Lessons from Carta: The Pitch Deck from our $42M Series C Round

Hi, thank you. So I thought, you know, when I was in— I know there's a lot of founders in the audience and a lot of future founders. And I remember when I did the seed rounds for Carta and the Series A, I had never seen a pitch deck that had worked. So I was kind of flying blind. So I thought it'd be helpful to maybe just share our pitch deck so you could see, if you go into raising capital, you could kind of see a pitch deck that has worked. And it says Series C. This is actually, at the time we hadn't announced the D, but this is actually our Series D pitch deck. And this deck and sort of ancestors of the deck in total raised about $150 million. So, so it's, it's been a good deck. Um, uh, and I'll go through it verbatim. So, uh, I'll give you all the numbers. There, there'll be no kind of sanitization. You'll get the, the rated R version, uh, of our pitch deck. So, all right, with that, uh, I'll just get started. Um, so the problem that we, uh, identified that we wanted to solve was around this question, why is it true that I can buy General Electric stock stock for $7 online, click a button, everything's easy and seamless, electronic. But if I'm investing in two founders in a garage, there's— it costs $20,000 in legal fees, there's a bunch of paperwork, and I, I literally may get a paper stock certificate to hold as proof of ownership until the IPO. So why does the world work that way? Uh, and our solution to this was we needed a central registry, a database uh, of private assets. We just wanted to know what people owned. And so the hard part of building this, uh, database— there's this intuition the database would be valuable. The hard part is how do you populate this database? And our idea was let's create— give issuers a really simple way to get a security from point A to point B. And in exchange for that service, they would then tell us, uh, who owns that, uh, security. So I issue Mary Mary, uh, 100 shares of Carta stock, I now know Mary owns that 100 shares, and I put it in our database. So, that's, that's what we built. Uh, so we issue online stock, option grants, uh, RSUs, uh, LLC units. We have about 14 or 15 different security types that we issue. Uh, it's growing every day as more and more, uh, financial engineering happens in the private world. We automate the, the approval and compliance of these securities. So, if it's a Delaware corporation, It's the, the Secretary and Treasurer or President that have to sign it. If it's California, it's the Treasurer. And then we issue the security to the shareholder, and all of the securities put in a table is the cap table. It's the capital structure of the company, who owns the company. And then of course, on the other side of the market, when every investor or employee receives their shares or options, we're now building out their portfolio. So we're tracking their portfolio. And that's the product. To really understand what we do, we're kind of known as a cap table company or a 409A company, but to really understand what we do, all we do is the simple atomic unit of getting a security from point A to point B, and everything else is a feature that derives on that fundamental one piece of work that we do. So, if you look at it from this issuing angle, there's this network effect that starts to develop. We bring a company on the platform, we issue securities to all their investors and employees, the investors receive the security on Carta, hopefully they have a good experience, and then they start referring more companies to the platform. Those companies bring more investors, and so on, and the virtuous cycle starts. So, it has a strong network effect in the customer acquisition strategy and the virality of it. And then it also has a, a, a network defensibility effect. So at, at maturity, because the only thing worse than a VC getting a paper stock certificate in a Carta world is getting an electronic certificate from a competitor because, uh, now they'll, their portfolio will forever be broken into two. They'll have to log into two different accounts to see their inventory, to see their investments. So it develops a very strong network moat. uh, or network monopoly for us. Uh, interestingly, VCs also have a cap table through their LPs, the investors of the, the, the venture funds. And so we do the same thing. So we issue the membership interests from the VCs to the LPs. And, um, uh, it has a very similar network effect. Uh, the LPs learn about us, uh, as they get accounts. Hopefully they like us, they refer more, uh, venture funds to us, which bring more LPs on. And on and on. And what's interesting about this second network monopoly effect is that it reinforces the first one. They're concentric moats built around each other because the more companies I have, the more funds I have, the more LPs I have, and vice versa. And then you just keep going. You kind of notice a pattern here. I start with a company, I