  Speaker 2: lot of listeners are not familiar with. The US is
• 35:43
  Speaker 2: something like four to five percent of the global population,
• 35:47
  Speaker 2: where something like twenty four to twenty five percent of
• 35:49
  Speaker 2: the global economy global market cap, we're over half. I mean,
• 35:53
  Speaker 2: we are wildly disproportionate in our public markets.
• 35:58
  Speaker 3: How much bigger does Congress want to make that?
• 36:00
  Speaker 2: I mean, what you're describing makes a lot of sense.
• 36:03
  Speaker 2: The public markets are enormous. Let's let the private markets
• 36:07
  Speaker 2: grow and see where they go.
• 36:08
  Speaker 4: Yeah, and that's certainly the message that we're pushing. We
• 36:13
  Speaker 4: still have to solve the problem of retail access because
• 36:16
  Speaker 4: as the number of public companies is shrinking, that's less
• 36:20
  Speaker 4: less and less options for your everyday American to invest
• 36:23
  Speaker 4: their money and their retirement. I don't think the answer
• 36:27
  Speaker 4: is to try to push more companies to go public.
• 36:29
  Speaker 4: I think the answer is to create safe access for
• 36:32
  Speaker 4: everyday Americans into private capital. And that's what we spend
• 36:35
  Speaker 4: a lot of time lobbying for in Congress.
• 36:37
  Speaker 2: Huh really quite fascinating. Coming up, we continue our conversation
• 36:41
  Speaker 2: with Henry Ward, CEO and co founder of Carter, talking
• 36:46
  Speaker 2: about the rise of private company investing.
• 36:49
  Speaker 3: I'm Barry Richards.
• 36:50
  Speaker 2: You're listening to Masters Business on Bloomberg Radio. I'm Barry Ridults.
• 37:09
  Speaker 2: You're listening to Masters in Business on Bloomberg Radio. My
• 37:12
  Speaker 2: extra special guest this week is Henry Ward. He's the
• 37:15
  Speaker 2: CEO and co founder of Karta. They help manage the
• 37:19
  Speaker 2: cap tables for tens of thousands of private companies, thousands
• 37:23
  Speaker 2: of investment firms, and millions of equity holders. They do
• 37:28
  Speaker 2: a number of other things in terms of tracking compensation, valuation, liquidity,
• 37:32
  Speaker 2: all these really fascinating issues. So there are a number
• 37:36
  Speaker 2: of companies that bring liquidity to private companies. Sometimes it's
• 37:43
  Speaker 2: private equity or some form of a private fund. Other
• 37:48
  Speaker 2: times it's individuals who want to participate in companies before
• 37:51
  Speaker 2: they go public. What are your thoughts on the future
• 37:54
  Speaker 2: of secondary liquidity, both for the investors and employees of
• 37:59
  Speaker 2: startup up and for the rest of the investing public
• 38:03
  Speaker 2: that wants to participate in these privates.
• 38:05
  Speaker 4: Yeah. So, I think I'm one of the maybe top
• 38:11
  Speaker 4: five people in the world that have worked on private
• 38:13
  Speaker 4: market liquidity. I spent the last ten years working on
• 38:17
  Speaker 4: the problem, and I'm of the view now that that
• 38:21
  Speaker 4: at least venture startup liquidity will never happen, and at
• 38:27
  Speaker 4: least a secondary exchange in the sense that we think
• 38:30
  Speaker 4: of public market exchanges. The private markets are so different
• 38:33
  Speaker 4: from public it's really kind of the upside down world,
• 38:35
  Speaker 4: you know. The In public markets, the price is set
• 38:37
  Speaker 4: by the last buyer, not the first. In private markets,
• 38:39
  Speaker 4: it's set by the first and not the last. In
• 38:42
  Speaker 4: public markets, it's easier to sell one share than one
• 38:44
  Speaker 4: hundred million dollars worth of shares. In private market's easier
• 38:47
  Speaker 4: to sell one hundred million dollar block than it is
• 38:49
  Speaker 4: to sell one one share. You know, in public markets,
• 38:53
  Speaker 4: the distribution outcomes is mostly Gaussian normally distributed in private markets,
• 38:58
  Speaker 4: it's power line. So all the math that exists in
• 39:03
  Speaker 4: modern portfolio finance theory in public markets doesn't work in
• 39:07
  Speaker 4: private So it's just it's a very different market infrastructure.
