Carta CEO Henry Ward on Private Credit & Private Markets

Barry speaks with Henry Ward, Chief Executive Officer at Carta, a technology company that provides capitalization table management and valuation software for startups. They discuss founding a business, the growth of private markets, and his lobby efforts for retail investors to access private markets. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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  This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

• 1:49Barry Ritholtz?

  This week on the podcast, yet another extra special guest. Henry Ward is CEO and co-founder of Carta. They're the company that keeps track of cap tables, compensation, valuation liquidity for over 50,000 private companies. They work with 8,500 investment firms and over 2.5 million Equity holders to track all of this crucial information. It's kind of hard to imagine that they were doing this manually with stock certificates before Carter came along and digitized everything and put it all on the cloud. Fascinating company, fascinating guy. I thought this was really a great conversation.

• 2:30Barry Ritholtz?

  With no further ado, the CEO and co-founder of Carter, Henry Ward. Welcome to Bloomberg.

• 2:37Speaker 05

  Thanks for having me.

• 2:38Barry Ritholtz?

  I want to start talking a little bit about your education and background. A bachelor's in mathematics and computer science from University of Michigan, go blue, and MSC in market finance from EDHEC. I am less familiar with EDHEC than I am with U-Mish. What was the original career plan?

• 3:01Speaker 05

  You know, I went to University of Michigan originally to be a math major. Technically, my degree on my transcript says a bachelor's of general studies because at that time, to get a math degree, you were in the literature, science, and arts college, and you had to take two years of a foreign language. And I failed Japanese three times, tried Spanish, failed that twice, and my counselor was in the, at the time, I was supposed to go in the Marines. And they said, look, I said to my counselor, I just need to graduate. And they said, well, look, if you switch to a general studies degree, you can graduate because you have enough credits. It's kind of a generalist degree because you took a bunch of math, computer science, and linguistics, and you can graduate next year. And I said, let's do that.

• 3:46Speaker 05

  So it was me and 13 football players that graduated with a general studies degree that year. But my passion had always been math. I thought I'd be a mathematician. My roommate was a computer scientist. He got me into computers, and then I went into software engineering.

• 4:01Barry Ritholtz?

  So, two questions. First, did you end up in the Marines?

• 4:05Speaker 05

  I joined the Marines out of high school as an enlisted man. I went to Paris Island, and then I later went in what's called platoon leaders course, which is like the Marine Corps version of ROTC. I did that, but when I finally graduated, and sometimes I I regret this, you know, you kind of look back at old decisions. And at the time, four years, uh, four more years in the Marines seemed like an eternity.

• 4:27Barry Ritholtz?

  Right.

• 4:28Speaker 05

  Now, it seems like nothing.

• 4:29Barry Ritholtz?

  It would be gone, right.

• 4:31Speaker 05

  Yeah, uh, I ended up deciding to pay back my, my GI Bill, um, because this is 2000. Uh, I graduated in 1999. My signing bonus, uh, paid off my entire college, uh, debt at the time. And I decided to go that route, so I.

• 4:46Barry Ritholtz?

  Where was the signing bonus? Where'd you go?

• 4:48Speaker 05

  I went to a company called Trilogy out of Austin, Texas. And it was an incredibly formative experience for me. I, um, it was a very smart company. They, they were going to be the Google of the South, uh, for a variety of reasons. It didn't quite work out, uh, for them. They, the CEO is still there though, running Trilogy. And it's a great private, uh, privately held company. Uh, but yeah, that's what took me into, into Texas.

• 5:09Barry Ritholtz?

  So, I, I hear you saying you didn't do well with languages, with Japanese, with Spanish. But am I reading this correctly? Did you get your masters, your MSC in France?

• 5:18Speaker 05

  Yeah, uh, I did because the, the business schools in France are mostly taught in English.

• 5:23Barry Ritholtz?

  Huh.

• 5:24Speaker 05

  Uh, and English is hard enough for me, so I had to, I had to stick with, with an English business school. The plan was never to go to business school. I, I wanted to ride my bicycle in Southern France. I was a big Tour de France watcher. I loved riding my bike. Uh, my fiancee, now ex, ex-wife, um, uh, was like, well, hey, if we're gonna go, I convinced her to come with me. We're gonna be productive. Let's go to business school while you train for the Iron Man and do all those things.

• 5:49Barry Ritholtz?

  And you did all of that?

• 5:50Speaker 05

  Yeah, so we were, but it's a French business school, so there wasn't a lot of work. Uh, uh, there was a lot of writing, a lot of, a lot of eating bread. It was, it was a great couple of years.

• 5:59Barry Ritholtz?

  So, that's a kind of fascinating mix of technical, financial, financial training, Marines, and overseas study. Um, how did that experience shape the way you think about building companies?

• 6:13Speaker 05

  You know, I realized pretty quickly, I'm not good at the military. My father was an army officer for a long time. And he used to tell me, you know, the difference between military life and civilian life is, in military life, you're judged on the worst thing you do. In civilian life, or certainly in startups, you're judged on the best thing you do. And I'm very much, I do one or two things really well versus I do many things, you know, not wrong. And so, I quickly realized the military was not the right place for me. Investment banking was not the right place for me. I went to an investment bank after grad school. And then I discovered entrepreneurship, sort of accidentally. And I realized, this is what I was meant to do. Successful or unsuccessful, this is what I was meant to do.

• 6:58Barry Ritholtz?

  So, so let's talk about the predecessor firm to Carta. Second Sight, a portfolio optimization platform. You launched that not long after grad school. How did that experience influence how you approached the next venture? How did it affect what your plans were for scaling Carta?

• 7:18Speaker 05

  So, the idea for Second Sight was, it was like a wealth front, or a betterment, one of these robo-advisors. But, you know, Andy and Josh did a much better job than I did. My company failed. And what kind of rose out of the ashes of that was, and I got through the trough of depression after closing it, was, I couldn't imagine doing anything else. As a completely failed founder, I just wanted to do it again. And Carta came out of that experience. And it was one of these interesting things where, the conventional wisdom for founders is you fall in love with a problem. And entrepreneurship is a vehicle with which to solve that problem. I was different. I fell in love with entrepreneurship. I fell in love with building a startup.