drill up to the VC, I drill up to the LP, and I can keep going. Uh, so we can drill up from LPs. A lot of LPs like endowments are, are asset allocators, and so they'll invest— venture is just a piece of the portfolio. Uh, they'll invest in private equity, oil and gas, and we can drill back down into their investments via the ownership graph that we're starting to map out and pull those assets on Accarda as well. You can drill out of PE all the way to, to broader private companies around the world, everything from the Cargills, uh, the largest private company in the world, to, you know, the manufacturing plant in Illinois that's owned by— as a family business. You can keep drilling and pulling this thread further and further into the public markets, which also have the same equity management and share tracking problem. Uh, and then of course, if you can get there, you can drill all the way into real estate, which is the largest fractional ownership problem in the world. So, uh, that's what we've been working on. How are we doing today? Um, so Carta at a glance, uh, we're about 5— we're 7 offices, we're about 500 employees. Uh, we ended 2018 at just shy of $50 million in ARR. We have about 700,000 shareholders on the platform. and about 10,000 customers. Annual recurring revenue over the last 8 quarters, we started the year, we started 2016 at $2 million in ARR. We went to $7 in 2017. I'm sorry, 2015 to '16, we went from $2 to $7. '16 to '17, we went from $7 to $23. And then this last year in '08, 2018, We went from 23 to 50, 49 and change. Forecast and plan for 2019 is about double that. Subscription customers grew correspondingly. We have a little over 10,000 customers today. We add about 400 new customers a month. We expect that to end this year adding somewhere between 650 and 700 new customers a month. Uh, as we, uh, uh, go deeper into the network, um, we're able to exert more pricing power as the brand strengthens and our control of the market deepens. Uh, and so we've started to exert more price, particularly at the enterprise level, more pricing power. And we're hitting this inflection point now where we're moving from a price taker to a price maker. Our payback period has grown to 19 months. We target an 18-month payback period. You'll notice, uh, back in Q4 and most of, of 2017, we ran at a, a payback period of about 12 months. Uh, by design, we were very efficient. Um, this payback period's calculated on a, on a subscription mar— or gross margin basis. So we look at fully loaded costs into the payback period. But for those maybe that aren't familiar with it, the payback period is if it costs me $5,000 to acquire a new customer, when do I get that money back, right? When does that customer pay for itself in finding that customer? And so 12 months means we get our money back in 12 months, but this is calculated on subscription gross margin, or sorry, gross margin, as well as on GAAP revenue, but our cash cycle is a little better. So the first thing a company does when they sign up is they connect their bank account to Carta, and we need that because we need their bank account to deposit the option exercises into. And so the first thing we do when they get— we get their— we get ACH rights into their bank account is we pull our payment. And so our cash cycle is actually 48 hours. Our AR is 48 hours. So we acquire a customer for $5,000, uh, we hook them up, and they pay us the $5,000 48 hours later, and then we can reinvest it to acquire a new customer. That means that when we raise equity capital, we don't really have to raise equity capital, uh, for growth to fund sales and marketing. Uh, we re— we, uh, can raise it only for— or for R&D primarily. However, in— you'll notice we spiked spiked up in 2018 to 21-ish to 8, somewhere around 18 to 21 months of payback. And that was deliberately by design. We had raised our Series C of $42 million in Q3 of 2017. And then we decided to step on the gas a little bit. So we invested more heavily in sales and marketing, drove that payback period up. We'd like to continue targeting an 18-month payback period. Over the next 12 months. We have over half a million shareholders. We add today on the order of 40,000 to 50,000 new shareholders a month with those 400 companies. And that share— sorry, that shareholder count is one of our most important KPIs because when you think about expanding the network, The, the two most important things we want to accomplish is when we issue a new security, we want to find a new owner of an asset and pull them into the network. So we're acquiring a new node. And then we also want to strengthen an edge, an edge by issuing a security to an existing node. And the more securities that an existing node has in our network, the stronger the bond, the tighter the bond. We actually find in the venture world So if we have about a third of the portfolio companies of a venture fund on the platform, that's the tipping point. That's when the fund goes all