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.

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Episode Transcript

Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. This is Masters in
Business with Barry Ritholtz on Bloomberg Radio.

Speaker 2 (00:15):
This week on the podcast, you had another extra special guest.
Henry Ward is CEO and co founder of Karta. They're
the company that keeps track of cap tables, compensation, valuation,
liquidity for over fifty thousand private companies.

Speaker 3 (00:32):
They work with eighty five.

Speaker 2 (00:33):
Hundred investment firms and over two and a half 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 Karter came along and digitized
everything and put along on the cloud.

Speaker 3 (00:51):
Fascinating company. Fascinating guy.

Speaker 2 (00:54):
I thought this was really a great conversation with no
further ado. The CEO and co founder of Cars, Henry Ward,
Welcome to Bloomberg.

Speaker 4 (01:03):
Thanks for having me.

Speaker 2 (01:04):
But I want to start talking a little bit about
your education and background. A bachelors in mathematics and computer
science from University of Michigan Go Blue, and MSc in
Market Finance from ed HC.

Speaker 3 (01:20):
I am less.

Speaker 2 (01:20):
Familiar with ed Heck than I am with you, Mish.

Speaker 3 (01:25):
What was the original career plan.

Speaker 2 (01:27):
You know.

Speaker 4 (01:28):
I went to you Versus in Michigan originally to be
a math major. Technically, my degree on my transcript says
the Bachelors of General Studies, because at that time to
get a math degree you were in the Literature of
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 at

(01:52):
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 switched 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. So it was me and thirteen football players

(02:14):
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 in a software engineering.

Speaker 3 (02:27):
So two questions. First, did you end up in the Marines.

Speaker 4 (02:31):
I joined the Marines out of high school as an enlistedment.
I went to Paris Island, and then I later went
into what's called Platoon Leader's Course, which is like the
Marine Corps version of Ratzia. I did that. But when
I finally graduated, and sometimes I regret this, you know,
you kind of look back at old decisions. And at
the time, four years, four more years, and the Marine

(02:52):
seemed like an eternity. Right now it seems like nothing.

Speaker 3 (02:55):
Book of an Eye gone, right.

Speaker 4 (02:57):
Yeah, I ended up deciding to pay back my my
GI bill because this is two thousand. I graduated in
nineteen ninety nine. My signing bonus paid off my entire
college debt at the time, and I decided to go
that route.

Speaker 3 (03:11):
So it was the signing bonus. Where'd you go?

Speaker 4 (03:13):
I went to a company called Trilogy out of Houston, Texas,
and it was an incredibly formative experience for me. It
was a very smart company. They were going to be
the Google of the South. Provided reasons it didn't quite
work out for them. The CEO is still there though,
running Trilogy and it's a great private, privately held company.
But yeah, that's what took me in Texas.

Speaker 2 (03:35):
So 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?

Speaker 4 (03:44):
Yeah? I did because the business schools in France are
mostly taught in English, and English is hard enough for me,
so I had to stick with an English business school.
The plan was never to go to business school. I
wanted to ride my bicycle in southern France, a big
tour de France. Watch here. I loved riding my bike.
My fiance now x ex wife was like, well, hey,

(04:08):
if we're going to go, I convinced her to come
with me. We're going to be productive. Let's go to
business school while you train for the iron Man and
do all those things.

Speaker 1 (04:15):
And you do.

Speaker 4 (04:16):
Yeah, so we But it's a French business school, so
there wasn't a lot of work. There was a lot
of riding at a lot of eating bread. It was
a great couple of years.

Speaker 2 (04:25):
So that's a kind of fascinating mix of technical, financial,
financial training, marines and overseas study. How did that experience
shape the way you think about building companies?

Speaker 4 (04:39):
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,
and the difference between military life and civilian life is
in military life you're you're judged on the worst thing
you do. In civilian life, for certainly, in startups, you're
judge on the best thing you do. And I'm very
much I do one or two things really well versus

(05:02):
I do many things, you know, not wrong. And so
I quickly realized the military was not 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,

(05:22):
this is what I was meant to do.

Speaker 2 (05:23):
So, so let's talk about the predecessor firm to Karta
second site, 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 Karta?

