The Exchanges

Q I absolutely love that. Willingness and acceptance that sometimes you have to let something burn, so to speak. I do want to finish those today, Henry. I couldn't be more excited to hear this one. For the next five years, For you and for Carter, how big could it get?

A It's a great question. I can't wait to find out. We do our financial models, and we have some products that were coming out at the end of the year that we're pretty excited about, and we have a lot of big bets, and our base case, if none of our bets work out, we think we'll be around six hundred million in ARR, growing 50 to 70% year over year as a software business. If some of our more financial products that we're working on hit, We have a broad spectrum. These are high beta products that could be worth zero, or it could be worth a lot, and so when we layer those bets on, we see ourselves anywhere between, uh, two billion dollars to ten billion in revenue, five to six years. So, uh, um, I'm excited to find out, too. These are big swings.

AI assessment note: “we see ourselves anywhere between, uh, two billion dollars to ten billion in revenue”

Q me when I analyze any business, and when we chatted before, you said something that, quite frankly, Henry, I had no idea what you meant. You said the N of one versus one of N business, and then I spoke to Arjun at Tribe, who invested in you, and he said, ask Henry what N of one means to him. So what does N of one mean to you, Henry?

A Sure. A lot of companies, and I think investors, think about markets as in terms of market size. So how big is this market, or how big could the market be, and then that, and then what's our competitive advantage, and that's how we decide whether we want to enter this market or not. We don't think about it in terms of market size. We're very happy going after conventionally small markets. What we care about when we analyze a market is whether this is a one of N market or any N of one market, which means A one event market is a market that the micro structure of this market, the economics, and the territory of this market will support multiple winners, so there's competition, versus an end of one market means that whoever wins this market, there will only be, there will be one and only one winner, that if we won this market, there is no competition, that the structure of this market creates a defensibility around it that nobody can compete with us on, and so cap tables is a very good example of this, People looked at it as a, this is a small market, so it must be uninteresting. And what we looked at it is because of the network effect of this market, this is an end of one market. There will be one and only one platform for this. And once you look at it through that lens, whenever you own a market, one, you have a lot of power within that market. So margins go up, profits go up, …

AI assessment note: “an end of one market means that whoever wins this market, there will only be, there will be one and only one winner”

Q I do, though, want to kick off today, and for anyone that maybe missed our first episode, Henry, how did you make your way into the world of startups and come to found Carter today?

A Yeah, I followed my, at the time, wife here. She found a dream job here. It was nothing I'd expected to do, but I didn't know anybody else. Figured I might as well try starting a company and create my own job rather than go search for a job just to try it. And I started a company called Second Sight, which was an original version of Betterment or Wealthfront, but the bad version, I never got it off the ground. But through that process, I had met Manu, who introduced this problem set to me of, hey, why can I buy General Electric stock online for seven bucks? Of course, now you can do it with Robinhood for free. But in the private world, it cost me 20,000 dollars in legal fees. To invest in two founders in a garage, and I literally will get a paper stock certificate 30 days later in the mail that I put in a dust drawer and hope one day I can redeem at an IPO. So we finance crypto companies today no differently than we finance the railroads. Why is that true, and is there an opportunity here to fix that? And that's when it became interesting to me, this idea that we could rebuild the financial infrastructure that was built in the public world, but we can build it bottoms up From first principles, starting with the formation of a company, and then following the life cycle of the company all the way through its private life and into its public life, building infrastructure along the…

AI assessment note: “through that process, I had met Manu, who introduced this problem set to me”

Q I mean, huge thanks for being so open with that, Henry. I do have to ask, the other word that you mentioned there that I have to jump on is M&A strategy. I think it's one super interesting element within Carter's strategy itself. Can you talk to me a little bit about this and your thinking behind Carter's M&A strategy?

A Yeah. So this also initially had been relatively controversial, and I think still is. I think a lot of investors have a hard time wrapping their head around how this works at scale, but we love entering services businesses. So we look at services markets that are adjacent to what we do, and we love services markets where it is a commodity product differentiated only by brand. So four nine a for us was a classic example. Fund administration is another example. Where in the four nine a business, everyone looked at it as silly to go after the four nine a business. What we did was we just started building a services firm within Carta and we ran it as a services margins. We had a bunch of four nine a analysts that cranked out four nine a's and we got a lot of criticism for why are you introducing services margins into a software business? We invested in a software business, Henry, but what we did was we then paired a product team behind that services group and we just started automating more and more of that work. So that today our four nine a business runs at over 70% margins. It's effectively over three years turned into a software business. And that's what we do really well as we enter services businesses and then automate them and turn them into software businesses. And so when you have that playbook, suddenly services business acquisitions would seem crazy for a software compan…

AI assessment note: “we enter services businesses and then automate them and turn them into software businesses”

Q I love that, and I haven't actually heard about that tactic. Now, this one's an interesting one. I've heard it many times on the show, both disputed and advocated for. Should founders always be raising?