• 39:11
  Speaker 4: I think all the attempts they try to create liquidity
• 39:13
  Speaker 4: in the venture world will be failed attempts. But I
• 39:17
  Speaker 4: hope I'm wrong. I hope I'm just the old inequity.
• 39:20
  Speaker 2: Zen seems to have figured this out a while ago.
• 39:22
  Speaker 2: They seem to have put together a way to do
• 39:25
  Speaker 2: secondaries for creating some liquidity for insiders or employees at companies.
• 39:33
  Speaker 2: But it's not like they're a trillion dollar platform. It's
• 39:36
  Speaker 2: a little bit of a niche specific focused and there
• 39:40
  Speaker 2: are other companies like that.
• 39:41
  Speaker 3: I just happen to be thinking of them recently.
• 39:45
  Speaker 2: But really, what you're saying is there's a gulf between
• 39:49
  Speaker 2: trillions and trillions of dollars in public equity and private stock,
• 39:54
  Speaker 2: and never the twain shall meet.
• 39:56
  Speaker 4: So in public markets, liquidity begets liquidity, and so it
• 40:01
  Speaker 4: centralizes on two exchanges in the US and most regions,
• 40:06
  Speaker 4: it centralizes on one. In private markets, what's happened is
• 40:10
  Speaker 4: there's equities and there's many others. There's many many small
• 40:14
  Speaker 4: niche businesses doing secondaries. It does happen, but liquidity, it
• 40:17
  Speaker 4: does not get liquidity. As soon as one of these
• 40:22
  Speaker 4: companies starts to scale, all the competitors come around and
• 40:25
  Speaker 4: they devolve back down to a niche business. And that's
• 40:28
  Speaker 4: just the market structure. Is that any company that actually
• 40:31
  Speaker 4: starts to scale in the private markets, it actually it degenerates.
• 40:37
  Speaker 4: We've seen so many examples of private market liquidity providers,
• 40:42
  Speaker 4: you know, come in hot, get really a quick start,
• 40:45
  Speaker 4: and then once they hit scale, it falls down. And
• 40:48
  Speaker 4: so you see so many of these small businesses that
• 40:50
  Speaker 4: will always stay small businesses. I don't think there's an
• 40:53
  Speaker 4: opportunity for someone to consolidate the market.
• 40:55
  Speaker 2: There's been so much focus on privates and alternatives. Does
• 41:00
  Speaker 2: is this intensity of interest?
• 41:01
  Speaker 3: Does this surprise you at all?
• 41:03
  Speaker 2: Or you've been up to your chin in this for
• 41:06
  Speaker 2: a decade and what took everybody so long?
• 41:09
  Speaker 4: We've been in this up to up to my chin,
• 41:12
  Speaker 4: as you say, for a decade plus, So it's not
• 41:16
  Speaker 4: surprising what I think is really we're in a moment
• 41:20
  Speaker 4: of time and the speed that it's happening, especially with
• 41:22
  Speaker 4: the current administration, we're liberalizing a lot of the rules
• 41:26
  Speaker 4: for private market access. You know, there's a lot of
• 41:28
  Speaker 4: work being done around can retail investors access private equity firms,
• 41:33
  Speaker 4: private credit firms. I think that will continue to happen,
• 41:36
  Speaker 4: and I think that's a big tailwind for KARTA and
• 41:40
  Speaker 4: I think the US economy and GDP because so much
• 41:45
  Speaker 4: of this capital is being now deployed in useful ways.
• 41:49
  Speaker 4: I think that will continue to be true in the
• 41:51
  Speaker 4: next administration. Hopefully they will continue that legislative policy. I
• 41:56
  Speaker 4: think it will be weird and twenty or thirty years
• 42:00
  Speaker 4: it will be weird that we locked out ninety nine
• 42:04
  Speaker 4: percent of Americans out of private capital.
• 42:06
  Speaker 2: So when I look at who's being aggressive in terms
• 42:09
  Speaker 2: of moving from how do we get more people onto
• 42:12
  Speaker 2: the old turnatives and private side, it's everyone from Blackstone
• 42:16
  Speaker 2: to Blackrock, Carlisle, Apollo, Goldman sets go down the list.