• 8:03Speaker 05

  And I just needed a problem. The problem was a vehicle with which to be a founder. And that really shapes how Carta is today. We're a heat-seeking missile, going after any problem we can find to solve, to keep the business moving forward. And I talk a lot to early-stage founders about this, is which one are you? Are you in love with being a founder? You're in love with the problem and both come with strengths and weaknesses. If you're in love with being in the problem, you know, you're passionate about the problem. You'll grind through the bad stages of being a founder to solve this problem. The downside is if the problem isn't actually that valuable, you kind of get stuck entrenched in this problem.

• 8:38Barry Ritholtz?

  Right.

• 8:38Speaker 05

  And many founders burn and crash in that. The other side for me is, you know, because I'm not, I'll do, I'll work on any problem to move the company forward. There's often not a coherent strategy. It's like, I'll grab a problem over here, I'll grab a problem over there. And you can see it in that kind of diversity. For a $500 million business, we have a large number of SKUs and business lines. And it's because we shoot at a lot of different targets.

• 9:03Barry Ritholtz?

  So, so let's talk about the initial target. How did you come up with the idea? Hey, these cap tables, all the data around comp and valuation and VC investing, no one is really tracking this in a consistent, intelligent way. Like, what was that aha moment?

• 9:22Speaker 05

  I was working with Manu Kumar over at K9 Ventures on my previous company. And when we shut that down and we were talking about what am I going to do next? He pointed out this cap table problem and was like, hey, this is a real problem. I think you should solve it.

• 9:37Barry Ritholtz?

  Really?

• 9:38Speaker 05

  Yeah, yeah, I'll invest in it. And, and he, he gave me this, this problem set to go after. And I spent a few months working on it and learning about it. What was really interesting was the first version of it was not cap tables. That's what everybody knows this for. The first version actually was PayPal for equity. It was instead of, back then, you used to mail a paper stock certificate, just like we used to do with the railroads. And it costs $50 in FedEx fees and $100 for the paralegal to print it. And somebody had to file it in a cabinet. And we were like, we said, hey, why are we emailing, you know, FedExing paper stock certificates? Let's just email it. And, and that was the initial idea. And we realized companies didn't care that much. We thought the competition was FedEx.

• 10:23Speaker 05

  They didn't care that much about it. But they said, well, hey, if you're, you're emailing all this stuff, can you just put all of it into a table and show it to me? And we're like, yeah, we can do that. Sounds pretty good. And that was the thing that had Product Market Fit, was just showing them everything we issued. And then, once you had the cap table of the company, my heat-seeking missile instincts were like, "Well, what else could we do?" And then we launched 49A, and Stock Option Expense Accounting, and Employee Management, and Cartic Total Compensation, and QSBS. And suddenly, you could do so many things around this core system of record called the cap table.

• 10:55Barry Ritholtz?

  Huh, so fascinating. What was it like scaling that? What sort of technology issues did you run into? How much of the data you were finding, was it all hand-assembled? Or was there any mass amount of data that made it easy to navigate? What were the next few steps like?

• 11:13Speaker 05

  You know, I often tell earlier-stage founders, you know, being us, you know, we're about 2,000 employees now. The problems I deal with are no different than the early stage. They're just bigger, faster, harder, but they're the same, same set of problems. I do the same thing every day that an early-stage founder does. And it's really simple. It's talk to customers, figure out their problems, solve the product, build the product to solve their problems, and make them happy. And that's just it. It's just rinse and repeat. Everything else is just, you know, overhead to building a, building a company. And so, these days, you know, I'm in New York for, for a few days. Half my meetings are, are customer meetings.

• 11:54Barry Ritholtz?

  So, this isn't just, obviously, public companies. This is public and private companies. How do they differ? My assumption is, it's easier to track and access public companies' data. What do you do on the private side?

• 12:10Speaker 05

  So, public company data, and, you know, Bloomberg's a great, you know, example of this, is so ubiquitous, and it's how do we manage this incredible set of data across massive ecosystems and networks in the public markets? Private markets is very different. It's, it's private. There, there's no central place to access all this data. We have a lot of the data on what's happening in the private markets, particularly around venture capital and private equity. But because it's private, we can't share it. And that is the very unique, interesting thing about what we do. We track all the, much of the same data that like a Bloomberg would track, but we can't share it with anybody. And that's the, that's, many people have asked me, hey, how come you haven't done blockchain?

• 12:55Speaker 05

  You know, blockchain seems like an obvious thing for a cap table to be put on. And the reason is our, our customers pay us to fix things when they're broken and don't tell anybody about, don't tell anybody about it. And blockchain is immutable and public. And that's, that's the big difference between private and public.

• 13:14Barry Ritholtz?

  Really interesting. What was the hardest problem in assembling a private market set of data and cap tables across the whole technology ecosystem?

• 13:25Speaker 05

  The, the big issue we had early was what I'll call the dematerialization of, of private stock. So the, the model that we think, we look at is when Nixon pulled us off the gold standard, he dematerialized cash. You know, now the Federal Reserve could just create cash because cash was now put into the cloud. They could create money, they could do what, they could move money around without actually moving physical inventory. They dematerialized cash and gold and put it in the cloud. And this is in the seventies. We think of us as doing the same thing was everything in private markets until Carta was, was cash. It was paper equity, it was contracts, it was PDFs, it was documents.

• 14:10Speaker 05

  And we dematerialized that. We put it all in the cloud. So now everything could be moved around seamlessly. Getting the ecosystem of venture capital to believe in the dematerialization of private, private equity and private capital was the hardest part. Cause it sounds crazy today, but in 2012 and 13, lawyers were like, no, but you, you have to have a, a green stock certificate with an embroider around it. Like that's what we've been doing literally for 200 years. Like who are you to change this?

• 14:39Barry Ritholtz?

  I would have thought if anybody would be amenable to, let's go from physical paper to digital, it would be Silicon Valley venture capitalists. They were pushing back or their lawyers were pushing back.

• 14:51Speaker 05

  The lawyers are pushing back, but. But even the venture capitalists, because the venture capitalists are very interesting because they are stewards of what the future will be and prognosticators of it, but they're not users of it. And it's one of these things I say a lot about AI is everybody thinks AI will change everybody's job except their own. And venture is the same. Like, oh, you know, all the companies should be using technology, but we don't.

• 15:19Barry Ritholtz?

  Because we're professionals. We don't need it.