A No, I think for me, and granted, it depends a lot on the business. We're in a fortunate position where, because we're doing well, capital is more available to us than other companies. This wasn't always true in the early days. It was very hard. I think fundraising is a discreet activity, In between operating. So when I'm operating for 12 to 18 months in between financing rounds, that's what I focus on a hundred percent. I don't talk to investors. I'm lucky that I have a chief strategy officer that I send all investor inquiries to, and he'll do first meetings and tell the story. So people are keeping tabs on us. But by and large, I think the founder focuses on building the most attractive business so that when the founder does go out to raise capital, he or she has a very clean, articulate story and the numbers to back them up. And then fundraising in private markets and venture is an auction process. And so aggregating the auction into a short period of time is part of the strategy because you want to create an auction. You want to create competition. You don't want to drag this out and do this sequentially. And so not talking to investors for 12 to 18 months before fundraising and then telling investors, hey, I'm going on the market. Here's my timeline. I'm going to raise capital over the next 30 days. And then going and doing the roadshow, running around Uh, relentlessly hust…

AI assessment note: “No, I think for me, and granted, it depends a lot on the business.”

Q there. And I do want to start Really, with the element that powers any successful business, being the people behind it, driving it every day, because when we chatted before, you mentioned that sometimes maybe execs don't always stick around for long, and so I'd love to start on this, Henry, and what's your thinking here? You said the term specifically executive half-life. What did you mean by this term?

A Yeah, I think one of the difficult things for me to learn as the company scaled, I think the last Last time we spoke, we might've been a 150 people. Today we're, we're about 500. And as the company grows so quickly, you find executives that know how to get the company from point A to point B, but the distance between point A to point B varies by executive, but very few executives have had the opportunity to work at a company that's scaling at the speed that we are. And so they may, as an example of VP of sales, may have a lot of experience bringing a Company from twenty million to seventy million, which for us is about an 18 month exercise, but they've never done it past that, and they will scale out after that 18 months, and we have to go find somebody that knows how to get from 70 to 200, which hopefully will be another 18 month exercise. And I mentioned 18 months because I was working with the talent team, the executive talent team of a venture fund, one of our investors, and I asked them, hey, what's a positive success story? What do you consider a success When you do executive recruiting, and they say, if an executive lasts 18 months, when we place it into a portfolio company, we think we did a great job. And firstly, I was quite surprised by that. I said, wow, so glad I'm a founder and not an executive, because we burned through them quickly. But the reason is, um, these …

AI assessment note: “companies scale non-linearly, but people scale linearly. And that's why executive half-life is so short.”

Q me when I analyze any business, and when we chatted before, you said something that, quite frankly, Henry, I had no idea what you meant. You said the N of one versus one of N business, and then I spoke to Arjun at Tribe, who invested in you, and he said, ask Henry what N of one means to him. So what does N of one mean to you, Henry?

A Sure. A lot of companies, and I think investors, think about markets as in terms of market size. So how big is this market, or how big could the market be, and then that, and then what's our competitive advantage, and that's how we decide whether we want to enter this market or not. We don't think about it in terms of market size. We're very happy going after conventionally small markets. What we care about when we analyze a market is whether this is a one of N market or any N of one market, which means A one event market is a market that the micro structure of this market, the economics, and the territory of this market will support multiple winners, so there's competition, versus an end of one market means that whoever wins this market, there will only be, there will be one and only one winner, that if we won this market, there is no competition, that the structure of this market creates a defensibility around it that nobody can compete with us on, and so cap tables is a very good example of this, People looked at it as a, this is a small market, so it must be uninteresting. And what we looked at it is because of the network effect of this market, this is an end of one market. There will be one and only one platform for this. And once you look at it through that lens, whenever you own a market, one, you have a lot of power within that market. So margins go up, profits go up, …

AI assessment note: “an end of one market means that whoever wins this market, there will only be, there will be one and only one winner”

Q I do, though, want to kick off today, and for anyone that maybe missed our first episode, Henry, how did you make your way into the world of startups and come to found Carter today?