• 42:21
  Speaker 2: I'm assuming you're working with some or most of these companies.
• 42:25
  Speaker 4: We know them all, We're huge fans. I was lucky
• 42:30
  Speaker 4: enough to spend an hour with Rob Goldstein, the COO
• 42:36
  Speaker 4: over at Blackrock, and he was telling me kind of
• 42:39
  Speaker 4: the vision of Blackrock and their perspective on private markets,
• 42:43
  Speaker 4: and you know, he made this very salient point, which was,
• 42:46
  Speaker 4: you know, when they talk to their customers, they might
• 42:48
  Speaker 4: look at a customer and they spend you know, twenty
• 42:52
  Speaker 4: five million dollars a year on public market infrastructure and
• 42:57
  Speaker 4: technology for their public market allocation software, and they might
• 43:01
  Speaker 4: spend you know, three hundred you know, three hundred and
• 43:04
  Speaker 4: fifty thousand dollars on their private frash fraction right with Blackrock,
• 43:09
  Speaker 4: but they might spend a million dollars total. So three
• 43:11
  Speaker 4: hundred fifty k is with Blackrock and seven hundred k
• 43:14
  Speaker 4: is with a bunch of other vendors. And his team
• 43:17
  Speaker 4: is like, oh, we should go after that seven hundred
• 43:19
  Speaker 4: k and we'll win the whole you know, million dollars
• 43:22
  Speaker 4: that they send an ALTS, And he goes, no, no, no, no,
• 43:24
  Speaker 4: Well we need to do is figure out how to
• 43:26
  Speaker 4: get that million dollars a year they spend an ALTS
• 43:29
  Speaker 4: to be twenty five million dollars a year, and then
• 43:32
  Speaker 4: we'll capture half of that. And that was the mental
• 43:36
  Speaker 4: mind shift that I think Blackrock is so smart at
• 43:38
  Speaker 4: which is we're trying to grow the market, not our
• 43:41
  Speaker 4: percentage of the market, right.
• 43:42
  Speaker 2: That makes that makes a whole lot of sense. So
• 43:44
  Speaker 2: they're looking at an adjacent market to their public market
• 43:49
  Speaker 2: dominance of the biggest investment firm in the world at
• 43:51
  Speaker 2: around twelve trillion dollars. How do you decide what adjacent
• 43:56
  Speaker 2: markets are attractive and you might want to into them?
• 44:00
  Speaker 2: If you started with cap tables, you're doing all sorts
• 44:03
  Speaker 2: of other data analytics.
• 44:05
  Speaker 3: How do you figure out what's adjacent?
• 44:07
  Speaker 4: We have a really strict framework on it because we
• 44:09
  Speaker 4: spend a lot of our time thinking about where we
• 44:11
  Speaker 4: can expand and we have really two criteria. So one
• 44:16
  Speaker 4: is do we have a right to win? So what
• 44:20
  Speaker 4: gives us competitive edge that we can do that nobody
• 44:22
  Speaker 4: else can do? And second is can we win that
• 44:25
  Speaker 4: market quickly? Because we're very much of software business, like
• 44:29
  Speaker 4: if you can win a market, but it takes a
• 44:30
  Speaker 4: long time. We're a growth, growth company, so it's got
• 44:33
  Speaker 4: to be fast. So you have to have a very
• 44:36
  Speaker 4: aggressive customer acquisition model that creates a flywheel that the
• 44:40
  Speaker 4: more customers you get, the more customers you get. And
• 44:43
  Speaker 4: so if those two things are true, we'll go after it.
• 44:45
  Speaker 4: And it leads you to really funny things where you
• 44:48
  Speaker 4: wouldn't actually attack adjacent markets that are obvious adjacents, that
• 44:52
  Speaker 4: have obvious adjacencies. So the example I love is cap tables.
• 44:56
  Speaker 4: In four nine A. Cap tables was a legal service
• 44:58
  Speaker 4: when we entered it by lawyers. Four nine A valuations
• 45:01
  Speaker 4: was evaluation service done by valuation providers. Nobody thought of
• 45:05
  Speaker 4: them as similar. What we realized is by having the
• 45:07
  Speaker 4: cap table, we could do valuations faster, cheaper, smarter, and
• 45:11
  Speaker 4: so we just started doing valuations.