Speaker 4 (05:44):
So the idea for a second site was it was
like a wealth front or a better meant 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 Trapha depression after
closing it was I couldn't imagine doing anything else as

(06:07):
a completely failed founder. I just wanted to do it again.
And Karta 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 the problem, and
entrepreneurship is a vehicle with which that solved that problem.
I was different. I fell in love with entrepreneurship. I

(06:28):
fell in love with building a startup, and I just
needed a problem. The problem was a vehicle with which
to be a founder, and that really shapes how Karda
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 the being a founder? Are you in

(06:49):
love with the problem? And both come with strength and witnesses.
If you're in love with being and the problem, you
know you're passionate of 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, and
many founders burn and crash in that. The other side
for me is, you know, because I'm not I'll do

(07:11):
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 the kind of diversity
for a five hundred million dollar business. We have a
large number of SKUs and business lines, and it's because
we shoot out a lot of different targets.

Speaker 2 (07:29):
So let's talk about the initial target. How did you
come up with the idea?

Speaker 3 (07:35):
Hey, these cap.

Speaker 2 (07:36):
Tables, all the data around comp and valuation and VC investing,
No one is really tracking this in a consistent, intelligent way.

Speaker 3 (07:45):
Like what was that aha moment?

Speaker 4 (07:48):
I was working with Menu Kumar over at Canine 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. Really Yeah, yeah, I'll invest in it.
And he gave me this problem set to go after

(08:09):
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 table, so that's what
everybody knows us 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 your cost fifty dollars

(08:29):
in FedEx pise in one hundred bucks 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 email or you know FedExing paper stock certificates.
Let's just email it. And that was the initial idea,
and we realized companies didn't care that much. We thought
the competition was FedEx. They didn't care that much about it.

(08:50):
But they said, well, hey, if 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. That sounds pretty good. That was the
thing that had product market fit was just showing them
everything we issued. And then once you had the cop table,
the company my heat seeking missile instincts were like, well,
what else could we do? And then we launched four

(09:10):
nine A and stock ops and expense accounting and employee
management and card total compensation and QSBS and suddenly you
could do so many things around this core system of
record called the cop table.

Speaker 2 (09:21):
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?

Speaker 4 (09:38):
Like I often tell earlier stage founders, you know, being
a you know, we're about two thousand employees now, the
problems I deal with they're no different than the early stage.
They're just bigger, faster, harder, but they're the same set
of problems. I do the same thing every day that
an early stage founder does, and it's really simple. Talk

(10:00):
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 repreat 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 a few days. Half my meetings are
our customer meetings.

Speaker 2 (10:20):
So this isn't just obviously public companies. This is public
and private companies. How do they differ? My assumption is
it's easy to track and access public companies data.

Speaker 3 (10:33):
What do you do on the private side?

Speaker 4 (10:36):
So public company data and you know, Bloomberg is a great,
you know example of this is so ubiquitous, and how
do we manage this incredible set of data across fassive
ecosystems and networks in the public markets. Private markets is
very different. It's it's private. There's no central place to
access all this data. We have a lot of the

(10:58):
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 is 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 we

(11:20):
haven't done blockchain? You know, blockchain seems like an obvious
thing for a cap table to be put on. And
the reason is our customers pay us to fix things
when they're broken, and don't tell any about tell don't
tell anybody about it. And blockchain is immutable and public,
and that's that's the big difference between private and public.

Speaker 3 (11:40):
Really interesting.

Speaker 2 (11:41):
What was the hardest problem in assembling a private market
set of data and cap tables across the whole technology ecosystem.

Speaker 4 (11:51):
The big issue we had early was what I'll call
the de materialization of private stocks. So the model that
we think we look at is when Nixon pulled us
off the gold standard, he de materialized cash. You know,
now the Federal Reserve could just create cash because cash
was now put into the cloud. They could create money,

(12:14):
they could do what they could move money around without
actually moving physical inventory. They de materialized cash and gold
and put it in the cloud. And this was in
the seventies. We think of us as doing the same thing.
Was everything in private markets until Karta was cash, it
was paper equity, it was contracts, it was PDFs, it
was documents, and we de materialized that. We put it

(12:37):
all in the cloud. So now everything could be moved
around seamlessly. Getting the ecosystem of venture capital to believe
in the de materialization of private equity and private capital
was the hardest part because it sounds crazy today, but
in twenty twelve and thirteen, lawyers were like, no, but
you have to have a green stock certificate within a

(13:00):
broader around it, Like that's what we've been doing, literally
for two hundred years. Like who are you to change this?
I would have thought.