in. They start putting us in term sheets and they start pushing all of their investors on the platform. All right. So let me give you a couple last thoughts to think about, or maybe another way to understand our, our business. We have this view of how labor has evolved. Over time. And it, it started with forced unpaid labor and moved into serfdom, which was where you were legally free but you were economically indentured to work on, on the land that you were allowed. Over time, that evolved into the current era of labor, which is payroll. And we think the next era of equity comp— of compensation is equity. Payroll is a debt product, and this is in fact, this is how we explain the income inequality gap. There's a lot of explanations, but we have our own perspective on it, which is payroll is a debt product. Equity is a capital product. And so debt accumulates linearly with coupon payments. Equity and capital accumulate exponentially. And so that means is in any economy that's growing, any economy where GDP is growing, Capital accumulates exponentially, and it's faster than the accumulation of debt wealth, which is linear. And that's why when employees are on the payroll stack and capital and owners are on the equity stack, the owners get richer faster than, than the workers. And so our contribution to figuring out the wealth-income gap is to move more labor out of the debt stack and into the equity stack. We think in 50 years, or I hope in 50 years, uh, it, uh, that, that generation will look back at our generation and say, can you believe you used to go work for a company and all you got was cash? And so that's what we do. Uh, we make it really easy for companies like Uber to issue equity to 75,000 drivers. Uh, Cargill, the largest private company in the world, They have 130,000 employees. 500 of the executives at headquarters have stock options. And so when we talk to them, we say, what if you could issue equity to all of your employees as simply, cheaply, and easily as you do payroll? Chesky's already on record where he wants to figure out how to give equity to 700,000 Airbnb hosts. There's no facility for doing that today, uh, and that's what we're building for the ability to do that. So in that framework of how do I make equity and ownership ubiquitous, let me go back to this database model, uh, that I started with. So if you remember, this is a registry of assets, but it's really the platform for getting a security from point A to point B. If you think about, we're tracking, uh, Catherine owns 100 shares of Carta and we're sticking those entries into our database, there's two windows or two lenses into this database. The first is grouped by issuer. So, who owns a company? And that's the stock ledger, uh, also known as the cap table, same thing. The other window is the portfolio. What do I own, right? This probably doesn't look familiar to most of you, but some of you who are financial infrastructure people, this looks really familiar. In the public market, the ledger is called a transfer agent, like a Computershare or an AST. Anybody that's worked for a public company will know this. These are SEC-registered companies, and their job in the public world Uh, in the private world, a company can keep their own cap table. In the public world, a company can't. It's a conflict of interest between the company and the shareholders. And so there's these large companies, uh, called transfer agents that track the stock ledgers of Apple, IBM, GE. The top 3 are a combined market cap of about $20 billion. And that's all they do, uh, is be a transfer agent. On the other side of this market, or the, uh, the other window is group by shareholder. What do I own? And that's the brokerage. That's a Schwab or a Fidelity or an E-Trade, a way for participants in a marketplace to track what they own and interact in the market itself. And then the database itself is the Depository Trust Corporation. It's probably the, the largest company you've never heard of. Uh, the DTC is the big company in New York with massive machines, uh, and databases, and they do central clearing of US equities. So if I sell, uh, Bob 100 shares of General Electric stock, that's the database that gets updated. It's the central settlement platform, uh, and it's literally just a database that gets a security from point A to point B. So when you look at it through this lens, uh, we started with the network lens. If you look at it through this data infrastructure lens, it looks a lot like the public markets, and it's the 3 components you need to power a stock market. You need a transfer agency, you need a brokerage, and you need a clearinghouse. And that's what we're working on now. Is the Cardano Exchange, the private stock market. Let me pull this thread a little further. If you believe my thesis that n equals, that this is an n equals 1 market, there is one and only one winner. The network effect will create a platform where no other company can exist, and hopefully the