• 15:22Speaker 05

  Exactly.

• 15:23Barry Ritholtz?

  We're smarter than everybody else. What was the aha moment where that ecosystem that was kind of pushing back said, oh, this is really useful and helpful. Yes, let's dematerialize. Let's go digital.

• 15:35Speaker 05

  It was the grassroots, the way we got it going was the grassroots efforts of startups saying, hey, they didn't understand that they were buying into a dematerialization model. But what they understood was, hey, I can track my cap table, cheaper, faster, better on Carta than anything else. And so they just came to us. That was the wedge. Kind of the golden phrase is, you know, come for the tool, stay for the network. So the tool, the wedge, was just better cap table management for one-tenth the cost. And then the network is, once everybody started converging on the cap tables, it became the new standard. So now it's a weird world, just like it's a weird world to say that, you know, we had paper stocks or tickets and that was the right way to do it.

• 16:19Speaker 05

  It is now a weird world to say, oh, well, why wouldn't we put it in the database on the cloud?

• 16:25Barry Ritholtz?

  And that becomes a self-reinforcing flywheel. You get a critical mass and then you could go out in all sorts of directions from there.

• 16:32Speaker 05

  That's right. And nobody knows that better than Bloomberg and Mr. Bloomberg, because that's exactly what Bloomberg did.

• 16:37Barry Ritholtz?

  That's exactly right. Started with the data. Coming up, we continue our conversation with Henry Ward, CEO and co-founder of Carta, talking about how a simple cap table management became an essential part of the startup world. I'm Barry Ritholtz. You're listening to Masters of Business on Bloomberg Radio.

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• 18:17Barry Ritholtz?

  I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Henry Ward. He is the CEO and co-founder of Carta. They help manage cap tables and so much more when it comes to both public and private corporate data. So let's talk a little bit about this. You start with a simple capital table management, kind of unglamorous, but sounds important, essential. Hey, I need to know how many shareholders I have, who owns what, what VCs, what employees own how much stock. Like, I would have thought that was around for 30, 40 years.

• 18:58Barry Ritholtz?

  How has nobody been doing that for, you know, you could practically go back to, you know, the launch of Intel 40 years ago? How has this not been a thing?

• 19:10Speaker 05

  One of the most common questions I got when I was raising money in the early days for this idea was, "Hey, this sounds kind of obvious. Why has nobody done this before?"

• 19:21Barry Ritholtz?

  Right.

• 19:22Speaker 05

  And I, my answer was somewhat cheeky and I would say, "How would I know? I'm doing it." And, you know, I'm the last person in the world that would know the answer to this. You should ask the 6.9 billion other people in the world that haven't done it.

• 19:39Barry Ritholtz?

  Who chose not to.

• 19:39Speaker 05

  Who chose not to. And I'm the least qualified person. I think it's just one of these innovator dilemma problems that the people that should have solved this should have been the investment banks. It should have been the stock exchanges.

• 19:53Barry Ritholtz?

  VCs, sure.

• 19:54Speaker 05

  Maybe even the VCs, yeah. Somebody, somebody should have solved it. But, you know, who's gonna do paper stock certificates? Like, it just, it's so...

• 20:02Barry Ritholtz?

  Somebody had a clerk, had to have a clerk or a junior researcher putting this together somewhere and had realized there was some value to both the firm and various outside startups. It's kind of shocking.

• 20:17Speaker 05

  For sure. But, but your point's so well made, Barry, is the kind of person that would be filing paper stock certificates would never come up with the idea of replacing them. And so you need this, this is the magic of a founder, a visionary founder, is you need that connection of, they know enough about technology to know what technology can do, but they don't know enough about the current process that they think it's unchangeable. And that's the, you know, there's certain level of intelligence and a certain level of stupidity that you need to get that, that chemical quotient right.

• 20:51Barry Ritholtz?

  So, so how did you convince investors that, "Hey, this is worthwhile. This should exist. It doesn't. Please invest in this. It's worth building."

• 21:00Speaker 05

  Most investors said, hey, even I believe you can build a cap table product and make some money and sell it, but the market size is too small. How many cap tables can you actually sell? And the pitch was, well, hey, this is a two-part story. Part one is win the cap tables. Part two is if you win the cap tables, then we can go build, at the time, what we called the NASDAQ for private markets, the stock exchange to trade the shares. And our thesis then was the reason why, there were many stock market companies before us, but none of them had actually owned the settlement. They hadn't owned the cap table itself. And so they had to match and settle these things offline.

• 21:43Speaker 05

  And by owning the cap table, we could digitize the entire settlement process for these companies. But you had to do the hard work of winning the cap table business first. We were wrong. It turned out the cap table business was way bigger than we and investors thought. Today, it's a $350 million business.

• 22:01Barry Ritholtz?

  Wow.

• 22:02Speaker 05

  But the stock market that everybody thought was going to be a billion-dollar business is zero for us.

• 22:10Barry Ritholtz?

  That's unbelievable. You know, VCs love to toss around TAM, total addressable market. Again, kind of shocking that people right in the middle of this, surrounded by tens of thousands of companies in California and Silicon Valley, completely underestimated the total addressable market. That's just shocking to me. Let's talk about the income stream you set up. In the beginning, this was a fee per stock certificate business. You guys changed this to a subscription model. Tell us about the factors that drove those changes and how it affected the steadiness of your income stream.

• 22:52Speaker 05

  Yeah, so we thought we were competing against FedEx. And so instead of paying $60 to FedEx to FedEx the stock certificate, you'll pay us $20 to email it. It worked, and people would pay for it. What was really hard about it, though, is it's a transactional business. It's very hard to manage a transactional business, and it was very volatile. And we also quickly realized that we wanted to move to a subscription-based business because we needed to bundle other things that were more subscription-based, like 49A valuations and expense accounting and other services we were doing. But we were two years in, and at the time, I think we had maybe 2,000 customers that were all paying us 20 bucks. And we realized this was like a crucible moment for us.

• 23:35Speaker 05

  If we didn't change the business model, we wouldn't survive. And we emailed all of our customers from me. I emailed all 2,000 customers, and I said, "Hey, I made a mistake. I priced this wrong for you. And I need to change from the $20 per certificate to X dollars per year." And everybody had a price that we custom already set up for them. So we didn't even ask them. We just said, "We're moving you, starting next month, to the subscription model." And it was a very scary thing to do because you didn't know what your customers were going to do. You literally changed the agreement in the mid-flight. And I explained in this long email. I said, "I made a mistake.