A Yeah, I followed my, at the time, wife here. She found a dream job here. It was nothing I'd expected to do, but I didn't know anybody else. Figured I might as well try starting a company and create my own job rather than go search for a job just to try it. And I started a company called Second Sight, which was an original version of Betterment or Wealthfront, but the bad version, I never got it off the ground. But through that process, I had met Manu, who introduced this problem set to me of, hey, why can I buy General Electric stock online for seven bucks? Of course, now you can do it with Robinhood for free. But in the private world, it cost me 20,000 dollars in legal fees. To invest in two founders in a garage, and I literally will get a paper stock certificate 30 days later in the mail that I put in a dust drawer and hope one day I can redeem at an IPO. So we finance crypto companies today no differently than we finance the railroads. Why is that true, and is there an opportunity here to fix that? And that's when it became interesting to me, this idea that we could rebuild the financial infrastructure that was built in the public world, but we can build it bottoms up From first principles, starting with the formation of a company, and then following the life cycle of the company all the way through its private life and into its public life, building infrastructure along the…

AI assessment note: “I followed my, at the time, wife here... Figured I might as well try”

Q this a lot. When you look at kind of your distribution prominence and advantage that you have, it's very clear where it's so strong given kind of the inherent network effect among just so many people within our ecosystem. Where do you foresee weaknesses within the distribution layer that you have? Are there any elements where you're like, Ah, this is a potential fault or crack in that distribution layer.

A I think the biggest issue that we have is tying all of the pieces of the network together. So we have distribution in the companies. You know, we have 10,000 companies. We're acquiring about 400 a month today. We have distribution of our venture products into VCs because they're all now on the platform managing their electronic stock. We have channel relationships with law firms that, because law firms are power users of our products, But what we don't have is a good set of products that tie all of these Distribute products into each of these customer types linearly. So if we have a new product, I can go sell it to companies. If we have a new product for investors, we can go sell it to investors. But what we don't have is products that tie them together. So as an example, investor relations product, where you can distribute that to two nodes in the network that tie those nodes together more tightly. And when you can start doing that, you create a linear business model into a nonlinear business model. One of the products that we just released that I hope will do that is our board management product. We're now tying board members to companies, so this is a strong link between venture funds into the companies, and it's the type of product that, because it focuses on that link, it becomes a non-linear growth pattern, as opposed to, for example, four nine A, which is very much a lin…

AI assessment note: “the biggest issue that we have is tying all of the pieces of the network together.”

Q What would you most like to change about Silicon Valley and tech today, Henry?

A I think the economic discrepancy is a huge problem. I don't think I'm new in saying this, but I think the economic discrepancy is enormous, and I think figuring out how to bring more wealth to people rather than the select few, I would love to see us do more of that. I mean, in fact, the Carta mission is about creating more owners, and it's because we believe that the income inequality gap that's being created today is because most people are on payroll. Payroll is a debt product. With bi-monthly coupons, equity is a capital product, and in any economy, whether it's GDP for the nation or the Silicon Valley economy, any economy that's growing, by definition, equity accumulates exponentially, but debt accumulates linearly, and so that income inequality continues to expand, and our contribution to that problem is to try to get more people off the debt stack and into the equity stack to reduce that change, and I wish more of Silicon Valley would be progressive around larger stakes of ownership for For lower level employees, expanding ownership outside of Silicon Valley, and then providing liquidity for employees and stock option holders so that they can realize the value rather than be locked up and be paper rich, but cash poor.

AI assessment note: “I wish more of Silicon Valley would be progressive around larger stakes of ownership”

Q so successfully with Carter, for me analyzing businesses today, what would your advice be in allowing me to kind of expand my mindset on when a product is Quite narrowly constrained to one market, and when there are inherent customer acquisition network effects to allow for adjacent markets and products to easily be built upon and expanded to. Are there signs and indicators that one is either expandable or not?

A Yeah, so Marc Andreessen writes about this, and I believe very much in this, which is, and when I think of looking at companies to do, when I do some angel investing, the first is, do they have a product that That gives them an entry point. And I'm specifically for me talking about B to B. That's my domain. Does the company have a product that gives them an entry point into businesses so they can establish a relationship, a commercial relationship with these companies? And does it have an innovative product and an innovative customer acquisition model that allows them to do it? So that's part one. And that's the first phase of a business product and technology advantage is short lived. Your product decays, new entrants want to come in with a better, smarter version, all of those things. And so what keeps the best companies growing bigger and bigger is not product development, but owning the lines of distribution. It's really hard to be able to, as a musician, it's really hard to have multiple hit singles. Only the best musicians get those. The vast majority get one, maybe two. And as a product company, it's very hard to consistently get great products out the door. You got to be Apple to do that. So some products will be great. Some products will be terrible. Most products will be somewhere in between. But if you own the lines of distribution into these companies, you can not o…

AI assessment note: “if you own the lines of distribution into these companies, you can”

Q And I, I want to start today with a question from, from Manu himself, actually. And it's about the fundraising process. And when looking back at your fundraising process, how hard was it for eShares to raise money initially in the Valley in the early days?

