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The Medium Rules: Network Effects with Tim Gunderson of Carta

Sometimes the biggest startup ideas are sitting right under our noses until somebody decides to just pick up and build the company. This is the case with Carta, which took an obvious pain point, the management of private company capitalization tables, and built a unicorn business. On the final episode of The Medium Rules for 2019, I sat down with Tim Gunderson, VP of Partnerships at Carta, to discuss how Carta took what might have seemed like a straightforward problem, built a simple cloud-based solution, and grew a company to a valuation of $1.7 billion (and counting!). In addition to great tech, the ubiquity of the cloud, a great founder and a great team, the magic insight here lies to a great extent in network effects: startups (in many cases with a not-so-gentle nudge from startup counsel!) go on the platform to reduce friction associated with cap table management, fund investors start to see the benefit of a high-level view of all of their portfolio investments and also urge companies to be on Carta, and finally fund LP’s are also pulled into the network to be able to easily view fund performance from the bottom up. We hope you tune in, watch and listen to this very lively season-ending episode.



Alan BALDACHIN: From the HBA Podcast studio in New York City, welcome to The Medium Rules. I am Alan Baldachin. I can’t remember the last time we’ve actually printed out a paper share certificate but we’re using Carta. So I would imagine that this network effect also boxes out competitors.

Tim GUNDERSON: For sure.


GUNDERSON:  I mean, that’s why the network starts to converge upon itself. Everyone uses it for the benefit of themselves and someone else.

BALDACHIN: It’s like, what were some moments of, “We hit a wall,” you know?

GUNDERSON: One inflection point was, we’re selling software that’s working, people in the network are starting to adopt it. But kind of, what’s next?

BALDACHIN: You guys produced a fairly high profile study with respect to pay equity and gender.

GUNDERSON: And that report was called The Gap Table, the play on the gap table, gender gap table. That was done last year; picked up by a ton of publications, a lot of buzz on it. The results were, you know, as expected and equally shocking. So we just published kind of version two of that.

BALDACHIN: So Tim Gunderson from Carta, welcome to The Medium Rules. You are my final guest for my final show of 2019. So let me just take the opportunity to thank all my guests from 2019. We had a great year. We had Gail Simmons on. We had Michael Rubenstein, CEO of App Nexus, which was a great show. If anyone missed that, I’d recommend you go back and see it. Troy Young, president of Hearst Magazines. We had the folks from Swing Left on so we did a little political chat earlier this year getting ready for 2020. We took apart the Amazon HQ 2 pull out.

So we had a great year. And Tim, you’re here to end it, and we’re going to have a conversation about Carta, which is very close to home and a platform that we use all the time in our venture practice. So Tim, delighted to welcome you to the HBA podcast studio. You are vice president of partnerships at Carta.

Carta is the electronic cap table management software platform founded in 2014. Carta was originally named e Shares. We worked with Carta back when it was e Shares. And the company was founded with the deceptively simple objective of bringing the efficiency, liquidity, and transparency of the public capital markets to the cap tables of private companies, including both the issuance of securities as well as tracking the share register.

Clearly, Carta has found its product market fit because the company has exploded. I have a note here that says you have over 300,000 companies on your platform, is that right? Okay, where are we?

GUNDERSON: 13, 000 paying customers.

BALDACHIN: Clearly, I had an extra zero there.

GUNDERSON: We’ll get there.

BALDACHIN: That’s 13,000 paying companies on the platform, and in late 2018, you guys did around where you were very valued at 1.7 billion, bringing your total financing to $448 million. So that’s an incredible job of scaling. Why don’t you just high level take us through the Carta platform? What is it at its most sort of basic and what’s the offering?

GUNDERSON: So essentially, we’re a software platform, we’re in the cloud, you log in through any browser, and we manage equity tables, capitalization tables. So as people know, a cap table has a list of people and what they own and at what price. So that’s the core of what we do. You know, the atomic unit of our system is the digital share certificate. We’ll probably get into this later, I’m sure, but the idea of having a paper certificate of a private company flying around the house or having someone vault it for you is kind of antiquated. And so if you can do that digitally, and keep a register or a ledger of who owns what; makes life a lot simplier.

So you think about one aspect is the register or the list of owners in the company. The other side is we’re an SEC-registered transfer agent. So it’s one thing to have a fancy list to log into, it’s another to be able to, as a transfer agent, to move shares from point A to point B. So again, we think of it as the ability to manage ownership and manage who owns what, at the same time, can we help companies transact and move shares around as being an SEC registered transfer agent?

It’s interesting to note, while we sell directly to companies, investors are typically an entity that are on a cap table, a venture investor invests in a company there, they’re one of the stakeholders that are managed on the cap table. And so while we sell to companies, investors and venture funds are actually heavy users of our system because they’re much like an employee; they log in and see all their investments in a portfolio view.

So people do think of us, as you know, the company centric and we do very deeply care about entrepreneurs and founders and making their life easier by providing the software, but we actually have a broader audience than just founders and entrepreneurs. So, again, I’ll say it again, we are a general ownership register. We can transact on the platform. And then of course, there are features we can get into but when you have the stock table, the equity table, we can do things like value common stock. So the 409A valuation is what’s required when you when you issue stock.