• 24:19Speaker 05

  If I keep charging you this way, I'm going to go out of business. And I need to move you over to this. And I'm very sorry I made this mistake. I understand if you decide to leave us, but I hope you won't." And it was remarkable. We lost almost no customers.

• 24:38Barry Ritholtz?

  Wow.

• 24:39Speaker 05

  And I have some of these saved and framed where customers came back and said, "You know, we're so glad you did this because we were wondering if you were going to run out of business." Like, we thought, you know, this pricing was wrong. It didn't make any sense.

• 24:52Barry Ritholtz?

  So the subscription model allows them to just keep doing repeat business, and no one has to track, "Oh, we did these six companies, and it's however much it is." No, here's our monthly fee, and we can do as many companies as we have to work with.

• 25:06Speaker 05

  They have a monthly, actually, annual fee for most of them. They pay annually, they renew. And based on the size of the cap table at that renewal, they just get a renewal notice. And it's interesting, you know, eight years ago, we were... 10x cheaper than the lawyers now. We're still 8x cheaper than the lawyers. But now, it's just a different world. People are used to software now. And it's, you know, 10 years ago is a weird thing for these companies to pay a subscription fee for legal software. And today, it's super, super common.

• 25:39Barry Ritholtz?

  Do you really think about this as legal software? I mean, it obviously has ramifications in law, but it really seems more like it's a combination of, hey, it's business, it's investing, it's accounting. How do you contextualize what space you're actually in?

• 25:58Speaker 05

  It's a great question. I think we started as legal software, and people thought of us as legal software. I think, over the first five years, we transitioned the concept of cap table from a legal solution to a financial solution. So, we sort of categorized ourselves in the fintech world. I think today, when you look at cap tables, our fund administration and fund accounting business, our LP business, and all the software that we sell as a platform into private equity, private credit, venture capital, I think of us now as a software infrastructure business. You know, we sell, we're more similar to a NetSuite, or even a Google Suite than we

• 26:42Speaker 05

  are to a legal tech company.

• 26:45Barry Ritholtz?

  Makes a lot of sense, and save on legal fees. So, back, let's call it about eight years ago, you were called E-Shares, which kind of intuitively makes a lot of sense. What was behind the rebranding? Why did you go from E-Shares to Carta in 2017?

• 27:04Speaker 05

  We liked E-Shares because it was an electronic share, you know, instead of paper, and it made a ton of sense. In 2017, we kind of realized we wanted to do way more than electronic shares. So, we knew we needed a new name. We were also pushed on it because we didn't own EShares.com. We owned ESharesInc.com, and there was a domain squatter on EShares.com.

• 27:28Barry Ritholtz?

  What did they want for it?

• 27:30Speaker 05

  They wanted... Initially, I think it was a million bucks when we had, we had $2 million raised total. And then as soon as we raised more money, it became $10 million. And so it was just every single time we were trying to get more and we just couldn't, couldn't do business. And so we decided we need to change the name. And we came up with Carta and we were able to buy it for, I think, 75,000 bucks.

• 27:53Barry Ritholtz?

  Wow, that's fantastic. Did, did eShares ever get sold?

• 27:58Speaker 05

  I don't think so. It's a great question. I don't know if it's still, I haven't been there in a long time.

• 28:02Barry Ritholtz?

  It just goes to show you, you know, you have to leave a little bit of money on the table. If you try and squeeze every last penny, you end up with nothing.

• 28:09Speaker 05

  Exactly.

• 28:10Barry Ritholtz?

  So you guys, I mentioned in the original introduction, Carta serves 50,000 companies, 8,500 firms, millions and millions of equity holders. Starting out with that first $2 million raise, it appears that you've scaled from a little niche solution to a giant platform for private companies. What was the biggest growth pains in, in that scaling that up?

• 28:37Speaker 05

  It's all of them. We, scaling a company, I think, I love Jensen at Nvidia and I got to see him speak. And, you know, someone was asked him about, would he do it again? And, you know, he's one of the most successful entrepreneurs of our generation. And he goes, if I knew what it would take, I wouldn't have done it again.

• 28:56Barry Ritholtz?

  Really?

• 28:56Speaker 05

  Yeah. And, you know, it's, I think Mark Andreessen calls it, it's, it's eating glass until you, you enjoy the taste of your own blood. So it's, you know, every day, there's sort of this funny thing where people are like, well, what was it like to scale? And I'm like, I'm still doing it. Like, you know, and, and it's, you know, getting in at, you know, 10 o'clock last night from a 4 a.m. start, it's, you know, talking to customers, it's hiring, firing, you know, uncomfortable conversations, you know, board mechanics, it's, it's all the same. It's just more harder, faster.

• 29:32Barry Ritholtz?

  Is Andreessen's quote, eating glass till you like the taste of your own blood, is that accurate? Or is it a little hyperbolic?

• 29:41Speaker 05

  Talk a lot to founders about this where the founders that want to be founders for the money. We all know that the expected value of being an entrepreneur is is below pursuing a career. Far, far below. The better business.

• 29:54Barry Ritholtz?

  Well, such a large percentage fail out of the gate. So we, all the survivorship bias of we see the ones that have succeeded. That's just the top of the iceberg. You don't see everything below the waterline.

• 30:06Speaker 05

  A hundred percent. And then when you see the ones that succeeded, sort of by definition, the ones that succeeded making it look easy. Right? Because it's like we're on podcasts doing, doing all of these things.

• 30:17Barry Ritholtz?

  They found the right niche. They pivoted appropriately. They built what was needed and the market rewarded them.

• 30:22Speaker 05

  That's exactly right.

• 30:22Barry Ritholtz?

  How hard could it be?

• 30:23Speaker 05

  That's exactly right. And, and when I look at my history, I know how lucky I got. Like, there's so many forks in the road that, boy, if I had flipped heads instead of tails, I would not be here. And I had, I had to flip, you know, I had to flip tails 32 times in a row to get to where I am.

• 30:41Barry Ritholtz?