A Yeah, it was really tough. The seed round especially was very hard. Um, I think all seed rounds are hard, but this was, I think, exceptionally hard. And it really was difficult for two reasons. One is, I think there was a market, so, not I think, there was a market size question for most investors. Um, you know, at the seed round, investors aren't necessarily looking for what's a great idea. What they're looking for is what a Series A investor will think is a great idea. And so, there's sort of this view like you have to do really big, exciting things, you know, new databases, you know, new ways to share photos, the things that at that time in 2012 were really hot. You know, MongoDB was hot for B to B. Instagram just got sold. And so everybody was looking for those types of opportunities. And if you were a seed investor in 2012 looking at eShares 2013, you were really looking at this going like this is this doesn't fit anything that's getting funded today. And so there was a lot of risk around market risk. And then somewhat paradoxically, um, most of the angel investors that I talked to, the number one question I got was, why hasn't anybody done this? And I, you know, my answer was, I don't know. You should ask somebody who doesn't do it. And there was sort of this kind of, I think, uh, uh, pessimism or even a little bit of distrust where this idea seems so obvious to people th…

AI assessment note: “Yeah, it was really tough. The seed round especially was very hard.”

Q And I, I want to start today with a question from, from Manu himself, actually. And it's about the fundraising process. And when looking back at your fundraising process, how hard was it for eShares to raise money initially in the Valley in the early days?

A Yeah, it was really tough. The seed round especially was very hard. Um, I think all seed rounds are hard, but this was, I think, exceptionally hard. And it really was difficult for two reasons. One is, I think there was a market, so, not I think, there was a market size question for most investors. Um, you know, at the seed round, investors aren't necessarily looking for what's a great idea. What they're looking for is what a Series A investor will think is a great idea. And so, there's sort of this view like you have to do really big, exciting things, you know, new databases, you know, new ways to share photos, the things that at that time in 2012 were really hot. You know, MongoDB was hot for B to B. Instagram just got sold. And so everybody was looking for those types of opportunities. And if you were a seed investor in 2012 looking at eShares 2013, you were really looking at this going like this is this doesn't fit anything that's getting funded today. And so there was a lot of risk around market risk. And then somewhat paradoxically, um, most of the angel investors that I talked to, the number one question I got was, why hasn't anybody done this? And I, you know, my answer was, I don't know. You should ask somebody who doesn't do it. And there was sort of this kind of, I think, uh, uh, pessimism or even a little bit of distrust where this idea seems so obvious to people th…

AI assessment note: “Yeah, it was really tough. The seed round especially was very hard.”

Q I'm really interested, though, but you said about, kind of, founders chasing the huge markets there, and it's something that's interesting me a lot at the moment, as I've sat in, in three pitch decks in the past two weeks, uh, or pitches, and three founders have mentioned the trillion dollar TAM. Now, the question being around that is, have we bred this culture of over-ambition, do you think?

A Yeah, I think so. I think there's a lot of low hanging fruit where there are very valuable problems to solve that nobody is solving. Um, I often call startups scaling El Capitan, but everybody's looking at how do I get to the top as opposed to how do I get on the wall? And I think one investor said it really well to me as I was fundraising. This is actually for the series A. Um, but he said, you know, Henry, I, I, I love what you're doing. I think it's valuable, but I need line of sight information. To a billion dollar outcome. Like, uh, and his, his example was, you know, they were investors in MongoDB and they said, you know, if you, if you have a new database that works, that's what I'll invest in. Because I know that if you can start selling and keep selling and you can sell all your way, you know, all the way to a billion dollar outcome on this one product, your business, it's not clear where this takes you. And that's been true for us for the beginning is that investor criticism of eShares is there isn't line of sight to a big outcome. This is very much a, you know, we, we get onto To each new ledge as we climb the wall, and just have faith that at each new ledge, we'll find another ledge, which is a really tough, you know, I sort of tease the investors that didn't invest, but I understand how difficult an investment thesis it is to say, well, you're going to climb El Cap…

AI assessment note: “Yeah, I think so. I think there's a lot of low hanging fruit”

Q Can I ask, when people reach maybe that ceiling of their potential, how do you approach that conversation with them? Is it them raising their hands going, you know, Henry, we're at seventy million now, 400 people, I don't think I'm right for this stage, or is it a case of you sometimes have to show them that they haven't matured with the company's growth at the same level?