Speaker 2 (13:06):
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.

Speaker 4 (13:17):
The lawyers are pushing back, but even the adventure 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

(13:39):
venture is the same, like, oh, you know, all the
companies should be using technology, but we don't because we're professionals.

Speaker 2 (13:47):
We don't need it.

Speaker 3 (13:48):
Exactly, we're smarter than every Exactly what was the aha?

Speaker 2 (13:51):
Moment where that ecosystem that was kind of pushing back
said oh this is really useful and helpful.

Speaker 3 (13:59):
Yes, let's materialized, let's go digital.

Speaker 4 (14:02):
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 de materialization model.
But what they understood was, hey, I can track my
cap table cheaper, faster, better on Karta than anything else.
And so they just came to us. That was the wedge.
Thet kind of the golden phrase is you know, come,

(14:25):
come for the tools, 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, weird,
weird world to say that, you know, we had paper
stocks or to give it so and that was the
right way to do it. It is now a weird

(14:46):
world to say, oh, well, why wouldn't we put it
in the database on the cloud.

Speaker 2 (14:50):
And that becomes a self reinforcing flywheel. You get a
critical mass and then you could go out in all
sorts of directions from that.

Speaker 4 (14:58):
That's right, and nobody knows that better than Bloomberg and
mister Bloomberg, because that's exactly what Bloomberg did.

Speaker 3 (15:03):
That's exactly right. Started with the data. Coming up, we
continue our.

Speaker 2 (15:07):
Conversation with Henry Ward, CEO and co founder of Karda,
talking about how a simple cap table management became an
essential part of the startup world.

Speaker 3 (15:19):
I'm Barry Ridults.

Speaker 2 (15:20):
You're listening to Masters of Business on Bloomberg Radio.

Speaker 3 (15:36):
I'm Barry Ridolts.

Speaker 2 (15:37):
You're listening to Masters in Business on Bloomberg Radio. My
extra special guest today is Henry Ward.

Speaker 3 (15:43):
He is the CEO and co founder of Karta.

Speaker 2 (15:47):
They help manage cap tables and so much more when
it comes to both public and private corporate data.

Speaker 3 (15:55):
So let's talk a little bit about this.

Speaker 2 (15:57):
You start with a simple capital table management kind of
unglamorous but sounds important.

Speaker 3 (16:04):
Essential.

Speaker 2 (16:05):
Hey, I need to know how many shareholders I have,
who owns what, what vcs, what employees own, how much stocked?
Like I would have thought that was around for thirty
forty years. How has nobody been doing that for you know,
you could practically go back to, you know, the launch
of Intel forty years ago.

Speaker 3 (16:26):
How has this not been a thing?

Speaker 4 (16:30):
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?
And I my answer was somewhat cheeky, and I would say,
how would I know I'm doing it? And you know,

(16:50):
I'm the last person in the world that would know
the answer this. You should ask the six point nine
billion other people in the world that haven't been who
chose not to, And I'm I'm a 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 CC changes.

(17:13):
Maybe I'm in the VCS. Yeah, somebody should have solved it.
But you know, who's going to do paper stock certificates
like it?

Speaker 2 (17:20):
Just it's so somebody had to have a clerk or
a junior researcher putting this together somewhere and had to
realize there was some value to both the firm and
various outside startups for it.

Speaker 3 (17:34):
It's kind of shocking for sure.

Speaker 4 (17:36):
But your point so well made, Bary 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,

(17:57):
but they don't know enough about the current process us
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 chemical quotient right.

Speaker 2 (18:10):
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.

Speaker 4 (18:19):
Most investors said, hey, the 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 this is a two part story. Part one
is win the cap tables. Part two is if you

(18:40):
win the cap tables, then we can go build at
the time what we call the NASDAQ for private markets,
the stock exchange to trade these shares, and our thesis
then was the reason why there were many stock market
companies before us, but none of them actually owned the settlement.
They hadn't owned the cap table itself, and so they
had the match and settle these things offline. And by

(19:02):
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 cop 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
three hundred and fifty million dollar business, but the stock

(19:24):
market that everybody thought was going to be, you know,
a billion dollar business is zero for us.