• 45:12
  Speaker 2: Well, you know the total number of shareholders, you know
• 45:15
  Speaker 2: what the last transaction or funding was. It sounds pretty
• 45:19
  Speaker 2: basic math.
• 45:19
  Speaker 4: Right totally, It's just math on the cap table. But
• 45:21
  Speaker 4: they are completely different industries. So if you think about
• 45:23
  Speaker 4: from a market perspective, they're different, but you think about
• 45:26
  Speaker 4: it from where we have competitive edge, they're the same
• 45:29
  Speaker 4: and the same with fund accounting, fund administration, fund accounting software,
• 45:33
  Speaker 4: very different industry than cap table management. But we're able
• 45:36
  Speaker 4: to connect the cap tables to the funds and that
• 45:38
  Speaker 4: gave us unique competitive advantage that nobody else could do.
• 45:41
  Speaker 4: And so now we're in the fund admin business, and
• 45:43
  Speaker 4: that's our second biggest business line.
• 45:46
  Speaker 2: You guys also do compensation analytics. How did you find
• 45:49
  Speaker 2: you into that space?
• 45:50
  Speaker 4: We realized we're the only ones that could do benchmarking
• 45:53
  Speaker 4: for both salary and equity for startups.
• 45:56
  Speaker 2: Oh of course, nobody else can do it, and so
• 45:58
  Speaker 2: without the equity, the salary be that significant.
• 46:01
  Speaker 4: That's right. But to start at a priority ago we're
• 46:04
  Speaker 4: gonna do cap tables and that's gonna lead us into
• 46:06
  Speaker 4: compensation didn't make a ton of sense. And that's that
• 46:09
  Speaker 4: we have a flywheel of This is how we entered
• 46:12
  Speaker 4: these industries.
• 46:14
  Speaker 2: You're the perfect person to ask this question. I'm going
• 46:16
  Speaker 2: to go off script.
• 46:18
  Speaker 3: So I spoke at.
• 46:19
  Speaker 2: An event in June and Silicon Valley. It was a
• 46:22
  Speaker 2: kind of funky hotel that was turned into this really
• 46:26
  Speaker 2: interesting space right on the edge of trying to remember
• 46:31
  Speaker 2: exactly where it was, about forty five minutes outside of
• 46:34
  Speaker 2: San Francisco, but anyway, it was an employee benefits conference
• 46:40
  Speaker 2: with all sorts of people, and I was there to
• 46:42
  Speaker 2: talk about my book at the time, and I heard
• 46:46
  Speaker 2: over and over again from all these people who therefore
• 46:49
  Speaker 2: a one k people their employee compensation consultants, their health
• 46:54
  Speaker 2: benefit consultants, all these people who were telling me that
• 46:58
  Speaker 2: there's this sort of misalignment amongst Silicon Valley employees who
• 47:06
  Speaker 2: are more interested in the dollars than they are in
• 47:09
  Speaker 2: the equity, which just completely sounds upside down to me.
• 47:15
  Speaker 2: Am I just looking at a weird corner of the world.
• 47:18
  Speaker 2: Or is that a thing that hey, you can't pay
• 47:21
  Speaker 2: you rent with equity, I have to at least make X.
• 47:24
  Speaker 2: What do you see out there in terms of how
• 47:26
  Speaker 2: startup employees are thinking about equity versus cash payments for comp.
• 47:32
  Speaker 4: Yeah, We've spent a lot of time thinking about this,
• 47:34
  Speaker 4: and I'll frame it as you know, wealth management. Financial
• 47:39
  Speaker 4: advice is a well established industry in the public world,
• 47:43
  Speaker 4: and I'll call it the liquid world. Right, you pay
• 47:45
  Speaker 4: you know, one percent or half a percent of aum
• 47:49
  Speaker 4: to your financial advisor and they help you manage your assets.
• 47:54
  Speaker 4: There is no equivalent in the private world. Like if
• 47:56
  Speaker 4: I'm an employee and I make you know, one hundred
• 47:59
  Speaker 4: fifty thousand dollars year and cash, but I'm sitting on
• 48:01
  Speaker 4: a million or two million dollars of equity ill liquid equity?
