Henry Ward on Carta's Startup Journey

What is Carta?

Henry Ward started Carta to help private companies manage their equity and ownership information.

Carta provides software and services to track who owns shares in a private company, facilitate the issuance and transfer of those shares, determine their value, and enable liquidity. This solves major problems private companies face in tracking complex ownership structures across employees, investors, and other shareholders as well as enabling liquidity without having to go public.

Overall, Carta aims to modernize private company ownership and make illiquid markets liquid.

Carta’s Founding Story

Henry had previously started another company called Second Site, but it failed. After shutting Second Site down, Henry knew he wanted to start another company because he loved being a founder. He didn't have a specific idea in mind, just a desire to start something.

An investor Henry had worked with before, Manu Kumar, suggested he look into solving problems around cap tables and private company stock certificates. This idea resonated with Henry because of the potential to build a stock market for private company shares. So Henry teamed up with Manu to start the company originally called eShares, with the vision of digitizing private company stock certificates.

Though Henry didn't start the company to solve a specific problem he was passionate about, the idea of building a private stock market excited him enough to start the company.

Carta’s MVP

Henry started by building a basic system to issue and track private company stock certificates online. This served as the initial MVP, allowing private companies to manage issuing shares digitally rather than via paper certificates. The key feature set was focused on making it simple for private companies to get a stock certificate from point A to point B online. This solved the core problem of digitizing private company stock issuance.

The main development challenge was populating the database of who owns what shares. Henry overcame this by providing the core service of issuing shares online in exchange for companies giving Carta the data on who owns those shares. As companies used Carta to issue shares, it built up the ownership database.

Henry gathered initial user feedback by getting investor referrals, giving discounts to their portfolio companies to try Carta. As these companies used Carta and gave feedback, Henry iterated and expanded the product to add additional digital stock services like cap table visualization, cap table sharing, and integrations with 409A valuations. The investor referrals provided a viral loop to quickly gather feedback from early users.

Finding Product-Market Fit

Henry found product-market fit by leveraging investor referrals to get viral growth. He offered discounts on Carta's services to investors in exchange for referral codes they could provide their portfolio companies.

The investors were happy to provide these codes because it made them look good to their portfolio companies.

Henry would then email the referral codes to the investors' portfolio company CEO email lists. The CEOs would sign up to get the discounted service their investor had referred.

This created a viral loop where investors referred companies, those companies had a good experience and referred additional companies, spinning up the flywheel and achieving product-market fit.

Carta Growth Strategies

Here are the key growth strategies Henry used at Carta:

Investor referral discounts - Henry offered discounts to investors in exchange for referral codes to provide their portfolio companies. This granted goodwill with investors and led to viral signups from their portfolio CEO email lists.

Issues electronic stock certificates - By focusing first on digitizing stock certificate issuance, Carta captured the data on share ownership and built the database. Issuing certificates was the wedge to build the company and product.

Automated 409A valuations - After noticing customers were manually sending Carta data to 409A valuation firms, Henry realized Carta could automate valuations themselves. This became a major new product area and revenue stream.

Entered fund administration business - Through connections with investors, Carta started servicing the back office operations of venture funds. This provided a new set of customers and expanded the ownership data graph.

Launched CartaX exchange - After establishing the share ownership data graph, Carta leveraged it to launch an exchange for trading private company shares. This liquidity network effect was the next evolution.

Focused on illiquid markets - Carta specifically targets illiquid assets like private company equity because there is opportunity to provide liquidity and transactions. Public markets are already efficient.

Hiring, team, and culture:

Hire for mission fit - Henry looks for people excited by Carta's mission of creating equity ownership for more people. This passion for the mission creates a unifying culture.

Controversial cultural beliefs - Henry intentionally wrote controversial blog posts explaining Carta's intense in-office culture. This filtered for employees who aligned with that culture instead of trying to appeal to everyone.

Know what you don't know - As CEO, Henry embraces that he lacks expertise in many areas. He empowers executives to show him what excellence looks like in their functions rather than dictating expectations.

Maintain the vision - Henry believes as Carta scales, his main role is to articulate the vision and recruit people to execute on it. He can hire subject matter experts for everything else.

Accept grading employees - Though initially resistant, Henry accepted employees' desires to be graded on performance. This created clarity on expectations and performance as the company grew.

Challenges & Setbacks

Here are some key challenges and setbacks Henry faced in building Carta:

Investors passed on small market - Early investors denied funding Carta, claiming the market for cap table software was too small. Henry persisted and found some key investors who believed in his vision.

Transitioning services to software - When Carta acquired services businesses, Henry had to transform their spreadsheet-based work to software. This was culturally challenging, as services employees worried about being automated out of jobs. Henry overcame it by growing fast enough to provide new opportunities and roles.

Giving candid feedback - Letting executives go who weren't scaling was difficult for Henry. They were often shocked and in denial. He learned to focus the conversation on whether he had confidence they could perform and lead.

Balancing innovation and regulation - Henry struggles to balance product teams from Silicon Valley that want to ship MVPs quickly with teams from Wall Street that are more risk averse. He is still working to find the right blend between these cultures.

Carta’s Exit Strategy

Henry discusses wanting Carta to produce highly sought-after leaders like GE and PayPal's mafia did, with many alumni going on to start successful companies of their own.

He finds it gratifying to give people experiences at Carta that allow them to achieve their entrepreneurial dreams after leaving. Henry also hints that he may eventually take Carta public through its own exchange rather than a traditional IPO, allowing it to further disrupt public market infrastructure.

However, he wants to focus for now on scaling Carta's private market opportunity globally across multiple asset classes.

Henry Ward’s Advice for Entrepreneurs

Fundraising is a filtering process - Don't take "no's" personally. Use fundraising to find the few investors truly excited by your vision. Pitch quality matters only after filtering for interested investors.

Slow down hiring - Avoid plugging holes in your abilities by hastily hiring. Empower your team to show you what excellence looks like in their roles. Bring on subject experts only when needed.

Enjoy the journey - Don't just obsess about survival and ignore your accomplishments. Make time to celebrate successes along the way.

Maintain the vision - As CEO, your main role is conveying the vision and recruiting the right people. If you do that well, you can hire subject experts to fill any gaps.

Map the ownership graph - Understand how your core atomic unit (like a stock certificate) flows through the ecosystem. Map this ownership data to reveal opportunities.

Bootstrap the network - Offer a useful tool first so early users derive intrinsic value. This kickstarts the viral growth and network effects.

Find business model edge - Don't rely only on superior technology. Build a durable edge through business model innovation.

Acquire users faster - To win a market, acquire users faster than competitors. This often comes through viral loops.

Don't over-optimize - Instead of maximizing success, sometimes it's better to just focus on not failing. Stay alive long enough and success can happen.

Conclusion

Henry and Carta provide an instructive example of how to build a successful startup and scale it.

Some key lessons are: clearly articulate the vision to rally your team, obsess over serving a core customer pain point, map out the ownership graph to reveal opportunities, viral loops and business model innovation are key to growth, enjoy the journey along the way, and stay relentlessly focused on not failing until you reach escape velocity.

By leveraging investor referrals, acquiring data through share issuance, and expanding into areas like valuations, Carta was able to transition from a paper-based process to a highly valued digital network managing ownership across private markets.

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