Speaker 3 (19:29):
That's unbelievable.

Speaker 2 (19:31):
The 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.

Speaker 3 (19:49):
That's just shocking to me.

Speaker 2 (19:51):
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.

Speaker 4 (20:11):
Yeah, so we thought we were competing against FedEx, and
so instead of paying sixty dollars to FedEx, to FedEx
the stocks are dada, You'll pay us twenty dollars to
email it. It worked that people would pay for it.
What was really hard about it, though, is it's a
transactional business. It's very hard to manage the transactional business,
and it was very volatile. And we also quickly realized

(20:32):
that we wanted to move to a subscription based business
because we needed to bundle other things that were more
subscription based, like foreign NA evaluations and expense accounting and
other services we were doing. But we were two years
in and you know, at the time, I think we
had maybe two thousand customers that were all paying us
twenty bucks. And we realized this was like a crucible

(20:54):
moment for us. If we didn't change the business model,
we wouldn't survive, and we emailed all of our customers
from me. I emailed all two thousand customers and I said, hey,
I made a mistake. I priced this wrong for you,
and I need to change from the twenty dollars per
certificate to x dollars per year, and everybody had a

(21:18):
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, scary thing to do because you
don't know what your customers are 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.

(21:38):
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 hope I understand if you decide to leave us,
but I hope you won't. And it was remarkable. We
lost almost no customers and I have some of these

(21:59):
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.

Speaker 2 (22:11):
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 a monthly fee, and we can do. As many
companies as we.

Speaker 4 (22:25):
Have, they have a monthly actually annual fee. For most
of them, they pay annually. They were new 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 ten x cheaper than the lawyers.
Now we're still eight x cheaper than the lawyers. But

(22:46):
now it's just a different different world. People are used
to software now and it's you know, ten years ago
is a weird thing for these companies to pay a
subscription fee for legal software, and today it's super super common.

Speaker 3 (22:58):
Do you really think about this as lee software.

Speaker 2 (23:01):
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, its accounting. How do you contextualize what space
you're actually in.

Speaker 4 (23:18):
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 categorize ourselves in the fintech world.
I think today when you look at cap tables, our

(23:39):
fund administration and fund accounting business, our LP business, and
all the software that we sell as a platform into
private private equity, private credit, venture capital. I think of
us as now as a software infrastructure business, you know
we sell We're more similar to a net suite or

(24:00):
even a Google suite than we are to a legal
tech company.

Speaker 2 (24:03):
Or 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.

Speaker 3 (24:13):
Which kind of intuitively makes a lot of sense. What
was behind the rebranding?

Speaker 2 (24:18):
Why did you go from e shares to karta in
twenty seventeen.

Speaker 4 (24:23):
The We liked e shares because it was an electronic share,
you know, instead of paper, and it made a ton
of sense. In twenty seventeen, 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 e shares dot com.
We owned e Sharesinc. Dot com and there was a

(24:44):
domain squadron on e shares dot com.

Speaker 3 (24:47):
What did they want for it?

Speaker 4 (24:49):
They wanted initially? I think it was a million bucks
when we had we had two million dollars raised total,
and then as soon as we raised more money, it
became ten million dollars. 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

(25:09):
Karta and we were able to buy it for I
think seventy five thousand bucks.

Speaker 2 (25:12):
And wow, that's fantastic. Did the shares ever get solved?

Speaker 4 (25:17):
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.

Speaker 2 (25:21):
It just goes to show you, you know, you have
to leave a little bit on money on the table.
If you try and squeeze every last penny ends up
with nothing exactly. So you guys, I mentioned in the
original introduction Karter serves fifty thousand companies, eighty five hundred firms,
millions and millions of equity holders. Starting out with that
first two million dollar raise, it appears that you've scaled

(25:45):
from a little niche solution to a giant platform for
private companies.

Speaker 3 (25:52):
What was the biggest growth pains in that scaling that up.

Speaker 4 (25:56):
It's all of them. We scaling a company. I think.
I love Jensen and Nvidia. And I got to see
him speak and you know, someone asked him about what
do you 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. Really, and yeah, and you know it's

(26:19):
I think Mark and Reeson calls it. It's it's eating
glass until 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, ten o'clock last night from a four

(26:40):
am start. It's you know, talking to customers, it's hiring, firing,
you know, uncomfortable conversations, you know, bored mechanics. It's it's
all the same. It's just more harder, faster.