• 48:04
  Speaker 4: How do I think about that? How do I work
• 48:07
  Speaker 4: on it, and there is no industry for that. The
• 48:09
  Speaker 4: financial advisors don't know how to work with that, in
• 48:11
  Speaker 4: part because they don't understand the private market, you know,
• 48:14
  Speaker 4: ill liquid asset piece, but also they don't have they
• 48:18
  Speaker 4: don't have any way to monetize two million dollars with
• 48:20
  Speaker 4: the private stock. You can't you know, you can't charge
• 48:23
  Speaker 4: one basis point or a percent of AUM on it.
• 48:26
  Speaker 4: And so we've wrestled with this question of if an
• 48:31
  Speaker 4: industry were to be created, not wealth managed, but but
• 48:35
  Speaker 4: wealth management for ill liquid people, for high net worth
• 48:39
  Speaker 4: but ill liquid asset holders, what would that industry look like.
• 48:44
  Speaker 4: And so we've been thinking a lot about that problem,
• 48:45
  Speaker 4: and we recently launched a partnership with Morgan Stanley where
• 48:51
  Speaker 4: last year we posed this problem to them and we said, hey,
• 48:55
  Speaker 4: we think it's worth solving wealth management for ill liquid holders.
• 48:59
  Speaker 4: How would we do that? And they're, you know, the
• 49:01
  Speaker 4: largest wealth management for the country. They do this extremely well.
• 49:04
  Speaker 4: And now we're creating Emotion to basically help these employees
• 49:07
  Speaker 4: who are like I would just want the cash because
• 49:08
  Speaker 4: I don't know what to do with this equity. I
• 49:10
  Speaker 4: don't know, I don't understand it. I don't know when
• 49:12
  Speaker 4: it's going to be liquid, and can you create a
• 49:15
  Speaker 4: financial advisory industry to help those people?
• 49:18
  Speaker 2: That's really fascinating. I was genuinely shocked, maybe because I'm
• 49:23
  Speaker 2: more risk seeking than risk averse, and the thought of
• 49:26
  Speaker 2: equity is so, you know, attractive to me. But I
• 49:29
  Speaker 2: guess when you're in the thick of it and you're
• 49:31
  Speaker 2: grinding one hundred hour weeks, hey, I'm working my butt
• 49:35
  Speaker 2: off and I still have to worry about paying my rent.
• 49:38
  Speaker 3: I don't want to go that way.
• 49:39
  Speaker 2: That was the only explanation I could come up with,
• 49:42
  Speaker 2: but it was It was really quite fascinating.
• 49:45
  Speaker 3: I only have you for a limited amount of time.
• 49:47
  Speaker 2: Why don't we jump to some of our favorite questions
• 49:50
  Speaker 2: that we ask all of our guests, starting with and
• 49:53
  Speaker 2: you're a good person to ask this. Tell us about
• 49:56
  Speaker 2: your mentors who helped shape your career.
• 50:00
  Speaker 4: You know, I don't think I've had just one. I
• 50:03
  Speaker 4: think I pulled together a lot of people that have
• 50:07
  Speaker 4: that helped me with little different things. And so you
• 50:09
  Speaker 4: know everything from my boxing coach in high school and
• 50:12
  Speaker 4: college that that you know, boxing is an interesting sport
• 50:15
  Speaker 4: because it's one of the very few sports that if
• 50:19
  Speaker 4: you're tired and you're in pain and you have to
• 50:21
  Speaker 4: let off the gas a little bit, it hurts more,
• 50:23
  Speaker 4: not less.
• 50:25
  Speaker 3: You got a dig DP.
• 50:25
  Speaker 4: That's right. And you know there's it's literally in the corner.
• 50:30
  Speaker 4: And you know from from perseverance, from him, from the Marines,
• 50:35
  Speaker 4: from you know, Mark Andresen who helped me figure out
• 50:39
  Speaker 4: you know, uh nut suite what we call EERP for
• 50:42
  Speaker 4: private capital out of breakfast uh to you know John
• 50:46
  Speaker 4: Waldron who I had got to have a lunch with
• 50:48
  Speaker 4: him as president at Goldman, who explained to me why
• 50:52
  Speaker 4: bankers make more money than I do, and it's because
• 50:54
  Speaker 4: of the regulatory defensibility. And so you just pick up
• 50:58
  Speaker 4: these nuggets from these very smart people and and you
• 51:00
  Speaker 4: hold him as a treasure trove.