  I'm, let me interrupt you a second because I just have to share this. So I've done, oh, 550, 600 of these, and I have heard that exact thing over and over again. And the first couple of times I heard it, especially from billionaires, I'm like, yeah, yeah, false humility. But then when I start hearing it from more people, from guys like you who are in the trenches, chewing on glass. It's like, and my own experience as an entrepreneur, you really, smart and hard work is just table stakes. You really have to get lucky and people don't understand the role of serendipity in how things work out.

• 31:19Speaker 05

  One of my favorite other quotes is Bo, Bo Durham, the comedian said, you know, don't take advice from successful people. Because it's, it's like listening to Taylor Swift say, follow your dreams. Or, or the lottery winner goes, you know what you should do? Sell everything you own and buy lottery tickets.

• 31:36Barry Ritholtz?

  That's right. That's an X K C D. They told me I would never win, but I kept at it.

• 31:42Speaker 05

  That's right.

• 31:42Barry Ritholtz?

  Here I am today.

• 31:43Speaker 05

  Exactly.

• 31:44Barry Ritholtz?

  No, it's, it's a hundred percent true. Listen, there's so much more signal in the failures than there are in the successes. Because success, maybe it was skill, maybe it was luck. We don't know.

• 31:53Speaker 05

  Yeah. And what I try to coach, like in my angel investments is. I call it, you know, the love of the game. And so, you know, you see founders that I want to be successful. I want to be a successful founder. I want to make the money. And what I always tell them is like, hey, the problem with money, doing this for the money is most of your journey, if not all, you're poor. Your seed stage, early stage, you're just poor. And so if you're doing it for the money, you kind of quickly lose motivation because you're poor for years.

• 32:22Barry Ritholtz?

  Right.

• 32:22Speaker 05

  And then, let's say you're one of the lucky few to get successful. Well, now you're rich. And so if you do it for the money.

• 32:29Barry Ritholtz?

  Now what?

• 32:29Speaker 05

  Now, you have no reason to do it anymore because you've got the money. And the people that are successful over time in this business do it for the love of the game. Like, I, you know, I do it because I love chewing glass.

• 32:42Barry Ritholtz?

  You know, my wife and I were having a conversation the other day about when we were poor, and I mean really poor. And the really challenging thing is when you're in the thick of it, you don't know that it's going to work out. You have no idea, hey, am I going to get that lucky break? Is the right client, partner, customer going to come along and give me that critical mass to go to the next level? So not only are you poor, but the outcome is wholly unknown. And so if you don't love it, then what are you, what are you doing?

• 33:15Speaker 05

  That's right. You're poor and you're, you're living in constant uncertainty.

• 33:18Barry Ritholtz?

  Uncertainty, absolutely.

• 33:20Speaker 05

  And I think what people forget is, you know, I'm not poor anymore, but I still live in uncertainty. And, you know, I don't know what's going to happen. You know, I'm trying to build a bigger business, you know, and the watermark keeps going up. And so like, if in three years, the watermark isn't higher, I will feel like I failed the last three years. And I think that's the, you know, that's the essence of being entrepreneur is the watermark keeps going up and you keep going up.

• 33:44Barry Ritholtz?

  Huh, really quite, quite fascinating. I want to dive into the world of private companies and alts, but before we do that, I just had to ask you a data question. My assumption is accessing reliable and clean data has to be the lifeblood of what you're doing. How challenging is that? How many different inputs do you guys have to track at Carter?

• 34:10Speaker 05

  I have a perspective on software and data businesses that might be a bit provocative, which is, I'll make this statement, that software businesses cannot be data businesses. And the reason is, if a software business has customer data, they get that customer data by selling software and service to this customer, and if they monetize that data on the other side, if their left hand is, "We will keep your data confidential and as part of our software service to you," but then with the right hand, they're selling that data, it cannibalizes their software business because the customers won't trust them now, because they're now giving them their data. Which is why Carta does not have a data product. We have tons of data, we do not have a monetizable data product.

• 34:55Barry Ritholtz?

  Interesting.

• 34:56Speaker 05

  We only sell workflow or business operation software. It's hard to think of a business that sells actual software and also sells data. I can't think of any. Even Bloomberg started really as a data business. The nonexistence of something is not proof that it cannot exist, but my best example of why my theory that software businesses and data businesses cannot coexist in one company is Salesforce. If anybody would launch a data product-

• 35:28Barry Ritholtz?

  So funny, that's who I was thinking of.

• 35:30Speaker 05

  It would be Salesforce. And in 30 years, they have not. And I don't think they ever will. And I think, the day Salesforce launches a successful data business, I will be eating my words and I will be wrong, but I don't think software businesses can become data businesses.

• 35:44Barry Ritholtz?

  I would imagine that, so we use, in my shop, we use Salesforce as our CRM, very customizable, and they have specific industries that they market towards and customize, but the moment it feels like your data is being reused, every single one of their competitors would say, "We keep your data safe, we don't monetize the data, give up on them, come to us, where we respect privacy." I mean, I think the moment anybody tries that, their competition is all over them.

• 36:16Speaker 05

  And you would agree, because suddenly you're now on every list of every vendor trying to sell software to Barry, and they know everything about you because Salesforce gave them your data.

• 36:25Barry Ritholtz?

  Not only that, but it's not quite HIPAA, but the SEC has privacy requirements, things you're not allowed to share when you're supposed to know your client, you have all this data, and if one of your vendors is reusing that, repurposing that data for their own ends, like, wait, not only are you violating our privacy agreement, you're putting me underwater with the SEC, they may come yell at me, I don't need that, I'm gonna go to your competition. Kinda interesting. So, so let's, let's pivot towards the private markets, because it's so interesting. You've testified before Congress that startups and growth companies backed by private capital, that's where most of the new job growth comes in the United States. Explain.

• 37:10Speaker 05

  Yeah, you know, public markets is, is actually a shrinking industry. You know, there's fewer public companies today than there were 10 years ago, by quite a big margin. But the number of private companies is growing astronomically, and that's largely fueled by, there's a lot more private capital than there used to be to fund these businesses, and there's less reasons to go public now. So I think, I think that will continue to be true, I think it's structurally true. When I go to the, to the Hill and talk to our legislators, the, the common response is, well, we just have to push more companies to go public.

• 37:48Barry Ritholtz?

  Why?