And so we’re the nation’s largest provider of 409A valuations now. We offer software workflow-like scenario modeling. So when you’re entrepreneur and you’re going to raise some cash, you might be curious what that does to dilution. What does that do to your existing shareholders? How does that change? And so we have some nice in app features that allow folks to model that out. Exit scenarios, if you’re going to get purchased or bought over actually go public, what does that look like at different preferences, priorities, and payouts, and things like that?

So that’s essentially what it is. It is, I think, kind of a complex specialty finance solution. But at the end of the day, we’re just trying to help people keep track of [inaudible 06:18] worth the company.

BALDACHIN:  So, let me drill down on a couple of things you said. One is the SEC register transfer agent. What’s involved in that compliance from your guy’s perspective? And what does it take and what does it allow you to do?

GUNDERSON: Well, one, we’re the custodian. So I’ll tell a story. At some point hopefully, you’ll asked me about how it got started. But we’re the custodian of the actual share certificate, and we create that digitally. Much like e signature came about 10 years ago, where you don’t need to sign with a pen and paper, you can sign with a click of a button. Very similar, we now have the ability to create and issue certificates that were never on paper to begin with, and keep them and vault them as the word, as the custodian.  And as the transfer agent, that allows us to basically transfer from you to me. If you’re a seller and I’m a buyer, we are allowed to transfer that shares out of your name and into my name.

BALDACHIN: And from a compliance perspective with the SEC, how regular…? In other words, to sort of qualify, are there filings? Are there standards you have to meet? What’s just that compliance…?

GUNDERSON:  I’m not a compliance expert, just to be fair, but yeah, we are… It’s pretty arduous, and we respect that quite a bit. We actually acquired our way into the space so it’s not something you build.


GUNDERSON: We acquired a Philadelphia stock and transfer company, and then we obtained their licenses as a transfer agent.

BALDACHIN: Okay. So you acquired into that. That’s interesting. That’s great. And in terms of transacting on the platform, when you say transacting, are you guys running a secondary market where people buy and sell through you? Okay, so let’s talk about that. What does that look like? And when did that come about where people could actually pay, buy and sell?

GUNDERSON: Yeah. So we’ve been doing that since we become a transfer agent. It’s been a couple years now. And there’s a pretty fragmented marketplace out there that does this. The NASDAQ stock market got involved with second market back in the day. And so I think they rebranded that and now they’re private market. So we do a similar thing. There are also some smaller startups that do this. But essentially, companies are staying private longer. There’s tons of capital out there. And so the pain and cost of going public, staying private is resonating.

So in order to do that, you need to provide liquidity. And that’s really what this innovation, the word, the space that we’re in is all about. You have to be able to unlock liquidity for private shareholders. So secondary transactions, tender offers, they’ve been happening quite a while, they’re typically one-off events. You know, they involve lawyers for sure, it’s a fairly arduous process, it takes 20, 30 days. At the end of the day, people are mailed paper certificates typically, unless they use something like Carta.

So yeah, we do several of these a month. And they’ve been done for quite a long time. But again, with the capital markets and economic trends that are happening, it appears to be more commonplace now.

BALDACHIN: So presumably, it’s only with respect to shares of companies that around the platform. Okay. Okay. So it’s not an open exchange where…Not yet anyway, okay. And in terms of the investor community, for sort of portfolio management or portfolio analysis, is that a separate product that you guys have created?

GUNDERSON: Yeah, so I alluded in the beginning. Let’s go into that a little bit because it is interesting distinction, I mentioned the audiences. So we obviously sell direct to the founder entrepreneur. What’s interesting is, and this gets into a little bit of our mission and kind of our, you said product market fit, but we’re starting to converge the network. Let me talk about that for a moment, if I might.


GUNDERSON: So if you think of these three nodes, and least the equity network, you’ve got companies, you’ve got investors that invest in those companies, then you have those investor’s investors, limited partners that invest in the funds. Think about these three nodes. So we started selling this cap table ownership software platform to companies. So what did they start doing with it? They started issuing stock to investors. So a VC would receive an email and say, “Oh,” and with this fancy confetti that comes in, say, you know, “Congratulations, you’ve been issued stock.” So what would that investor do? Logs in and says, “Well, I can see my holdings, valuation, what’s going on. Perhaps we pull company financials and if the company wants to share that with certain people, they can do that.”

So the investor and their next entrepreneur that they fund, what do they tell the entrepreneur? “Hey, you should get on Carta because we just find out about it through this company, we use it. If you use it, I can log in and see company 2, investment 2, investment 3, portfolios, I can do the entire portfolio and have insights and intelligence into that.” So then what does that company do? “Well, that sounds great.” That company goes out and fundraise and gets investor 3. “Hey, investor 3…” they see the confetti email, “Congratulation, you’ve been issued shares,” so you get the idea. So that’s company to investor node.

The next node, this one, we’re, you know, for lack of a better word, we’re kind of, we’re converging that market. You’re involved in the work we do. I mean, we are taking that down, for lack of a better word. But the next note is investors to limited partners. So what do limited partner say? The same kind of thing. Investors say, “Hey, limited partners, here’s your investment in fund 1 or fund 2.” Limited partners look, “Oh, wow, that’s really convenient.” And limited partners go and invest in another fund. “Hey, you should do…”

So this is what happens when you have a true network effect. I was a DocuSign prior, you can imagine when you send someone a letter to sign, they said, “Well, that’s so easy. I’m never using a pen or paper again.” And it’s all collated and organized on a file, I’m going to send my next thing. So you get this thing. And we’ve seen that happen, the first two notes. And this third note is just starting to take off too. Does that makes sense?