A Very few executives will raise their hand and say they feel like they're tapping out. When they do, and the rare Circumstances they do. I really admire their self-awareness, but usually it's me having to tell them that I think they're hitting their ceiling and use of the conversations around why that's the case. Is there another opportunity here for them to be here and we can bring in somebody that's done the next stage of company that they can learn from, which is often a great outcome. Unfortunately, sometimes pride will get in the way and they'll feel they disagree that they haven't tapped out and they deserve a chance to continue. Rarely does that actually true. So these are tough conversations. One of the things I personally struggle with on this is if an executive is struggling or has a weakness and isn't able to scale in a certain area, for example, you have a CFO that's not scaling. Nobody says, well, hey, we have to find a VP of FP&A that can help the CFO cover the CFO's blind spots, and we'll build a team around this CFO. Nobody says that. They say, hey, we need a new CFO. And I've always questioned this idea of why is it that that's It's true for executives, but not for founders. When I have a blind spot or a weakness, nobody says, or at least I don't think they say, nobody says, well, we got to replace Henry. They say is we need to find an executive that can solve H…

AI assessment note: “usually it's me having to tell them that I think they're hitting their ceiling”

Q I do want to first start by unpacking the transition of your role over time. I spoke to one of your board members in the form of Andrew at Spark, and he specifically honed in on your decision-making process, and he asked, how do you make decisions differently now to when you were founder and CEO in the very, very early days? Is there a difference in that decision-making process?

A Yeah, in the early stages, I was a sole decision-maker in a lot of ways. Today, I still am, and that's a liability versus an asset. When you're in the early seed stages, making decisions quickly, learning quickly, being active, and making decisions on the front lines with information that you have, and adjusting quickly is an asset. At the later stages, there are fewer decisions to make on a day-to-day basis, but it's far more important that when we do make the decisions, we get them right, and having more People involved in decisions, specifically the executive team, both to make sure we're making the right decisions, but also so they understand the context and reasons of the decisions. Because if you're making decisions and nobody knows why, that's almost worse than not making the decision. And so decision making at this stage is much more collaborative. It's much more a measure four times before cutting. It's much more about not being wrong. And that's a hard one for me because I tend to be quick to make decisions I love running on instinct versus data, and we're in a very different place now.

AI assessment note: “decision making at this stage is much more collaborative. It's much more a measure four times”

Q I mean, that arbitrage is just beautiful. Can I ask, what does that do to culture, though? You're ingesting a load of maybe more traditionally-minded, service-orientated traditional crafts in a lot of cases. Does that change culture dramatically, and do you think about that, or do you try and silo these differing organizations?

A We try to integrate them as much as possible. One of the things services businesses do for us is, almost by definition, services businesses are extremely customer-centric. Software businesses have to maintain a discipline of being customer-centric because it's really easy. The front or the forward-facing part of the business is the product, where in a services business, the forward-facing piece of the business is the people. They bring in a very strong culture of customer-focused culture, which is super additive to us. What we offer to these services businesses is, hey, you've been grinding it out in a services firm. Come work for a tech company and get options and Learn how to build software, move into the next age of technology, which you would never get as a services firm. And to be sure, some people in these services firms, it doesn't fit for them. The culture and speed of a high-growth venture-backed software company doesn't appeal to them, and they'll, unfortunately, lose them. But the people that remain get very excited about the idea that they get to work for a venture-backed company, which was never true in their career before. And they bring in a lot of the great culture aspects So the services firm that we have to maintain a lot of discipline to keep.

AI assessment note: “We try to integrate them as much as possible.”

Q on the markets and the companies as they should be, and I don't think it allows the founder to really spend the time with the investors to ensure that it's a board member they want for the next 10 years, given this huge compression that we've seen in terms of timeline, would you say that's a very VC point of view, Harry? You're wrong? How do you think about that?

A I don't think you're wrong. I think if you have a target set of investors or a target investor that you are interested in working with, I think establishing that relationship and working with them ahead of time is great. But what I would recommend avoid doing is absolutely spending time with associates. I think that's Tends to be a waste of time. And I think meeting with investors to give them updates, I think that is also a waste of time. I think it's investors wasting founders time to go fishing for seeing something that others won't see. And I think there's a seduction of, well, if I keep giving updates, they'll strike with a term sheet and I'll get really lucky. And I think by and large, there's no advantage to investors in general, striking ahead with a term sheet, because if there's no forcing function for them to give a term sheet, it's in their advantage to wait to get more and more data. So I tend not to subscribe for founders spending a lot of time updating investors. Where I do think it's helpful is if there's an investor that's interested and an investor that you like, you put that investor to work and you have a list of things that you want this investor to do for you. And if that investor will do those things, I think you start building a great relationship. And if they don't, you quickly realize that this person's fishing and isn't somebody you want to work with.…

AI assessment note: “I don't think you're wrong. I think if you have a target set of investors”

Q Can I ask, when people reach maybe that ceiling of their potential, how do you approach that conversation with them? Is it them raising their hands going, you know, Henry, we're at seventy million now, 400 people, I don't think I'm right for this stage, or is it a case of you sometimes have to show them that they haven't matured with the company's growth at the same level?