• 37:50Speaker 05

  Their, their belief is, the public markets is a great product for everyday Americans to access growth equity. And I think they're right, it is a good product for it. The problem is, it's not, it's a shrinking product, and most of the growth is being happening, is happening in the private markets, and their attempts to get these companies to go public so that there can be retail access to them isn't working. It's a little bit like, you know, the river's coming and you've got like, one tiny little dam trying to hold the water back.

• 38:19Barry Ritholtz?

  Let me share a data point that I bet a lot of listeners are not familiar with. The US is something like 4% to 5% of the global population, where something like 24%, 25% of the global economy, global market cap, we're over half. I mean, we are wildly disproportionate in our public markets. How much bigger does Congress want to make that? I mean, what you're describing makes a lot of sense. The public markets are enormous. Let's let the private markets grow and see where they go.

• 38:49Speaker 05

  Yeah, and that's certainly the message that we're pushing. We still have to solve the problem of retail access because as the number of public companies is shrinking, that's less and less options for your everyday American to invest their money in their retirement. I don't think the answer is to try to push more companies to go public. I think the answer is to create safe access for everyday Americans into private capital. And that's what we spent a lot of time lobbying for in Congress.

• 39:18Barry Ritholtz?

  Huh, really quite fascinating. Coming up, we continue our conversation with Henry Ward, CEO and co-founder of Carter, talking about the rise of private company investing. I'm Barry Ritholtz. You're listening to Masters of Business on Bloomberg Radio.

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• 40:19Barry Ritholtz?

  I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Henry Ward. He's the CEO and co-founder of Carta. They help manage the cap tables for tens of thousands of private companies, thousands of investment firms, and millions of equity holders. They do a number of other things in terms of tracking compensation, valuation, liquidity, all these really fascinating issues. So there are a number of companies that bring liquidity to private companies. Sometimes it's private equity or some form of a private fund. Other times, it's individuals who want to participate in companies before they go public.

• 41:04Barry Ritholtz?

  What are your thoughts on the future of secondary liquidity, both for the investors and employees of startups and for the rest of the investing public that wants to participate in these privates?

• 41:17Speaker 05

  Yeah, so I think I'm one of the maybe top five people in the world that have worked on private market liquidity. I spent the last 10 years working on the problem. And I'm of the view now that at least venture startup liquidity will never happen. And at least a secondary exchange in the sense that we think of public market exchanges. Private markets are so different from public. It's really kind of the upside-down world. In public markets, the price is set by the last buyer, not the first. In private markets, it's set by the first and not the last. In public markets, it's easier to sell one share than $100 million worth of shares. In private markets, it's easier to sell $100 million block than it is to sell one share.

• 42:02Speaker 05

  In public markets, the distribution outcomes is mostly Gaussian, normally distributed. In private markets, it's power law. So all the math that exists in modern portfolio finance theory in public markets doesn't work in private. So it's just, it's a very different market infrastructure. I think all the attempts to try to create liquidity in the venture world Or will be failed attempts, but I hope I'm wrong. I hope I'm just the old.

• 42:30Barry Ritholtz?

  I mean Equity Zen seems to have figured this out a while ago. They seem to have put together a way to do secondaries for creating some liquidity for insiders or employees at companies. But it's not like they're a trillion dollar platform. It's a little bit of a niche, specific, focused. And there are other companies like that. I just happen to be thinking of them recently. But really, what you're saying is there's a gulf between trillions and trillions of dollars in public equity and private stock and never the twain shall meet.

• 43:08Speaker 05

  So in public markets, liquidity begets liquidity. And so it centralizes on two exchanges in the US. In most regions, it centralizes on one. In private markets, what's happened is there's Equity Zen. There's many others. There's many, many small niche businesses doing secondaries. It does happen. But liquidity does not begat liquidity. As soon as one of these companies starts to scale, all the competitors come around and they devolve back down to a niche business. And that's just the market structure, is that any company that actually starts to scale in the private markets, it actually degenerates. We've seen

• 43:49Speaker 05

  so many examples of private market liquidity providers, you know, come in hot, get really a quick start, and then, and then once they hit scale, it falls down. And so you see so many of these small businesses that will always stay small businesses. I don't think there's an opportunity for someone to consolidate the market.

• 44:06Barry Ritholtz?

  There's been so much focus on privates and alternatives. Does this intensity of interest, does this surprise you at all? Or you've been up to your chin in this for a decade? And what took everybody so long?

• 44:20Speaker 05

  We've been in this up to my chin, as you say, for a decade plus. So it's not surprising. What I think is really, we're in a moment of time in the speed that it's happening, especially with the current administration. We're liberalizing a lot of the rules for private market access. You know, there's a lot of work being done around can retail investors access private equity firms, private credit firms. I think that will continue to happen, and I think that's a big tailwind for CARDA. And I think the US economy and GDP, because so much of this capital is being now deployed in useful ways. I think that will continue to be true.

• 45:02Speaker 05

  In the next administration, hopefully, they will continue that legislative policy. I think it will be weird, in 20 or 30 years, it will be weird that we locked out 99% of Americans out of private capital.

• 45:17Barry Ritholtz?

  So when I look at who's being aggressive in terms of moving from how do we get more people on to the alternatives and private side, it's everyone from Blackstone to Blackrock, Carlyle, Apollo, Goldman Sachs, go down the list. I'm assuming you're working with some or most of these companies?

• 45:36Speaker 05

  We know them all. We're huge fans. I was lucky enough to spend an hour with Rob Goldstein, the COO over at Blackrock. And he was telling me kind of the vision of Blackrock and their perspective on private markets. And, you know, he made this very salient point, which was, you know, when they talk to their customers, they might look at a customer and they spend, you know, $25 million a year on public market infrastructure and technology for their public market asset allocation software. And they might spend, you know, $350,000 on their private market stuff.

• 46:17Barry Ritholtz?

  A fraction.

• 46:18Speaker 05

  A fraction, right? With Blackrock, but they might spend a million dollars total. So 350K is with Blackrock and 700K is with a bunch of other vendors. And his team is like, oh, we should go after the That 700K and we'll win the whole, you know, million dollars that they send in alts. And he goes, no, no, no, no. What we need to do is figure out how to get that million dollars a year they spend in alts to be 25 million dollars a year. And then we'll capture half of that. And, and that was the, the mental mind shift that I think BlackRock is so smart at, which is we're trying to grow the market, not, not our percentage of the market.