BALDACHIN: That’s a great explanation. And is that network effect, is that responsible for how quickly you guys have scaled?

GUNDERSON: Yeah, I mean, it is. I think, you know, the term “product market fit” is probably used far too much. But absolutely, our growth, our hyper growth has been because it’s really product market fit. And then the network sees that and says, “Wow, the example I just gave you, it solves so many pain points. I’m going to use it and then I’m going to use it for you and you’re going to use it for me.” And so that’s what’s happened. It spiraled out of control.

BALDACHIN: Well, I’d love to come back to that. Yeah, I’d love to come back to that a little bit because, you know…Well, let’s stay on that for a moment because at this point, you know, candidly, in our practice, we pretty much, I wouldn’t say require because in the end, we can’t force a company to go on Carta, but we strongly encourage it. And we don’t really think about any other software platforms. It’s a little bit like DocuSign. You know, they’ve really, really control that market. And at this point, you almost can’t do a closing with scanning signature pages.

I mean, we’ve gone from, just to stay on my world for a minute, we’ve gone from paper closing tables, you know, when I first started out to everything done through email and scan signature pages to now DocuSign. You know, I really don’t do…We don’t do any closings that don’t involve DocuSign. Similarily, I can’t remember the last time we’ve actually printed out a paper share certificate, but we’re using Carta. So I would imagine that this network effect also boxes out competitors.

BALDACHIN: For sure.


BALDACHIN: I mean, that’s why the network starts to converge upon itself. Everyone uses it for the benefit of themselves and someone else.

BALDACHIN: Particularly at those two upper level nodes, because you know, if you’re a company, you’re like, “Wow, this and this, I’ll compare the pricing.” But from a funds perspective, or an LPs perspective, they don’t want to have to try and merge. They’re seeing all their companies on one platform. Carta seems to be where that’s landed. That puts you guys in a great position.

GUNDERSON: Yeah, I had a venture partner of ours comment to me, I’ll probably screw this up. But it was something along the lines of, “The only thing worse than having my portfolio companies and founders not using software or automation is having them on three different systems.” So again, going back to the network effect, and again, I forget the definition of a network, but it’s like the telephone, when there’s one telephone, not very valuable. When you’ve got one, a little more valuable. When your family’s got one, more valuable. When companies use the cap table, pretty valuable. When venture investors use the capital, they’re on the cap table, and they use it for other investments, very valuable. When the limited partners that are in the venture funds use it…You get the idea. I mean, we’re talking about this network thing. It’s happening.

BALDACHIN: That’s a great lesson for founders and early stage investors is identifying those areas where you can really leverage those network effects. And it sounds like a cliche, but this is a great, great illustration of that. You’ve done a great job describing it. It’s very insightful. Can you give us a little bit about… I know you weren’t there at the beginning with Henry, but can you give us a little bit about the origin story?

Let me just quickly anecdotally. I had a lawyer, turned entrepreneur, come into the office about eight years ago and pitch us on beta testing software for our trademark practice. And it was clunky. It wasn’t that interesting to us. What I said to the guy was, you want something you can take down, figure out cap table management for startups, and for venture lawyers. That is the thing that causes me the most pain. Because lawyers were expected to keep track of these cap tables. And it wasn’t something we did. It wasn’t something we wanted to do. And so you guys figured this out, and it has taken off. So how did you guys sort of get to the…? How was it sort of landed on? And, you know, give me the first, sort of the germination of what was e Shares that’s now Carta.

GUNDERSON: So obviously, I wasn’t there. And it was 2012, actually. So here’s kind of the details that I’m aware of as the story goes. Henry Ward, our CEO and co-founder, he’d secured an investor, a gentleman named Manny Kumar from Canine Ventures, and for an idea prior to e Shares, now Carta. And they were in a Thai restaurant, I think somewhere in Palo Alto in the Bay Area and they were talking about that venture. And I don’t believe it was doing too well. And you know, it was a concept more or less, but Manny was the one that said, “Hey, as an investor, Henry, what are your thoughts on these paper certificates? This is ridiculous. What do I do with them? If I lose them, I’ll have to call lawyers, the founders, I’m going to invest in your thing that you’re doing now, you know, seems really stupid.” And Henry, he actually has an advanced degree in capital markets, finance. So he knows the inner workings of a market structure and the like, and he’s out there. And you know, I think he said, it just struck him, you know, he’s like, “Well, if I do this idea or the next idea, they’re all going to have the same problem of what you just said. Let’s go do it.” And so Manny is a co-founder also.

BALDACHIN: And is he full time operational there?

GUNDERSON: No, he’s just been an investor.


GUNDERSON: Henry from day one has run the company.

BALDACHIN: Okay. And what we’re their first… Do you happen to know, Tim, and you may not. They attacked the company note first, and was it principally through lawyers?