Speaker 2 (26:51):
Is in Reason's quote, eating glass till you like the
taste of your own blood.

Speaker 3 (26:55):
Is that accurate or is it a little hyperbolic?

Speaker 1 (26:58):
Uh?

Speaker 4 (26:58):
You know? I think so I 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 entrepreneurs is below pursuing a career,
far far below the better business.

Speaker 2 (27:13):
Well, such a large percentage fail at 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.

Speaker 4 (27:25):
One hundred percent. And then when you see the ones
that succeeded, sort of by definition, the ones that succeeded
made it look easy, right, because it's like we're on
podcasts doing doing all of these things.

Speaker 2 (27:36):
They found the right niche, they pivoted appropriately, they built
what was needed, and the market rewarded.

Speaker 4 (27:41):
That's exactly how. That's exactly right. 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 to flip you know, I
had to flip tails thirty two times in a row
to get to where I am.

Speaker 2 (28:00):
I'm let me interrupt you a second, because I just
have to share this. So I've done five hundred and
fifty six hundred of these and I've 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

(28:22):
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.

Speaker 4 (28:38):
One of my favorite other quotes is both Duringham the
Comedia said, you know, don't take advice from successful people,
because it's like listening to Taylor Swift's they follow your dreams.
Or the lottery winner goes, you know what you should do,
so everything you own and buy lottery tickets.

Speaker 3 (28:55):
That's right, that's an XKCD.

Speaker 2 (28:58):
They told me I would never win, but I kept
out right here I am today exactly. No, it's one
hundred percent true. Listen, there's so much more signal in
the failures than the wrong and the success is because
success maybe it was skill, maybe was luck.

Speaker 3 (29:12):
We don't know.

Speaker 4 (29:12):
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
successful founder. I want to make the money, you know.
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,

(29:34):
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, right, and then let's say
you're one of the lucky for you to get successful. Well,
now you're rich. And so if you do it for
the money, 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

(29:56):
the love of the game, like I. You know, I
do it because I of chewing glass.

Speaker 2 (30:01):
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.

Speaker 3 (30:14):
You have no idea. Hey, am I going to get
that lucky break?

Speaker 2 (30:17):
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 you poor, but the outcome
is wholly unknown. And so if you don't love it,
then what are you?

Speaker 3 (30:33):
What are you doing?

Speaker 4 (30:34):
It's right, you're poor, and you're it's you're living in
constant uncertainty. Uncertainty absolutely, 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 and the water water mark keeps going up,
and so like if if in three years the water

(30:54):
mark 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 entrepreneurs. The watermark keeps going
up and you keep going up.

Speaker 3 (31:04):
Really quite fascinating.

Speaker 2 (31:06):
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?

Speaker 4 (31:27):
At Karta, 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

(31:48):
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 Karta does not have a

(32:10):
data product. We have tons of data, we do not
have a monetizable data product. Interesting, we only sell workflow
or business operations 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 non existence non existence of something that

(32:34):
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 so funny, it would be Salesforce,
And in thirty years they have not, and I don't
think they ever will. And I think the day Salesforce

(32:56):
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.

Speaker 3 (33:03):
I would imagine that.

Speaker 2 (33:04):
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

(33:25):
don't monetize the data, give them up on them, come
to us where we respect privacy. I mean, I think
the moment anybody tries that their competition is all over.

Speaker 4 (33:35):
There, and you would agree because suddenly you're now on
every list of every vendor trying to sell software to
bury and they know everything about you because Salesforce gave
them your data.

Speaker 2 (33:44):
Not only that, but it's not quite hippa 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, wait that
not only are you violating our privacy agreement, you're putting

(34:04):
me underwater with the SEC.

Speaker 3 (34:06):
They may come yell at me, I don't need that often,
go to your competition.

Speaker 2 (34:10):
Kind of interesting, So let's pivot towards the private markets
because it's so interesting. You've testified before Congress that startups
and growth companies back by private capital, that's where most
of the new job growth comes in the United States.

Speaker 4 (34:28):
Explain, Yeah, you know, public markets is actually a shrinking industry.
You know, there's fewer public companies today than there were
ten 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

(34:49):
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 hill and to our legislators.
The common response is, well, we just have to push
more companies to go public. I think it's their belief

(35:10):
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 happened 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.