• 46:53Barry Ritholtz?

  Right, that makes, that makes a whole lot of sense. So they're looking at an adjacent market to their public market dominance. They're the biggest investment firm in the world at around 12 trillion dollars. How do you decide what adjacent markets are attractive and you might wanna enter them? If you started with cap tables, you're doing all sorts of other data analytics. How do you figure out what's adjacent?

• 47:18Speaker 05

  We have a really strict framework on it because we spend a lot of our time thinking about where we can expand. And we have really two, two criteria. So one is, do we have a right to win? So what gives us competitive edge that we can do that nobody else can do? And second is, can we, can we win that market quickly? Because we're very much a software business. Like, if, if you can win a market, but it takes a long time, we're a growth, growth company. So it's got to be fast. So you have to have a very aggressive customer acquisition model that, that creates a flywheel that the more customers you get, the more customers you get. And so if those two things are true, we'll, we'll go after it. And it, it leads you to really funny things where you wouldn't actually attack adjacent markets

• 48:01Speaker 05

  that are obvious adjacencies, that have obvious adjacencies. So the example I love is cap tables and 49A. Cap tables was a legal service when we entered it, done by lawyers. 49A valuations was a valuation service done by valuation providers. Nobody thought of them as similar. What we realized is by having the cap table, we could do valuations faster, cheaper, smarter. And so we just started doing valuations.

• 48:24Barry Ritholtz?

  Well, well, you know, the total number of shareholders, you know, what the last transaction or funding was. It sounds pretty basic math, right?

• 48:31Speaker 05

  Totally, it's just math on the cap table, but they're a completely different industry. So if you think about it from a market perspective, they're different. But you think about it from where we have competitive edge, they're the same. And the same with fund accounting, fund administration, fund accounting software. Very different industry than cap table management. But we're able to connect the cap tables to the funds. And that gave us unique competitive advantage that nobody else could do. And so now we're in the fund admin business and that's that's our second biggest business line.

• 48:57Barry Ritholtz?

  You guys also do compensation analytics. How did you find your way into that space?

• 49:01Speaker 05

  We realized we're the only ones that could do benchmarking for both salary and equity for startups.

• 49:07Barry Ritholtz?

  Oh, of course.

• 49:07Speaker 05

  Nobody else can do it.

• 49:09Barry Ritholtz?

  Without the equity, the salary may not be that significant.

• 49:12Speaker 05

  That's right, but to start at a priority and go, we're going to do cap tables and that's going to lead us into compensation. Didn't make a ton of sense. And that's we have a flywheel of this is how we enter these industries.

• 49:25Barry Ritholtz?

  You're the perfect person to ask this question. I'm going to go off script. So I spoke at an event in June in Silicon Valley. It was a kind of funky hotel that was turned into this really interesting space right on the edge of, I'm trying to remember exactly where it was, about 45 minutes outside of San Francisco. But anyway, it was an employee benefits conference with all sorts of people. And I was there to talk about my book at the time. And I heard over and over again from all these people who they're 401k people, they're employee compensation consultants,

• 50:04Barry Ritholtz?

  they're health benefit consultants, all these people who were telling me that there's this sort of misalignment amongst Silicon Valley employees who were more interested in the dollars than they are in the equity, which just completely sounds upside down to me. Am I just looking at a weird corner of the world? Or is that a thing that, hey, you can't pay your rent with equity. I have to at least make X. What do you see out there in terms of how startup employees are thinking about equity versus cash payments for comp?

• 50:43Speaker 05

  Yeah, we've spent a lot of time thinking about this and I'll frame it as.

• 50:49Speaker 05

  Wealth management, financial advice is a well-established industry in the public world, and I'll call it the liquid world, right? You pay 1% or half a percent of AUM to your financial advisor and they help you manage your assets. There is no equivalent in the private world. If I'm an employee and I make $150,000 a year in cash, but I'm sitting on a million or $2 million of equity, illiquid equity, how do I think about that? How do I work on it? And there is no industry for that. The financial advisors don't know how to work with that, in part because they don't understand the private market illiquid asset piece. But also, they don't have any way to monetize $2 million worth of private stock.

• 51:32Speaker 05

  You can't charge 1 basis point or a percent of AUM on it. So we've wrestled with this question of, if an industry were to be created, not wealth management, but wealth management for illiquid people, for high net worth but illiquid asset holders, what would that industry look like? And so we've been thinking a lot about that problem. And we recently launched a partnership with Morgan Stanley where, last year, we posed this problem to them. And we said, "Hey, we think it's worth solving wealth management for illiquid holders. How would we do that?" And they're the largest wealth management firm in the country. They do this extremely well.

• 52:15Speaker 05

  And now we're creating a motion to basically help these employees who are like, "I would just want the cash because I don't know what to do with this equity. I don't understand it. I don't know when it's going to be liquid. And can you create a financial advisory industry to help those people?"

• 52:28Barry Ritholtz?

  That's really fascinating. I was genuinely shocked, maybe because I'm more risk-seeking than risk averse, and the thought of equity is so attractive to me. But I guess when you're in the thick of it and you're grinding 100-hour weeks, "Hey, I'm working my butt off and I still have to worry about paying my rent. I don't want to go that way." That was the only explanation I could come up with, but it was really quite fascinating. I only have you for a limited amount of time. Why don't we jump to some of our favorite questions that we ask all of our guests? Starting with, and you're a good person to ask this, tell us about your mentors who helped shape your career.

• 53:10Speaker 05

  Uh, yeah, I, I don't think I've had just one. I, I think, um, I pulled together a lot of people that have, that helped me with little different things. And so, you know, everything from my boxing coach in high school and college that, that, you know, boxing's an interesting sport because it's one of the very few sports that, um, if you're tired and you're in pain and you have to let off the gas a little bit, it hurts more, not less. Uh, and

• 53:36Barry Ritholtz?

  You gotta dig deep.

• 53:37Speaker 05

  That's right. And, um, uh, you know, there's, it's literally in the corner. Uh, and, uh, you know, from, from perseverance, from him, from the Marines, from, you know, Mark Andreessen, uh, who helped me figure out, you know, uh, NetSuite, what we call ERP for private capital at a breakfast, uh, to, you know, uh, John Waldron, who I had to, got to have a lunch with him, who's the president at Goldman, who explained to me why bankers make more money than I do, uh, and it's because of the regulatory, uh, defensibility. And so you just pick up these nuggets from these very smart people and, and you, you hold them as a treasure trove.