• 51:02
  Speaker 2: Let's talk about books. What are some of your favorites?
• 51:05
  Speaker 2: So are you reading anything currently?
• 51:07
  Speaker 4: We just read amp it up as a leadership team.
• 51:11
  Speaker 4: So last month we took sixty of our top leaders
• 51:15
  Speaker 4: at KARDA on an off site. And every time we
• 51:18
  Speaker 4: do an offsite at KRDA, we pick a book to
• 51:20
  Speaker 4: read and everybody has to read it and we do
• 51:21
  Speaker 4: a discussion group. And it was very timely for us.
• 51:24
  Speaker 4: We're in very much an acceleration motion, and so everybody
• 51:30
  Speaker 4: at Carda right now is reading amp it up and
• 51:32
  Speaker 4: talking about it really interesting.
• 51:35
  Speaker 2: What about streaming, what are you listening to in terms
• 51:37
  Speaker 2: of podcasts or watching on Netflix or Amazon. I kind
• 51:40
  Speaker 2: of get the sense you're not a big couch potato
• 51:42
  Speaker 2: kind of guy.
• 51:43
  Speaker 4: I'm not. I don't really watch TV except I have
• 51:46
  Speaker 4: an eleven year old boy, and I recently got him
• 51:49
  Speaker 4: into Arrested Development, which is a classic, absolutely some of
• 51:53
  Speaker 4: the best comedy ever done. And we're watching it together
• 51:57
  Speaker 4: and we're loving it. And now he he hits me
• 52:00
  Speaker 4: with the lines and you know that I've made a
• 52:03
  Speaker 4: huge mistake and we're having a great time with it.
• 52:06
  Speaker 2: Narrator, it wasn't yeah right. I mean that's where that
• 52:09
  Speaker 2: comes from. People use it all the time, but it all.
• 52:11
  Speaker 4: Goes right back to.
• 52:14
  Speaker 3: I like his podcast SmartLess. Yeah, it's kind of fun.
• 52:20
  Speaker 2: Our final two questions, what sort of advice would you
• 52:23
  Speaker 2: give to a recent college grad who is interested in
• 52:26
  Speaker 2: the career in filling the blank entrepreneurship, startups, private companies.
• 52:33
  Speaker 4: You know, I just did a talk at Waterloo yesterday
• 52:36
  Speaker 4: to a bunch of soon to be grads there, and
• 52:40
  Speaker 4: I said, you know they were computer science grads and
• 52:42
  Speaker 4: I said, you know there's you know they know of
• 52:45
  Speaker 4: this algorithm called the hill climbing algorithm, which is basically,
• 52:49
  Speaker 4: if you're trying to find a global maximum versus a
• 52:51
  Speaker 4: local maximum. What I mean by that. The analogy I
• 52:53
  Speaker 4: use is, let's say you're a French you know, you're
• 52:56
  Speaker 4: climbing in the French Alps as a mountain climber, and
• 52:58
  Speaker 4: you're trying to find the tallest mountain in the French helps.
• 53:00
  Speaker 4: But there's cloud cover, you can't see, you can't see
• 53:03
  Speaker 4: the tops of these How would you find the highest mountain?
• 53:06
  Speaker 4: And you would do it by picking a mountain, climbing
• 53:09
  Speaker 4: to the top, recording how high you are, and then
• 53:11
  Speaker 4: randomly jumping to another mountain and climbing and recording that.
• 53:14
  Speaker 4: And there's all this math around. You know, how many
• 53:16
  Speaker 4: random jumps to mountains do you have to have to
• 53:18
  Speaker 4: have a ninety percent probability of finding the global the
• 53:21
  Speaker 4: global maximum? And I say it's a great analogy for
• 53:26
  Speaker 4: a metaphor for early careers, which is most of us, unfortunately,
• 53:31
  Speaker 4: are taught. You go through kindergarten to high school to college,
• 53:35
  Speaker 4: you pick a career at nineteen or a specialty. You
• 53:38
  Speaker 4: then become a finance analyst and associate, then you become
• 53:41
  Speaker 4: a senior associate, then you become a man, and you
• 53:43
  Speaker 4: just you kind of walk this track and you never
• 53:46
  Speaker 4: ask the question, am I on a local hill or
• 53:49
  Speaker 4: a global optimal hill? And I encourage people early to
• 53:54
  Speaker 4: jump mountains to figure out which which mountain they want
• 53:57
  Speaker 4: to be on. And I think one of the reasons
• 53:59
  Speaker 4: many people my age are very unhappy in their careers
• 54:02
  Speaker 4: is they look back and they realize, Oh, I got
• 54:05
  Speaker 4: to the top of the mountain, but it was the
• 54:06
  Speaker 4: wrong mountain. And I encourage young people to mountain jump.