(35:32):
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.

Speaker 2 (35:38):
Let me share a data point that I bet a
lot of listeners are not familiar with. The US is
something like four to five percent of the global population,
where something like twenty four to twenty five percent of
the global economy global market cap, we're over half. I mean,
we are wildly disproportionate in our public markets.

Speaker 3 (35:58):
How much bigger does Congress want to make that?

Speaker 2 (36:00):
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.

Speaker 4 (36:08):
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
less and less options for your everyday American to invest
their money and their retirement. I don't think the answer
is to try to push more companies to go public.

(36:29):
I think the answer is to create safe access for
everyday Americans into private capital. And that's what we spend
a lot of time lobbying for in Congress.

Speaker 2 (36:37):
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.

Speaker 3 (36:49):
I'm Barry Richards.

Speaker 2 (36:50):
You're listening to Masters Business on Bloomberg Radio. I'm Barry Ridults.
You're listening to Masters in Business on Bloomberg Radio. My

(37:12):
extra special guest this week is Henry Ward. He's the
CEO and co founder of Karta. 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,

(37:32):
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. What are your thoughts on the future

(37:54):
of secondary liquidity, both for the investors and employees of
startup up and for the rest of the investing public
that wants to participate in these privates.

Speaker 4 (38:05):
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 ten years working on
the problem, and I'm of the view now that that
at least venture startup liquidity will never happen, and at

(38:27):
least a secondary exchange in the sense that we think
of public market exchanges. The private markets are so different
from public it's really kind of the upside down world,
you know. The 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 one
hundred million dollars worth of shares. In private market's easier
to sell one hundred million dollar block than it is

(38:49):
to sell one one share. You know, in public markets,
the distribution outcomes is mostly Gaussian normally distributed in private markets,
it's power line. 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.

(39:11):
I think all the attempts they try to create liquidity
in the venture world will be failed attempts. But I
hope I'm wrong. I hope I'm just the old inequity.

Speaker 2 (39:20):
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.

Speaker 3 (39:41):
I just happen to be thinking of them recently.

Speaker 2 (39:45):
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.

Speaker 4 (39:56):
So in public markets, liquidity begets liquidity, and so it
centralizes on two exchanges in the US and most regions,
it centralizes on one. In private markets, what's happened is
there's equities and there's many others. There's many many small
niche businesses doing secondaries. It does happen, but liquidity, it

(40:17):
does not get 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 it degenerates.
We've seen so many examples of private market liquidity providers,

(40:42):
you know, come in hot, get really a quick start,
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.

Speaker 2 (40:55):
There's been so much focus on privates and alternatives. Does
is this intensity of interest?

Speaker 3 (41:01):
Does this surprise you at all?

Speaker 2 (41:03):
Or you've been up to your chin in this for
a decade and what took everybody so long?

Speaker 4 (41:09):
We've been in this up to 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 and 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,

(41:33):
private credit firms. I think that will continue to happen,
and I think that's a big tailwind for KARTA 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 in the
next administration. Hopefully they will continue that legislative policy. I

(41:56):
think it will be weird and twenty or thirty years
it will be weird that we locked out ninety nine
percent of Americans out of private capital.

Speaker 2 (42:06):
So when I look at who's being aggressive in terms
of moving from how do we get more people onto
the old turnatives and private side, it's everyone from Blackstone
to Blackrock, Carlisle, Apollo, Goldman sets go down the list.
I'm assuming you're working with some or most of these companies.

Speaker 4 (42:25):
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,

(42:46):
you know, when they talk to their customers, they might
look at a customer and they spend you know, twenty
five million dollars a year on public market infrastructure and
technology for their public market allocation software, and they might
spend you know, three hundred you know, three hundred and
fifty thousand dollars on their private frash fraction right with Blackrock,

(43:09):
but they might spend a million dollars total. So three
hundred fifty k is with Blackrock and seven hundred k
is with a bunch of other vendors. And his team
is like, oh, we should go after that seven hundred
k and we'll win the whole you know, million dollars
that they send an ALTS, And he goes, no, no, no, no,
Well we need to do is figure out how to
get that million dollars a year they spend an ALTS
to be twenty five million dollars a year, and then

(43:32):
we'll capture half of that. And that was the mental
mind shift that I think Blackrock is so smart at
which is we're trying to grow the market, not our
percentage of the market, right.