GUNDERSON: So it’s interesting. So I mentioned before we, or Henry and the early team made a deliberate attempt and effort to sell direct to the customer, the entrepreneur. At the time, there’s not much competition in the space but there are a few players out there. One of the competitors made a decision to sell directly to folks like you, to law firms. You buy an enterprise license for a similar cap table type software and then you can go distribute that you can charge for you can waive the fees, defer the fees, do your thing. I don’t love selling to law firms. No offense, I don’t love selling to…

BALDACHIN: No, it’s such a great distinct…I want to drill down on this because selling law firms is a nightmare.

GUNDERSON: Awful, no offense.

BALDACHIN: Non taken. We’ll get into it. But yeah, because there’s a whole legal tech or a discussion that…

GUNDERSON: So anyway, so the decision was let’s go make life easier. And again, at the Thai restaurant, it was like, you know, whatever idea you do that, I back, Henry, you’re going to have the same problem. So let’s go solve this for all the Henry’s out there that are coming up with ideas. So it made sense. It had scale. And it was a weird kind of strange problem to solve. So yeah, so they started selling… I think 2014 was when they started selling, I think that’s the day we started selling. But we started going direct to companies and founders and said, “Hey, this is important.”

And again, the same time, we had just early on in that node, if you will, companies very quickly on folks that they knew were saying, as an investor, “I want all my companies on here, it solves my problem too.” So we didn’t have to build a network. It was sitting there waiting to kind of to converge upon itself.

BALDACHIN: You know, what’s smart about that is, you know, you go sell the law firms, law firm’s now looking at their IT budget, you know, which for big law firms is big, for medium sized law firms is big. No one’s looking to increase that budget. And for you know, the big national venture firms, there’s a lot of bureaucracy to go through. There’s a lot of adoption. Selling directly and entrepreneur you’re basically getting them pretty much after a funding event. So they just raise money.

And I know you guys have a program for funding companies less than 500,000, where you waive, which is also smart. But here you are, you’re basically selling to companies, right after they’ve been funded, making the life easier. It’s really not a lot of money versus asking the law firm to buy a piece of software, which they’re already doing it, they’re not going to spend that money. So that is interesting that you went because you basically got a ready market there. They’ve got the money. It’s just a cost of doing business. They know they’re going to have to pay lawyers. This is actually going to save them money, because let’s face it, lawyers, the time involved in preparing and keeping cap tables and moving things around, not to mention how much it costs if that goes sideways, which it often does, through no fault of anyone’s, it’s just there’s a lot of paper, it’s not followed up on, signature here.

And actually, one thing we should note with Carta is you can’t get your share certificate, your electronic share certificate if you haven’t signed all the documents, accepted. If all the information is not in the system, you’re not getting your share certificate. So it’s an incredible pull to get people to do what they’re supposed to be doing. And that end thing is that confetti moment. But everything that’s gone into that sets the table for a clean up to date, share register, and then off you go. And it’s really relatively inexpensive. And you’re right, you’re getting companies when they’ve been funded.

GUNDERSON: And I’ll mention, you know, even though we sold direct to the entrepreneur, the founder of the company, we knew early on that folks like you and the legal community were critically important. And so we’ve always had the idea of this kind of love triangle, right? We’re manufacturing the software, we’re selling it and contracting to the end user, but our power users typically are folks like you and paralegals that are in community, they’re the ones that are drafting stock grants and the like.

And so that’s been an interesting tug for us throughout the year. I’ve been here just about a year and a quarter. Part of my mandate was to come in and figure out how do we really work better with law firms? You can search out of the gate Henry, as any entrepreneur would do, trying to crack into a new market and get something going. Initial messaging was just that save on legal fees. That doesn’t resonate great with folks like you. I think forward thinking people professional services know that you need to be tech enabled. And that’s probably a good message. And you probably want to charge for higher margin services that you do transactional stuff, you probably don’t want to charge entrepreneurs, nickel and dime them for doing data input. So I think there was a common ground out of the gate. There certainly was some consternation between law firms and the early team at e Shares and Carta. We’ve come a long way just in the last two years on kind of figuring out how to work together.

BALDACHIN: Well, I’ll also say your customer service team is great. So you guys have built a great organization that’s easy to work with from the perspective of the venture legal community. So that shouldn’t go unnoticed. I mean, it’s not a 1-800 number and you’re getting somebody in person. I’ve spent a lot of time personally on the phone with people at Carta. And we look at it every day for all the companies we have on the platform, and it works great. I will say, I mean, I’m not you know, you’ll give me the big check after but no, it does. So in terms of getting those companies on the platform, was it door to door? Do happen to know that initial sort of sales strategy? Was it social media?  Was it again, going into conferences? Was it sort of getting the lawyer legal community educated to then put that…? How did it kind gain momentum in that first couple of years?

GUNDERSON: Obviously, at the time, there wasn’t a full fledge go-to-market revenue team. At the same time, you know, enterprise software companies kind of have three, there’s three buckets or levers on how they get demand or future customer prospect interest. One is obviously sales team just calling people, right?

BALDACHIN: Inside sales.

GUNDERSON: Inside sales. There were definitely early sales people. Henry’s one of the best, actually— not shocking, but early sales folks. They were calling companies that people knew about, right? I mean, fundraising is public. You can subscribe to data sources that tell you who raised a round. So certainly, the sales motion was obviously from day one, always was there.

