Carta, a seven-year-old, San Francisco-based startup, is the newest unicorn in tech. The company, which largely helps private company investors, founders, and employees manage their equity and ownership, tells TechCrunch it has raised $300 million in a Series E round at a $1.7 billion valuation, led by Andreessen Horowitz. Firm co-founder Marc Andreessen is also joining the board.
The round has been a poorly kept secret. The outlet The Information reported more than a month ago the details that Carta is sharing today. In fact, that leak has given people in the industry who understand Carta’s business time to quietly ask of its valuation whether it isn’t high for a company that does what it does.
Unsurprisingly, Carta argues that it is not, that it has evolved considerably from the outset — which is true. Though it launched as a way for venture-backed companies to manage equity, issue securities, and track their cap tables, by 2014, Carta, formerly known as eShares, had moved beyond replacing paper records and into selling as a monthly service appraisals of the fair market value of private companies’ common stock in order to determine their strike price. It calls this “409A-as-a-service.”
Carta has continued tacking on more services. Among the most notable was the launch last year of a fund administration product designed to help venture capital firms not only manage their portfolio stakes more easily but to more seamlessly work with their own investors or limited partners. Toward this end, Carta now provides portfolio analytics, including deal IRRs and cash management, it helps VCs distribute their quarterly investor reports and it integrates with third-party tax and payroll providers.
Carta has so many pieces in place that in a call on Friday, founder and CEO Henry Ward told us Carta is taking what may be its biggest step yet and becoming the first real “private stock market for companies.” Its massive new funding round is “about act three,” he said. “Now that you have this network of companies and investors all on one platform and the ability to transfer securities, you can build liquidity on top of it.” It’s this vision that enticed Andreessen to jump aboard, he suggested.
There’s unquestionably a need for a kind of private stock market. Private funding has been outpacing IPO funding for years, and it shows no sign of stopping. It’s largely why the SEC is trying to better enable people who are not accredited investors to access private company shares. Most of the U.S. has missed out on the wealth creation happening before companies go public or sell to other companies.
It’s also true that Carta has its hooks into a meaningful number of startups and venture firms at this point. The company says more than 700,000 shareholders are on its platform, that it works with more than 11,000 companies and that its fund administration product now serves 143 venture firms.
Still, some longtime industry observers wonder if Carta isn’t mashing together a lot of disparate, moderately lucrative businesses and positioning it as the next-big platform company, and the view resonates. For one thing, Carta likes to talk about assets managed, though it’s really talking about how much in assets the startups and VCs that use its platform control, which is $575 billion altogether. Carta — which now employs nearly 600 employees across seven offices — says its own annual revenue run rate is currently $55 million.
Relatedly, while Ward says Carta’s primary revenue right now is its software subscription business — another revenue stream is the money it’s paid by the venture firms that use it as a fund administrator — people who question Carta’s fundraising note the people-intensive nature of the kind of work that Carta has been systemizing. Yes, there’s a sophisticated software component, but Carta is more Accenture than Salesforce, and services businesses are valued very differently.
There’s also the question of growth. Ward points to the roughly 450 startups that are garnering venture funding each month right now — all potential customers for Carta. But plenty of companies are also quietly going out of business all the time, a process that will accelerate whenever this very long funding boom finally slows.
This newest business conveys the impression that big things are coming, though it doesn’t sound exactly like a private stock market as Ward describes it, either. Primarily, it won’t provide the relative transparency that stock markets do. We don’t think that’s the case, anyway. Ward was somewhat dismissive of questions we asked about how Carta’s newest business will be fundamentally different than that of secondary players in the market that are already making it possible for shareholders to value and transact shares.
Indeed, though Carta says it’s changing how assets are acquired, valued and transacted, Ward also did not respond to several simple follow-up queries sent to him on Friday about the mechanics of this new business, dubbed CartaX. Instead, he thanked us for our efforts to understand and articulate Carta’s business. Meanwhile, his press team told us it was limited in what it can say about how CartaX operates for now.
Carta has savvy investors. In addition to Andreessen Horowitz, this newest round includes Lightspeed Venture Partners, Goldman Sachs Principal Strategic Investments, Tiger Global, Thrive Capital and earlier backers Tribe Capital, Menlo Ventures and Meritech Capital.
No doubt that in valuing the company, they took into account that Solium — a Canada-based software-as-a-service for stock administration, financial reporting and compliance that was publicly traded — sold for $900 million in cash earlier this year to Morgan Stanley. That’s roughly double Carta’s total funding so far of $447 million.
More likely, they were viewing the company based on its potential as a highly liquid market, ambitious as that might seem today. Consider that the parent company to both the NYSE and the Chicago Stock Exchange currently has a market cap of roughly $45 billion. Then again, that company operates 12 exchanges and marketplaces altogether, and it enjoyed more than $6 billion in revenue last year by transacting more than a $100 billion dollars in volume on a daily basis on the NYSE alone.
Perhaps most important to them, Carta is now as well-positioned as any outfit to capture and cater to the growing number of privately held companies looking to provide more of their employees liquidity and to cash out early investors. Add to the mix a mega-round and a star board member, and the company may well get to where Ward and his investors want it to go.
We’ll be watching to see.
[Correction: We’d originally misstated the market cap of Intercontinental Exchange, owner of the NYSE and Chicago Stock Exchange, among other marketplaces; we cited its annual revenue instead.]