Speaker 2 (43:42):
That makes that makes a whole lot of sense. So
they're looking at an adjacent market to their public market
dominance of the biggest investment firm in the world at
around twelve trillion dollars. How do you decide what adjacent
markets are attractive and you might want to into them?
If you started with cap tables, you're doing all sorts

(44:03):
of other data analytics.

Speaker 3 (44:05):
How do you figure out what's adjacent?

Speaker 4 (44:07):
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 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 win that
market quickly? Because we're very much of software business, like

(44:29):
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 creates a flywheel that the
more customers you get, the more customers you get. And
so if those two things are true, we'll go after it.
And it leads you to really funny things where you
wouldn't actually attack adjacent markets that are obvious adjacents, that

(44:52):
have obvious adjacencies. So the example I love is cap tables.
In four nine A. Cap tables was a legal service
when we entered it by lawyers. Four nine A valuations
was evaluation 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.

Speaker 2 (45:12):
Well, you know the total number of shareholders, you know
what the last transaction or funding was. It sounds pretty
basic math.

Speaker 4 (45:19):
Right totally, It's just math on the cap table. But
they are completely different industries. So if you think about
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.

(45:41):
And so now we're in the fund admin business, and
that's our second biggest business line.

Speaker 2 (45:46):
You guys also do compensation analytics. How did you find
you into that space?

Speaker 4 (45:50):
We realized we're the only ones that could do benchmarking
for both salary and equity for startups.

Speaker 2 (45:56):
Oh of course, nobody else can do it, and so
without the equity, the salary be that significant.

Speaker 4 (46:01):
That's right. But to start at a priority ago we're
gonna do cap tables and that's gonna lead us into
compensation didn't make a ton of sense. And that's that
we have a flywheel of This is how we entered
these industries.

Speaker 2 (46:14):
You're the perfect person to ask this question. I'm going
to go off script.

Speaker 3 (46:18):
So I spoke at.

Speaker 2 (46:19):
An event in June and Silicon Valley. It was a
kind of funky hotel that was turned into this really
interesting space right on the edge of trying to remember
exactly where it was, about forty five minutes outside of
San Francisco, but anyway, it was an employee benefits conference

(46:40):
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 therefore
a one k people their employee compensation consultants, their health
benefit consultants, all these people who were telling me that
there's this sort of misalignment amongst Silicon Valley employees who

(47:06):
are 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
you rent with equity, I have to at least make X.
What do you see out there in terms of how

(47:26):
startup employees are thinking about equity versus cash payments for comp.

Speaker 4 (47:32):
Yeah, We've spent a lot of time thinking about this,
and I'll frame it as you know, wealth management. Financial
advice is a well established industry in the public world,
and I'll call it the liquid world. Right, you pay
you know, one percent or half a percent of aum
to your financial advisor and they help you manage your assets.

(47:54):
There is no equivalent in the private world. Like if
I'm an employee and I make you know, one hundred
fifty thousand dollars year and cash, but I'm sitting on
a million or two million dollars of equity ill liquid 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, you know,

(48:14):
ill liquid asset piece, but also they don't have they
don't have any way to monetize two million dollars with
the private stock. You can't you know, you can't charge
one basis point or a percent of AUM on it.
And so we've wrestled with this question of if an
industry were to be created, not wealth managed, but but

(48:35):
wealth management for ill liquid people, for high net worth
but ill liquid 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 ill liquid holders.

(48:59):
How would we do that? And they're, you know, the
largest wealth management for the country. They do this extremely well.
And now we're creating Emotion 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 know, 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?

Speaker 2 (49:18):
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, you know, attractive to me. But I
guess when you're in the thick of it and you're
grinding one hundred hour weeks, hey, I'm working my butt
off and I still have to worry about paying my rent.

Speaker 3 (49:38):
I don't want to go that way.

Speaker 2 (49:39):
That was the only explanation I could come up with,
but it was It was really quite fascinating.

Speaker 3 (49:45):
I only have you for a limited amount of time.

Speaker 2 (49:47):
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.

Speaker 4 (50:00):
You know, I don't think I've had just one. I
think 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 is an interesting sport
because it's one of the very few sports that if
you're tired and you're in pain and you have to

(50:21):
let off the gas a little bit, it hurts more,
not less.