A Very few executives will raise their hand and say they feel like they're tapping out. When they do, and the rare Circumstances they do. I really admire their self-awareness, but usually it's me having to tell them that I think they're hitting their ceiling and use of the conversations around why that's the case. Is there another opportunity here for them to be here and we can bring in somebody that's done the next stage of company that they can learn from, which is often a great outcome. Unfortunately, sometimes pride will get in the way and they'll feel they disagree that they haven't tapped out and they deserve a chance to continue. Rarely does that actually true. So these are tough conversations. One of the things I personally struggle with on this is if an executive is struggling or has a weakness and isn't able to scale in a certain area, for example, you have a CFO that's not scaling. Nobody says, well, hey, we have to find a VP of FP&A that can help the CFO cover the CFO's blind spots, and we'll build a team around this CFO. Nobody says that. They say, hey, we need a new CFO. And I've always questioned this idea of why is it that that's It's true for executives, but not for founders. When I have a blind spot or a weakness, nobody says, or at least I don't think they say, nobody says, well, we got to replace Henry. They say is we need to find an executive that can solve H…

AI assessment note: “usually it's me having to tell them that I think they're hitting their ceiling”

Q That's super interesting to hear about now not being wrong with the decisions. My partner actually at the Fun Stride, Fred, says, actually, when you're a leader, decisions are about batting average, and it doesn't matter if you're wrong occasionally, but you've got to be right more times than you're wrong. Would you maybe push back on that, given your experience scaling, Carter?

A I think it's hard to always be right. I think I agree with Fred that you have to be okay being wrong, but there there's an art to it, which is sometimes if you're wrong too frequently, people start to lose trust and you lose credibility. One of my executives said to me, I had a string of bad decisions. I was wrong on three or four in a row. And I said, boy, I'm, I'm really struggling. I've gotten this thing wrong multiple times. And one of my executives said, Hey, as a founder, it's okay for you to be wrong. It's just that when you're right, you have to be really right. And that's been true of me is that I've been wrong more than I've been right. My superpower is I'm very quick to realize it and fix the mistake. So the damage is, I do a good job of damage control on my mistake, but when I am right, I may not have a high batting average when I'm at plate, but boy, when I connect with the ball, I'm hitting triples or home runs. And so when I'm right, I'm really right. And that gives me the credibility and the leeway for my executive team to be wrong often more often than I'm right because they're, they're waiting for me to be really right.

AI assessment note: “I've been wrong more than I've been right... when you're right, you have to be really right”

Q there, Henry. The first that I did want to ask was you mentioned there about kind of adjacent more And kind of the ability to move into them seamlessly. How do you think about when's the right time to build the secondary lines of products, move into adjacent markets? When VCs constantly tell founders about focus, what would you maybe advise them when maybe thinking about adjacent markets and products?

A The biggest investor criticism of Carta has always been small markets. The second biggest criticism has been we lack focus and we do too many things at once. We have consistently pushed back on that. I was forged in the fires of early fundraising where the biggest criticism was markets were too small, and so it developed this paranoia of any market that we're in, we're going to run out of oxygen, and so we have to build an organization that's constantly looking for new markets to go after, build an organization that can spin multiple plates at the same time, and to be fair, we drop plates all the time, but we're very good at Figuring out when we have a bad idea or when we have poor execution against the good idea, and sometimes we'll drop the plate and say, we're coming back to this because we still think it's a good idea. We just weren't set up for success on the execution side, so let's go back to the drawing board and figure out the execution. Sometimes we'll realize we executed well against the bad idea, and then we'll say that's not a good idea, and we're walking away from it. So we eschew this notion that We have to focus on one and only one thing. If you believe in the network effects of our business, it's a much more powerful paradigm to execute on multiple fronts of this network because the network converges faster.

AI assessment note: “So we eschew this notion that We have to focus on one and only one thing.”

Q Super interesting problem to solve. Uh, one man trying, uh, is obviously Eric Reese with his, uh, kind of public market solution to the tech. IPO problem. I'm intrigued. What are your thoughts on his solution and, and how effective it will be in the coming years?

A Yeah, I, um, met with Eric, uh, a month ago, and I love what he's doing. I think we're, uh, LTSC and eShares are very highly aligned in, in what, how we view the, the, the world's problems. I think we differ in sort of how those problems can get solved. One of the things that I think, so, um, and maybe you'll, you'll have the opportunity to have Eric on, on the, Show to, to correct me. My understanding of the LTSC is, um, they're, they're going to compete with public market exchanges. So they're, they're not sort of providing an alternative for private companies. They're providing an alternative for private companies that go public to trade on an alternative exchange. Um, and they're putting in new rules around how these companies are governed. And as an exchange, an exchange has a lot of power, uh, to do that. I think one of the challenges in that model is there is a bit of a principal agent problem. The problem that they're solving is corporate governance for the investors, and so they would say, like, CEOs have a compensation framework that makes sense, that in sense for the long term often means that CEOs aren't making as much money, definitely in the short term. It has rules and more controls around how the companies are governed and gives investors more rights, especially long-term investors. Uh, the problem is, is the invest at the time of IPO, the investors don't decide…

AI assessment note: “one of the challenges in that model is there is a bit of a principal agent problem”

Q And then the next, and finally, the next five years for you and for eShares, what's in the roadmap?