• 54:13Barry Ritholtz?

  Um, let's talk about books. What are some of your favorites? Are you reading anything currently?

• 54:18Speaker 05

  We just read, uh, Amp It Up as a, as a leadership team. So we, uh, last month, we, we took 60 of our top leaders at Carter and, and on an offsite. And every time we do an offsite at Carter, we pick a book to read and everybody has to read it and we do a discussion group. Uh, and it was very timely for us. We're, we're in very much an acceleration, uh, motion. Uh, and so, so everybody at, at Carter right now is, is reading Amp It Up and, and talking about it.

• 54:44Barry Ritholtz?

  Really interesting. Uh, what about streaming? What are you listening to in terms of podcasts or watching on Netflix or Amazon? I kind of get the sense you're not a big couch potato kind of guy.

• 54:54Speaker 05

  I'm not. I, I don't really watch TV, except I have an 11-year-old boy and I recently got him into Arrested Development, which is a

• 55:02Barry Ritholtz?

  Classic.

• 55:03Speaker 05

  Classic. I mean, it's some of the best comedy ever done. And, and we're watching it together and we're loving it. And now he, uh, he hits me with the lines and, you know, Dad, I've, I've made a huge mistake and we're having a great time with it.

• 55:17Barry Ritholtz?

  Narrator, it wasn't.

• 55:18Speaker 05

  Yeah.

• 55:19Barry Ritholtz?

  Right? I mean, that's where that comes from. People use it all the time, but it all goes right back to, uh, um, I, I like, uh, his podcast, Smartless, is always kind of fun. Um.

• 55:31Barry Ritholtz?

  Our final two questions. What sort of advice would you give to a recent college grad who is interested in a career in, fill in the blank, entrepreneurship, startups, private companies?

• 55:44Speaker 05

  You know, I just did a talk at Waterloo yesterday to a bunch of soon-to-be grads there, and I said, you know, they were computer science grads, and I said, you know, they know of this algorithm called the hill climbing algorithm, which is basically if you're trying to find a global maximum versus a local maximum. What I mean by that, the analogy I use is, let's say you're a French, you know, you're climbing in the French Alps as a mountain climber, and you're trying to find the tallest mountain in the French Alps, but there's cloud cover. You can't see, you can't see the tops of these. How would you find the highest mountain? And you would, you would do it by picking a mountain, climbing to the top, recording how high you are, and then randomly jumping to another mountain and climbing and recording that. And there's all this math around, you know, how many random jumps to mountains do you

• 56:29Speaker 05

  have to have to have a 90% probability of finding the global, the global maximum? And I say it's a great analogy for, metaphor for, for early careers, which is, most of us, unfortunately, are taught, you go through kindergarten to high school to college, you pick a career at 19, or a specialty, you then become a finance analyst and associate, then you become a senior associate, then you become a man, and you just, you kind of walk this track. And you, you never ask the question, am I on a local hill or a global optimal hill? And I encourage people early to, to jump mountains, to figure out which, which mountain they want to be on. And I think one of the reasons many people my age are very unhappy in their careers

• 57:13Speaker 05

  is, they look back and they realize, oh, I got to the top of the mountain, but it was the wrong mountain. And I encourage young people to mountain jump.

• 57:20Barry Ritholtz?

  I, I love that metaphor. Mountain jump is a great, great line. What do you know about the world of entrepreneurship, startups, et cetera, today? Might have been useful 20 or so years ago when you were first starting out.

• 57:33Speaker 05

  Idea matters. It matters a lot, because I've had a lot of great ideas that did not work, and I worked hard, hard at it. I also think there's this counterintuitive

• 57:48Speaker 05

  I guess thesis that's happening right now, which is the more entrepreneurs there are, the harder entrepreneurship gets. But people think the opposite, right? Oh, so many people are doing it. I can do too.

• 58:01Barry Ritholtz?

  Michael Mobison calls that the paradox of skill. The more skillful players there are in sports, the more luck matters because everybody's playing at such a high level.

• 58:11Speaker 05

  A hundred percent. And I think it's one of these funny things where like not many people, you know, dream or move to Atlanta to be a hundred meter, you know, sprinter. Because, you know, I think I can be the greatest hundred meter sprinter in the world. And it's because there's not a lot of luck. I mean, there's luck around. You don't get injured and all of those things. But like, we pretty quickly can tell.

• 58:33Barry Ritholtz?

  That is a pure skill outcome.

• 58:36Speaker 05

  Yes. And it's a little bit like acting, like so much of it is luck, that because so much of it is luck, people think anybody can do it. And it's actually worse. You actually have to be a super skilled, you know, hundred meter sprinter, and you have to be lucky to do one of these startups. And I think a lot of people are like, oh, you know, a lot of it's luck. So if it's luck, anybody can do it. It's you gotta have both. It makes it actually harder, not easier.

• 59:01Barry Ritholtz?

  I love the expression table stakes. Smart, hardworking, that's just to enter the arena. Then you gotta get lucky on top of it.

• 59:08Speaker 05

  That's right.

• 59:09Barry Ritholtz?

  Unbelievable. Henry, this has been absolutely fascinating. We have been speaking with Henry Ward. He is the CEO and co-founder of Carta, helping to manage much more than just the cap table for tens of thousands of companies, investment funds, and investors. If you enjoy this conversation, well, check out any of the 565 we've done over the past 11 years. You can find those at Bloomberg, iTunes, Spotify, YouTube, wherever you get your favorite podcasts. And be sure to check out my new book, How Not to Invest: The Ideas,

• 59:50Barry Ritholtz?

  Numbers, and Behaviors That Destroy Wealth and How to Avoid Them. How Not to Invest at your favorite bookstore.

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• 1:01:19Speaker 07

  This message comes from Edward Jones, where they believe rich is about more than saving and investing. It's also taking care of what gives your life meaning. That's why your dedicated financial advisor meets you where you are with personalized financial strategies that help protect what matters so you can preserve your progress while creating a path forward. The key to being rich is knowing what counts. Edward Jones. Member SIPC.