Marketing, yeah, I think generally there was kind of air cover that we received when we started this about some kind of awareness and PR stuff that was happening, probably on a  full fledge marketing engine per se as we would think of one enterprise company what we have going on now. But there was definitely kind of search engine optimization stuff going on. Henry was early and he still is, and have been an avid writer and blogger on all things equity. So that was kind of marketing bucket.

And the third lever is partnerships. It’s what I do for a living. Yes, we were talking to law firms and investors, anyone that influences the capital market, kind of private capital market ecosystem: auditors, lawyers, consultants, outside accounting firm, that kind of stuff. We were talking to them saying, “Hey, your clients could use this and by the way, it will help you do your job better.”

So again, the three main buckets of demand for software companies, they all exist today. You know, if you do some marketing and some PR, you could get some inbound interest, you know, sales folks calling and doing some targeted sales calls, and you have this kind of building a channel partners that will that will send you referrals. Those are all you know, well-oiled machines now and cranking. Early on, you can imagine they were just kind of the early starting points for all those.

BALDACHIN: What does the sales team look like now?

GUNDERSON:  It looks like a typical enterprise sales team.

BALDACHIN: Do you have a CRM?

GUNDERSON: We don’t, but we have a couple executive sales leaders that have been in enterprise sales like myself for decade plus. But the sales team is simple, you know, we segment by kind of size of company so you have you know, early kind of newly formed companies. In software, you call those Small to Medium Sized Business, SMB, you hear a lot, we have a mid-market segment which is you know, maybe series BC, yeah, somewhere in there. And we have kind of the enterprise.. For us, enterprise and software typically would mean kind of fortune 5000. For us, it means late stage, think unicorn type of companies

BALDACHIN: Like Carta. You eat the dog food. If you can, and, you know, based on your own experience, and then maybe just sort of being around the company, can you describe sort of the inflection points for in scaling, whether it was technological, whether it was team whether it was market, adoption, and how did you guys overcome those? Like what were some moments of “We hit a wall”?

GUNDERSON:  Yeah. So I think one moment was that we began kind of selling the cap table to companies. And it was clear, as you said that they need this when they fundraise initially, and per regulation, they need to have a strike price other than the fair market value their comments around



BALDACHIN: Let me just pause and explain just very quickly. That is a tax rule, which basically says that options can’t be issued with an exercise price less than fair market value. And this arose really in connection with Steve Jobs, dating options way back about 10, 12 years ago. And in order to be compliant with that rule, you need an independent appraisal of that fair market value. This is called rule 409A. So we call it a 409 A valuation or appraisal, and you need an independent appraiser to perform that.

GUNDERSON: That’s exactly right. And so one inflection point was, we’re selling software that’s working, people in the network are starting to adopt it but kind of what’s next, right? And so they need this service. And so I believe we partner with some providers. And I think quickly, Henry and the team realized to do a 409A valuation, the primary thing you need is the cap table, who’s on it? What did they pay to get on it? And then after that, it’s just kind of some high school math.

So we got in the business of 409A’s. And this is something we should probably get into because it’s one of Henry’s very successful plays in his playbook is 409A was a very fragmented industry. You had these niche providers that did these valuations and they charge 5, 6, $10,000  a time per report. And they’re not that difficult to do. There are a couple of models you use, and there’s a little bit of art to it, but not a ton. There shouldn’t be that much, frankly.

BALDACHIN: Because these companies just aren’t complex.

GUNDERSON: They’re not that complex.

BALDACHIN: At an early stage there. You know, there’s some convertible debt, maybe and there’s what you’ve raised and what price you’ve raised at and how much you’ve raised.

GUNDERSON: Yeah. I mean, I think, you know, these valuation reports need to be audit defensible. So, you know, there’s probably a time when everyone just want a bunch of cheap stock. You can’t do that. But essentially, again, it’s a longer story but we saw that these companies knew the software but immediately when they bought the software, the company was at the point where they were fundraise and they need the 409A like yesterday, because in the middle of fundraising.

So we acquired Silicon Valley Bank Analytics, which was their valuations team. And we acquired them, brought them in. And that was a couple years ago, and since then we’ve taken this professional service and we’ve tech enabled it, and we’ve automated it. Now you still have to have humans, but you don’t have to have an army of folks to do this. And you’ll see, we’re already doing this, but our turnaround time on 409A valuations is a day.

BALDACHIN: That’s incredible. Because really, you’ve taken that down from four weeks, less than like two, three years ago. And you’re right, our companies were paying 4 or 5, $6,000 a pop and it just felt like you know, paying the Piper, you really were not getting value out of that, but you had to do it. So it was very captive. We had a couple providers we use. Now everyone uses Carta. That’s right.

GUNDERSON: And just to that point, wo when we did that, what happens? Well, you start to sell them separately and you figure out your pricing and go to market. And it’s really, the companies when they need Carta, they need the 409A. So just to probably put it together When we did that, we pretty much put most 409A niche providers, you know?

BALDACHIN: Out of business.

GUNDERSON: Yeah. And so that’s been incredibly successful. And what’s beneficial with the 409A, I believe it’s meant once you do, I believe its mandate, you have to kind of do one refresh every year.