A I think, uh, we are, uh, we have a pretty good software business, uh, that's growing. I think where we want to focus over the next five years is really solving a lot of these liquidity problems. We, we would like to challenge the notion that, The world has to be bifurcated into a public and private world where there's hyper liquidity and no liquidity, uh, and, and, and challenge the notion that the IPO is the only successful outcome, I guess, other than acquisition, but, but the IPO is the goal. Um, I think, uh, when we look 20 years ahead, um, our vision for the world is that the great enduring companies will actually be privately held, uh, and they will find liquidity, um, in private markets rather than public markets.

AI assessment note: “where we want to focus over the next five years is really solving a lot”

Q I mean, I'm intrigued then to kind of finish on the, on the meta of what would you most like to see change within the ecosystem?

A I would love to see a more progressive view on pre-IPO liquidity or private, private market liquidity, uh, because I think if, The ecosystem says that there is opportunities for liquidity, uh, without going public. I think the cost of capital and the freedom of capital expands dramatically in the private world. If you want to invest in private companies today, uh, it's hard to get in. It's hard to get out. Uh, that creates a huge cost of capital, uh, for entrepreneurs. Uh, it makes it harder, uh, for companies to grow. And I think may leaves a lot of problems unsolved because Because nobody can raise capital for them. But I think if we can introduce some concept of a framework for regulation and a framework for liquidity that investors and entrepreneurs are ready to adopt. So there's more alternatives than just, I want to be the moonshot company that gets the IPO. I think that will trickle back down and create a stronger private market.

AI assessment note: “I would love to see a more progressive view on pre-IPO liquidity”

Q No, Manu is fantastic. You, you did mention the differing stages there, and one that we're seeing a lot of Interesting activity in, or lack of activity, is, is kind of the IPO stage. What are your thoughts on the increasing time to IPO? Do you think this is a problem, and how, how do you approach that?

A Um, I think, I, I think it's a problem in the sense that it's, it's creating a pressure, uh, for liquidity that, that currently isn't being serviced. Uh, I do think companies, you know, we changed our best employee vesting schedule from four years to five years, uh, and I, I think a lot of companies are starting to, to look at that, and it's just, The time it takes to, uh, to build a company these days at the scale that venture and our investors would like us to build companies at, um, just takes longer and longer. It's, it's, it's harder, uh, the journey's longer, and it's, it's much more expensive. So I think, and I think that trend's going to continue. Uh, so I, I don't think this is temporary. I think structurally we're moving towards companies need to stay private longer or would like to stay private longer. I think it's only a problem if these companies can't figure out Liquidity, um, if, as opposed to going public, I think one of the big problems structurally in the capital markets world today is we have an environment of hyper liquidity in the public, uh, universe, and then zero liquidity in the private. And there's literally nothing in between right now. Uh, and I think that's, that's an interesting problem to solve.

AI assessment note: “I think it's a problem in the sense that it's, it's creating a pressure”

Q And with all of them, with this kind of combined line of sight vision towards that billion dollar or even bigger outcome, what do you think that suggests about current herd mentality in the Valley then?

A I think a lot of, um, venture, uh, is momentum investing. And so, they're looking at What everybody else is looking at, and it's understandable, because even if VC or venture investors are looking for line of sight to a business outcome, they do understand that there's gates that a company has to get through, particularly around financing. So the seed investors are all looking for, hey, what are the, you know, institutional A investors, what are they going to invest in? And the A investors are, A and B investors are looking at what the growth funds are going to invest in, and the growth funds are looking at what the public markets will be interested in. And so, everybody's sort of looking up the chain, and so there's this natural herd mentality, which is to see what's working and then copy that. Um, it's not irrational at all. It makes complete sense. Um, I do think it opens up a gap for really innovative, original thinkers to come in and invest in, in great ideas, and that there's, there's some VCs out there that I think do that really well. Obviously, I think Manu is one of them.

AI assessment note: “everybody's sort of looking up the chain, and so there's this natural herd mentality”

Q I mean, I'm intrigued then to kind of finish on the, on the meta of what would you most like to see change within the ecosystem?