Speaker 3 (50:25):
You got a dig DP.

Speaker 4 (50:25):
That's right. And you know there's it's literally in the corner.
And you know from from perseverance, from him, from the Marines,
from you know, Mark Andresen who helped me figure out
you know, uh nut suite what we call EERP for
private capital out of breakfast uh to you know John

(50:46):
Waldron who I had got to have a lunch with
him as president at Goldman, who explained to me why
bankers make more money than I do, and it's because
of the regulatory defensibility. And so you just pick up
these nuggets from these very smart people and and you
hold him as a treasure trove.

Speaker 2 (51:02):
Let's talk about books. What are some of your favorites?
So are you reading anything currently?

Speaker 4 (51:07):
We just read amp it up as a leadership team.
So last month we took sixty of our top leaders
at KARDA on an off site. And every time we
do an offsite at KRDA, we pick a book to
read and everybody has to read it and we do
a discussion group. And it was very timely for us.
We're in very much an acceleration motion, and so everybody

(51:30):
at Carda right now is reading amp it up and
talking about it really interesting.

Speaker 2 (51:35):
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.

Speaker 4 (51:43):
I'm not. I don't really watch TV except I have
an eleven year old boy, and I recently got him
into Arrested Development, which is a classic, absolutely some of
the best comedy ever done. And we're watching it together
and we're loving it. And now he he hits me
with the lines and you know that I've made a
huge mistake and we're having a great time with it.

Speaker 2 (52:06):
Narrator, it wasn't yeah right. I mean that's where that
comes from. People use it all the time, but it all.

Speaker 4 (52:11):
Goes right back to.

Speaker 3 (52:14):
I like his podcast SmartLess. Yeah, it's kind of fun.

Speaker 2 (52:20):
Our final two questions, what sort of advice would you
give to a recent college grad who is interested in
the career in filling the blank entrepreneurship, startups, private companies.

Speaker 4 (52:33):
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 there's 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

(52:56):
climbing in the French Alps as a mountain climber, and
you're trying to find the tallest mountain in the French helps.
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 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

(53:16):
random jumps to mountains do you have to have to
have a ninety percent probability of finding the global the
global maximum? And I say it's a great analogy for
a metaphor 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 nineteen or a specialty. You

(53:38):
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 never
ask the question, am I on a local hill or
a global optimal hill? And I encourage people early to
jump mountains to figure out which which mountain they want
to be on. And I think one of the reasons

(53:59):
many people my age are very unhappy in their careers
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.

Speaker 2 (54:10):
I love that metaphor mountain jump is a great great line.
What do you know about the world of entrepreneurship, startups, etc.
Today Might have been useful twenty or so years ago
when you were first starting out.

Speaker 4 (54:23):
Idea matters. It matters a lot because I've had a
lot of great ideas that did not work, and I
worked hard at it. I also think there's this counterintuitive,
I guess thesis that's happening right now, which is the
more entrepreneurs there are, the harder entrepreneurship guts, but people

(54:45):
think the opposite, right, Oh, so many, so many people
are doing it. I can do too.

Speaker 2 (54:49):
That. Michael Mobisont 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 one hundred percent.

Speaker 4 (55:01):
And I think it's one of these funny things where
like not many people, you know, dream or move to
Atlanta to be one 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.

Speaker 3 (55:22):
That is good and who's your skill out?

Speaker 4 (55:25):
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, one hundred meters 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,

(55:45):
a lot of it's luck. So if it's luck, anybody
can do it. It's it's you got to have both
that makes it actually hard or not easier.

Speaker 2 (55:50):
I love the expression table stakes, smart, hard working, that's
just to enter the arena.

Speaker 3 (55:55):
Then you got to get lucky on top of us.

Speaker 2 (55:57):
Right. Unbelievable. This has been absolutely fascinating. We have been
speaking with Henry Ward. He is the CEO and co
founder of Karta, 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

(56:22):
any of the five hundred and sixty five we've done
over the past eleven years. You can find those at Bloomberg, iTunes, Spotify, YouTube,
wherever you get your favorite podcast. And be sure to
check out my new book How Not to Invest The ideas, numbers,
and behaviors that destroy wealth and how to avoid them

(56:43):
How Not to Invest at your favorite bookstore