GUNDERSON: Every 12 months.

BALDACHIN: So that’s interesting. The software is a service business model that you’ve got like a built in recurring model, kind of per regulatory order, which is nice.

BALDACHIN: Not bad. Not a bad way to go. Personally, what’s your sort of career journey to get to Carta?

GUNDERSON: It’s not that exciting.

BALDACHIN: Don’t undersell, come on, Tim.

GUNDERSON: The short of it is I spent seven plus years at the NASDAQ stock market. I worked at the exchange.


GUNDERSON: Yeah, so the exchanges have a couple different business lines. I worked in their issue or services, basically working with companies that are public or want to be public. It’s actually kind of a strange role, to be honest with you. But, you know, I was in my late 20s, and I was in front of board of directors and, you know, very well-known entrepreneurs so it was a wonderful experience, I wouldn’t trade for the world. My mom was a stockbroker at the time, she didn’t quite grasp what I was doing. But the point is it was a very influential job in my career for me. During the exchange, during that business, I would meet a bunch of, as I mentioned, CEOs and founders and one of them said, “Hey, you should get into software.”

So I just made the jump from the exchange business and jumped into software company, very successful company called NetSuite. They do kind of this kind of the online version of QuickBooks back in the day. I went to NetSuite and I went to DocuSign. So two or three of these enterprise software company.

So when an executive at Carta found me maybe year and a half ago, two years ago said, “Hey, we love your capital markets business and your enterprise software business. We’re kind of doing something similar here. We have this enterprise software but we’re also trying to think about rebuilding plumbing for the capital markets. It’s very interesting. And his quote was, I have it in an email was like, you know, “You’re…” You know, you something around my destiny was to come work for Carta, which was a hell of a sales pitch. I’m here, obviously. So that’s what it boils down to. I’ve hired a fair amount of people in the last year and a half since I’ve been there, year and a quarter. It is tough. But you know, you kind of oscillate between capital markets, people, relationship bankers, and software folks. And there are hybrids, but not super easy to find.


GUNDERSON: Prior to that, again, I’m older than just those two stints in software in the market, but I was an analyst for a while, investment banking analyst for a brief stint. I didn’t want to work 100 hours a week and do high school math so I stopped doing that.

BALDACHIN: That’s a nice way to capsulize banking, but I don’t disagree. And in terms of partnerships at Carta, are you selling? Is it a biz dev role? And maybe talk a little bit about what kind of partnerships you guys are thinking of. Is that is that M&A? Or is that…Maybe just get into that a little.

GUNDERSON: For sure. So yeah, you know, in software, there’s partnerships, business development alliances, strategic alliances, channel, all these terms are thrown around in circles. Yeah, what my teams and my mandate is is to go work with folks that influence our potential customers and our current customers. So law firms are great example. You folks are in touch with our current customers, you’re in touch with our potential future customers. How do we work with you?

I mentioned venture investors, another great place, audit firms consultants. You know, there’s a huge community of kind of outsourced CFO, you know, hire entire back office until you get to some level of scale. Those folks have a ton of influence working with founders and entrepreneurs. So those are the partner types. Our go-to-market with those partners is very simple. It’s a referral program. As you know, you send business to us. Some partners want to get paid. Most law firms don’t want to get paid, you just care about…

BALDACHIN: You can’t. I don’t think you, I mean, under the professional rules, you can’t take that.

GUNDERSON: All you care about, I’m guessing, you can tell me if I’m wrong, is you want your client to be taken care of and you want to maintain some control, I think too of the relationship, which is fair. And so, the referral program is just that, we accept referrals, we actually give out a lot of referrals to so you can imagine 13,000 customers, fast growing customers at all stages, they look to us for help. “I need a law firm from this. I’m searching for a CFO or for a CMO, trying to diversify my board,” you know, they come to us with all kinds of , “I need software to run HR payroll.”

And so we have this channel of customers and the distribution arm to them with a salesforce and my team. So partnerships, just to be clear is it’s folks that can send us business and we can send business back to them. It’s on a referral nature. You could envision the future, we might open up a reseller channel perhaps. You know, there could be professional employee organizations that are kind of outsourced HR companies for fast growth companies they offer not only the service but the offer this service on top of a platform, typically payroll and benefits. You could envision maybe those folks offering Carta as part of their bundle.

BALDACHIN: Or the accounting software.

GUNDERSON: Accounting software. Exactly.

BALDACHIN: The QuickBooks.


BALDACHIN: Peachtrees.

GUNDERSON: Look, that’s right. The good thing is I’ve worked with pure platform companies that are a mile wide and an inch deep and they require an ecosystem. Think of Salesforce AppExchange, like they require on every sale typically an integration partner to take them into an industry are actually customized as the solution. We’re like a mile deep. I mean, we have a long ways to go still. It’s a pretty deep ocean, but we don’t need a lot of extensions, probably. There are two obvious use cases; HR is an obvious one, we can get into that. We will partner with HR firms in short order.