• 54:10
  Speaker 2: I love that metaphor mountain jump is a great great line.
• 54:13
  Speaker 2: What do you know about the world of entrepreneurship, startups, etc.
• 54:17
  Speaker 2: Today Might have been useful twenty or so years ago
• 54:20
  Speaker 2: when you were first starting out.
• 54:23
  Speaker 4: Idea matters. It matters a lot because I've had a
• 54:26
  Speaker 4: lot of great ideas that did not work, and I
• 54:28
  Speaker 4: worked hard at it. I also think there's this counterintuitive,
• 54:37
  Speaker 4: I guess thesis that's happening right now, which is the
• 54:40
  Speaker 4: more entrepreneurs there are, the harder entrepreneurship guts, but people
• 54:45
  Speaker 4: think the opposite, right, Oh, so many, so many people
• 54:47
  Speaker 4: are doing it. I can do too.
• 54:49
  Speaker 2: That. Michael Mobisont calls that the paradox of skill. The
• 54:53
  Speaker 2: more skillful players there are in sports, the more luck matters,
• 54:58
  Speaker 2: because everybody's playing at such a high level one hundred percent.
• 55:01
  Speaker 4: And I think it's one of these funny things where
• 55:04
  Speaker 4: like not many people, you know, dream or move to
• 55:08
  Speaker 4: Atlanta to be one hundred meter you know, sprinter, because
• 55:12
  Speaker 4: you know, I think I can be the greatest hundred
• 55:14
  Speaker 4: meter sprinter in the world. And it's because there's not
• 55:17
  Speaker 4: a lot of luck. I mean, there's luck around. You
• 55:19
  Speaker 4: don't get injured and all of those things. But like
• 55:21
  Speaker 4: we pretty quickly can tell.
• 55:22
  Speaker 3: That is good and who's your skill out?
• 55:25
  Speaker 4: Yes, And it's a little bit like acting like so
• 55:28
  Speaker 4: much of it is luck that because so much of
• 55:31
  Speaker 4: it is luck, people think anybody can do it, and
• 55:34
  Speaker 4: it's actually worse. You actually have to be a super skilled,
• 55:38
  Speaker 4: you know, one hundred meters sprinter and you have to
• 55:41
  Speaker 4: be lucky to do one of these startups. And I
• 55:43
  Speaker 4: think a lot of people are like, oh, you know,
• 55:45
  Speaker 4: a lot of it's luck. So if it's luck, anybody
• 55:47
  Speaker 4: can do it. It's it's you got to have both
• 55:49
  Speaker 4: that makes it actually hard or not easier.
• 55:50
  Speaker 2: I love the expression table stakes, smart, hard working, that's
• 55:54
  Speaker 2: just to enter the arena.
• 55:55
  Speaker 3: Then you got to get lucky on top of us.
• 55:57
  Speaker 2: Right. Unbelievable. This has been absolutely fascinating. We have been
• 56:03
  Speaker 2: speaking with Henry Ward. He is the CEO and co
• 56:06
  Speaker 2: founder of Karta, helping to manage much more than just
• 56:11
  Speaker 2: the cap table for tens of thousands of companies, investment funds,
• 56:17
  Speaker 2: and investors. If you enjoy this conversation, well check out
• 56:22
  Speaker 2: any of the five hundred and sixty five we've done
• 56:24
  Speaker 2: over the past eleven years. You can find those at Bloomberg, iTunes, Spotify, YouTube,
• 56:31
  Speaker 2: wherever you get your favorite podcast. And be sure to
• 56:34
  Speaker 2: check out my new book How Not to Invest The ideas, numbers,
• 56:39
  Speaker 2: and behaviors that destroy wealth and how to avoid them
• 56:43
  Speaker 2: How Not to Invest at your favorite bookstore