A I would love to see a more progressive view on pre-IPO liquidity or private, private market liquidity, uh, because I think if, The ecosystem says that there is opportunities for liquidity, uh, without going public. I think the cost of capital and the freedom of capital expands dramatically in the private world. If you want to invest in private companies today, uh, it's hard to get in. It's hard to get out. Uh, that creates a huge cost of capital, uh, for entrepreneurs. Uh, it makes it harder, uh, for companies to grow. And I think may leaves a lot of problems unsolved because Because nobody can raise capital for them. But I think if we can introduce some concept of a framework for regulation and a framework for liquidity that investors and entrepreneurs are ready to adopt. So there's more alternatives than just, I want to be the moonshot company that gets the IPO. I think that will trickle back down and create a stronger private market.

AI assessment note: “I would love to see a more progressive view on pre-IPO liquidity”

Q as you mentioned earlier, is just beautiful. I do have to also, one common trade-off that I hear, and we mentioned it in terms of automating that four and nine a process bit by bit, is the trade-off between R&D versus new business and business. And it's always a big thought for me. How do you think about this balance between R&D versus business and ultimately who decides the roadmap?

A Yeah. So at our company, what at Carta, the way we think about R and D and businesses, we decouple those two discussions. Many businesses will say, Hey, we want to launch a new product to market. You know, what can we charge for it? What's the profitability of this product, et cetera. And so they really, they make business cases for products and try to make decisions based on their ability to monetize the product. We look at it very differently where the goal of R and D is to create value for the world. And so when we think about what to build, we don't think about the business case for it. What we think about is how much value can we provide customers, employees, investors, all of those things, companies. And so if we feel like we can provide a lot of value, then we'll go build it. And if we don't think we can provide a lot of value, we won't. Separately, the question of the business is of the value that we are creating for the world, how much can we extract? And these are two independent variables. And we like keeping those as independent variables. Because we can be thoughtful about when we want to extract value and when we don't. So for example, you know, early stage companies helping them form and incorporate, helping them get four nine A's in the very early stage. We want to provide a ton of value, which we think we do with our platform and products for early stage compan…

AI assessment note: “the way we think about R and D and businesses, we decouple those two discussions.”

Q That's very interesting. So you think that actual kind of portfolio theory can be achieved in successful returns to LPs cash on cash wise? You know, I think three to four ice is considered a very successful fund for a mid-tier fund in the US. Uh, you think that can be achieved with the, The medium home runs that you just mentioned.

A Well, I think, I think power law exists, and I, I do think that, um, it will, it will be true that the best companies, um, are just, you know, orders of magnitude more than, than the worst companies or even the median companies, but I do think that there, you can create more best outcomes by looking for companies that have a more stepwise function into a large outcome that, that start with small markets and grow. You know, my, my favorite analogy is Peter Thiel and Facebook. You know, if you looked at Facebook in the earlier days, it was, wow, they're really good at getting college students to This doesn't look like a very interesting business, but when you look at how quickly they monopolize the Harvard campus, you know, they had 60% of the population in something like seven days. That is a very auspicious start, and if you can monopolize small markets, you can quickly aggregate those markets into larger markets, which then produce large outcomes. I think one of the problems with venture today is that everyone just looks at what's the fastest line of sight to a huge market, Which does, you know, it's a home run strategy. I swing at every pitch to try to get a home run. Um, but I think there's a lot of pitches that are hittable, uh, if, if they weren't trying to do home runs off the first, uh, first swing.

AI assessment note: “you can create more best outcomes by looking for companies that have a more stepwise function”

Q there, Henry. The first that I did want to ask was you mentioned there about kind of adjacent more And kind of the ability to move into them seamlessly. How do you think about when's the right time to build the secondary lines of products, move into adjacent markets? When VCs constantly tell founders about focus, what would you maybe advise them when maybe thinking about adjacent markets and products?

A The biggest investor criticism of Carta has always been small markets. The second biggest criticism has been we lack focus and we do too many things at once. We have consistently pushed back on that. I was forged in the fires of early fundraising where the biggest criticism was markets were too small, and so it developed this paranoia of any market that we're in, we're going to run out of oxygen, and so we have to build an organization that's constantly looking for new markets to go after, build an organization that can spin multiple plates at the same time, and to be fair, we drop plates all the time, but we're very good at Figuring out when we have a bad idea or when we have poor execution against the good idea, and sometimes we'll drop the plate and say, we're coming back to this because we still think it's a good idea. We just weren't set up for success on the execution side, so let's go back to the drawing board and figure out the execution. Sometimes we'll realize we executed well against the bad idea, and then we'll say that's not a good idea, and we're walking away from it. So we eschew this notion that We have to focus on one and only one thing. If you believe in the network effects of our business, it's a much more powerful paradigm to execute on multiple fronts of this network because the network converges faster.

AI assessment note: “we eschew this notion that We have to focus on one and only one thing.”