company that does exist and owns the network is us. That means we have all of the private companies And the IPOs of 2023 are Series B companies on Carta today. That means we're the on-ramp to IPO. So we can help take these companies public. So on the transfer agent side, the conversation is, Mr. or Mrs. CFO, you've been a customer with us for 7 years, you know us well, we're an SEC-registered transfer agent, You don't have to go do a Computershare or AST implementation. Just stay with us and we'll take you public. We'll flip the switch for you. Similarly, on the other side, uh, Mr. and Mrs. CFO, we already have your equity plan. All of your employees have a private brokerage account with us. You don't need to do an E-Trade or a Fidelity implementation. We can flip the switch and take your employees public as well, and they can trade in and out of the Carta public brokerage. And then last, when we're filing our Form 1, is the card— is card a public exchange? In the last 30 years, there's only been one public exchange built, IEX. The challenge that all the exchanges have is how do you get more listings? It's really hard to pull an existing listing off of a national exchange and pull it onto your own. Nobody wants to leave NYSE once they're on. But our secret is we have all the listings. We have the pipeline of IPOs. And so those 50 to 70 IPOs a year will come through Carta, and the conversation is exactly the same. You've been trading on the Carta private stock market. We'll flip the switch and you'll be on the Carta public stock market. If we captured the 50 or 60 IPOs a year, we'd have 10% of the public market in 5 years. So, why do we care about owning each of these components of the financial infrastructure ecosystem for a capital market? Well, let me give you sort of a comparison here. The top 3 exchanges in North America are TMX, the Toronto Stock Exchange, or TMX owns the Toronto Stock Exchange. Their market cap's about $3 billion. They trade at 4x revenue. Uh, NASDAQ, uh, which, uh, is worth about $15 billion, uh, trades also at around 4x revenue. And then ICE, which— ICE, uh, owns the New York Stock Exchange as well as, uh, a few other, uh, secondary exchanges. Uh, and they're worth about $44 billion. They trade a little higher, uh, at 7x revenue. So the CME Group is sort of this interesting large company that some people have heard of, but people don't really understand. The CME Group is the largest derivatives trader or marketplace in the US, and they own the entire ecosystem. They own both the clearinghouse, the record keeping of all of the products, the financial products, derivatives that they sell, and they also own access into the marketplace. It's not a decentralized broker network that you— that they work through. You go straight to the CME Group to participate in their marketplace. They own both the transfer agent the brokerage and the settlement platform. CME Group alone is worth more than the top 3 exchanges in the United States combined. They trade at 17x revenue. They trade at SaaS multiples, even though it's a transaction company. And the reason is they own the ecosystem. When you own the financial infrastructure, when you own that ecosystem, The sum is greater than the parts. And that's why we want to own it all. Interestingly, this is a global problem. In 1933, when they passed the Securities Exchange Act, they moved all the publicly registered securities into the public markets, and all the private stuff stayed in contract law and paperwork. And that's why we finance a you know, a crypto company today the same way we finance the railroads. But every country after that followed the US model. And so you go to Japan, the Tokyo Stock Exchange, the London Stock Exchange, the Australian Stock Exchange, all of them have the same financial market infrastructure in the public world and then the same contract law and paperwork in the private. So another way of thinking about us is we're a vacuum company. We're going around vacuuming up all the securities held in paper in the United States, and then we can go do that around the world, which means that an investor in the UK can access securities in the US and vice versa, all on one platform. It, it's counterintuitive. By definition, a public stock market has to be regional, but a global stock market, a private stock market could be global. And so if you take that thread one step further, you can build a private global stock market uniting the world into one capital market and then use that on-ramp to IPO to replace the— to build a Carta exchange in the US, London, Australia, Tokyo, where you can now displace the existing financial infrastructure and exchanges because we now have a lock on the IPOs. And you just go country by country and on and on until you unite the entire world on a single capital market that makes every asset available to every human. And that's what we do at Carta. We create owners and we replace stock markets. Thanks. I hope that was helpful.