I’ll give you a use case so people can kind of see how it works. I get hired at a firm HR knows first typically when they create the Tim Gunderson profile in the HR system of record, then someone has to go—I’m going to hopefully be granted stock options because I took the job—someone has to go into Carta and draft those so that we can eliminate some of that double entry. If an HR system says, “Tim was hired,” they could programmatically potentially call Carta and say, “Tim’s a new employee,” at least I go in there once a day and see the queue of new employee to go create and draft. Or maybe it’s actually sophisticated enough or just it just creates Tim Gunderson under the company account that’s already in Carta. It an efficiency play. That’s an obvious one. There’s also stuff we can get from payroll companies, right? We have to help our participants, our employees, when they exercise options, think about tax consequences.


GUNDERSON: And payroll systems have the tax withholding elections, the W-4s and the like. If we could put together a partnership that would help us if I exercise some…

BALDACHIN: That’s a big pain point.

GUNDERSON: If I exercise stock, maybe I shouldn’t go buy a Ferrari tomorrow, you know, maybe Carta should say, “Hey, we’re not tax advisors. But based on what we know you might want to consider putting a X number of dollars because…?

BALDACHIN: AMT, that’s a very…

GUNDERSON: The IRS is going to come calling. That’s a very interesting…

BALDACHIN: And then ISO  non-qual complexity for employees who most of the time don’t even really realize what’s going on.

GUNDERSON: So I mean, hopefully we’ve learned. I mean, there were employees back in the bubble and bust that got literally turned upside down because they had no idea that the AMT was going to crush them.

BALDACHIN: Yeah. That’s really interesting. You know, in terms of…Has it ever occurred to try and tie in boards for option grants, company boards to try and get that approval process streamline?

GUNDERSON: So we have a features this basically called Board Consents, we believe that…We actually have a board management product, but it’s really to allow board members…It’s to allow to send out consent on new stock option grants and allow board members to click through and take care of that business maybe prior to a board meeting. So we have that product now.

BALDACHIN: When did that get rolled out?

GUNDERSON:  Gosh, that’s a good question. We’ve had it for a while.

BALDACHIN: I have not seen that.

GUNDERSON: Yeah. So what we should definitely…That’s on my team, you know?

BALDACHIN: Yeah. Well, we’ll talk, we’ll talk.


BALDACHIN: Because we’d use that all the time.

GUNDERSON: Yeah. So we’d love your feedback on that. We’ve put a ton of new development effort into that, and needed some work. And it probably needs a little more work, to be honest. But it’s out there. It’s being used. We talked about the network. We think board members…

BALDACHIN: Right, exactly.

GUNDERSON: I’ll have to explain that.

BALDACHIN: Well, there are also venture guys. That’s a huge referral. Yeah. Wow. Okay. Hire me at Carta, again, full of ideas here. All ones you’ve already thought of, as it turns out. I was going to ask you a little bit about features, but talk a little bit about maybe some additional markets that you guys are sort of thinking about maybe getting into. Just give me a little bit of the—to the extent you can talk about it—a little bit of the future, and how you see the world for the next two or three years.

GUNDERSON: So I’ll start kind of really high level. You know, we’re working with the regulators. We’re a FINRA member and SIPC member, obviously, we’re transfer agent with the SEC. So we’re working with them because you know, the overall innovation in this space, probably capital markets in general is going to be around unlocking liquidity for private shareholders, employees, venture investors, whoever it might be. Companies are staying private longer, raising boatloads of cash. You have to be able to unlock people and let them realize their value. So you know, that’s probably all I can kind of say around that, but that the innovations coming around that area, we have to be able to unlock this and allow people to realize the value.

BALDACHIN: Let me ask you this, Tim, where do you see opportunities and liquidity? At what level of is it? Is it sort of valuation driven? Companies above let’s say 500 million have an opportunity to really sort of have some liquidity, or do you even go down earlier down the ecosystem or the valuation curve?

GUNDERSON: I don’t know if there’s a profile on that, certainly… Here’s what I would say, I would say it might be more time based. Companies that have been around longer, your initial employees are there. Now, I was at DocuSign for a couple years and initial employees have been there for 11 years. You’re asking a lot of them.


GUNDERSON: So again, I don’t know if it’s a typical profile, but I think the longer companies are private.

BALDACHIN: The more pressure.

GUNDERSON: The more pressure and you need again, the innovation…

BALDACHIN: And you have buyers who want those shares.

GUNDERSON: Right. We have both sides. And so there has to be a way again back…

BALDACHIN:  No one’s cracked that.


BALDACHIN: It’s amazing.

GUNDERSON: People are trying. And if you think about people that might crack that, you know, we’ve started by aggregating all of the companies and cap tables that are growing fast. And so the atomic unit, again, is we know who holds the share certificate, we have that. And so any transaction you do that has to move from point A to point B, seller to buyer. So we feel like we’re in a pretty good position to think about how to approach that and we’re obviously thinking about it.

BALDACHIN: You know, because I’ve just, anecdotally, again, I’ve got shares in a unicorn company that I’ve invested in in 2011 and have had no opportunity to get liquidity, would love it. And it’s just not there. You know, and that, nevermind the employees who’ve been there even longer, which leads me to another question. Do you guys…Is it right now principally, if not only US companies on the platform? What about, let’s say the Israeli startup ecosystem, or European companies or Canadian companies, give me a little bit of that international picture.

GUNDERSON: It’s predominantly US companies. And again, it started out and kind of described the platform that exists today, we have the ledger, which is a very nice user interface, super organized. And then we have the ability, and then we’re a registered transfer agent. So we have international customers and they buy our solution to use the ledger, anyone can use that. The concept of being a transfer agent in different jurisdictions is different in every jurisdiction. So, transfer agent, that concept in other countries is completely different. So we’ll have to go knock those down.

But to be clear, we do… I mean, there is a ton of value. That second kind of transfers and transaction thing aside, there is a lot of value in getting off of napkins or Excel spreadsheets and getting into Carta. Again, I don’t sell out of the cloud, you can access it any place anytime, any device. That’s all there, super organized on a trail. So we do have companies that pay us for that. We can’t act as the transfer agent equivalent.

BALDACHIN: Okay. Okay. So eventually you’ll set up shop in Tel Aviv and figure that out or London or…?

GUNDERSON: And you’ve got to keep in mind with the network that the, I think, you know, I don’t think, I know, we’re pretty unique in the United States with our venture ecosystem. It’s a little different in different areas, right. I mean, in Europe, you’ve got more of these corporate VCs, you hear a lot about corporate strategic investments. And so we’ll have to think about how we approach.

BALDACHIN: It’s different. You’re right. It’s a different market, different mindsets.

GUNDERSON: It’s more of a kind of a top down versus kind of entrepreneurial bottom up. That’s a broad brushstroke. But it’s different.

BALDACHIN: I think you’re right. I read in doing a little bit of background research for this interview that there was some talk of….There are companies that even when they go public, they stay on Carta. What is the benefit there in the world of 10 Qs, 10Ks investment?

GUNDERSON: So you know, when you go public, the cap table kind of goes away as you know it and it goes to this… There’s this very antiquated infrastructure, the depository trust and clearing company, all that madness that happens and your brokerage accounts. So I guess I’ll say, you know, we have public companies on our platform, we support them, they’re typically less complex companies where their employees doc plans are simpler than a…

BALDACHIN: Widely traded, right.

GUNDERSON: Yeah. You know, I mentioned we’re a recurring business model type company, a software to service. So we absolutely are going to build our support to keep our companies on platform. That business model breaks pretty quickly when people leave you, they don’t pay you anymore. And so we absolutely are building that. And again, we already support a certain profile public company on a platform that’s complex.

BALDACHIN: So this is something that’s a little bit skunkworks that you guys are working on?

GUNDERSON: Like I said, we have to be able to keep our customers happy and to keep them on the platform.

BALDACHIN: Okay. Just sort of winding down a little bit. You guys produced a fairly high profile study with respect to pay equity and gender. And then specifically related to equity based comp and how much equity female founders had versus male founders and female C-suite executives and startups versus males. Interesting, what was the reaction to that generally? What sort of motivated that? Did that happened by accident? Have you seen any sort of benefit from that? Can you talk a little bit about that?

BALDACHIN: For sure. So before I get into that, I’ll say, if you think about our 13,000 companies and the individual cap tables of those companies, and an individual entities, employees and investors on it, we have a treasure trove of information, and it’s our customers data. We operate the service, they own the data. But in aggregate, we can do some really interesting things. And I would say we are early, early on in kind of our data science, but I mean, imagine the queries you could query in aggregate on our platform. You could query the platform and say, what’s the average equity grant to your first engineering hire? I mean, incredibly powerful things we could do. We haven’t started that yet.

But along that same vein, in 2018, so last year, we partnered with #Angels. There. It’s a female investment collective, out of the Bay Area program, I believe, and they are… I don’t know if it’s their mission or mandate, but they have a tremendous focus on empowering women and also underrepresented minority folks, that we partnered with them on this project to figure out, can our data tell us something? We have a ton of data, as I already mentioned. And that report was called The Gap Table, the play on the gap table, gender gap table that was done last year; picked up by a ton of publications, a lot of buzz on it. The results were, you know, as expected and equally shocking. So we just published kind of version two of that. And this one was much deeper. And this one is called Table Stakes. I won’t do…The report is incredibly deep. So if you don’t mind, I’ll play, tablestakes,com is the plug.

The entire report is on the website with visuals and graphs. But I’ll give you a few snippets of this. And again, it’s not surprising, it’s just shocking. We found on the Table Stakes study, we found from a founder perspective women founders own 5% of the equity value, men founders own 64% of the equity. Now, we can agree there’s variables around, you know, sample size and whatnot. But put all that aside. It’s outrageous.

BALDACHIN:  How is that? Did you guys draw any kind of causative, you know, predicates here?

GUNDERSON: I mean, I’ll get that in a minute. But I mean, I think that there’s, you know, it’s not just issuing share, you know, perceptions have to change and people have to act differently, from employees, from women underrepresented groups themselves to companies hiring, hiring managers, to investors, people. The whole supply chain in this ecosystem has to change. So that was a founder stat. The other stat was just women employees in general, so all women employees in our sample size. By the way, sample size was about 10,000 of our companies. Again, it’s on the website, Table Stakes, but 10,000 Companies, 25,000 founders, I want to say 300,000 employees, so it was a very…

BALDACHIN: No fluke here .

GUNDERSON: We’re not cherry picking a couple. So, women employees own 49 cents on the dollar that a man owns in equity.

BALDACHIN:  Less than half.

GUNDERSON: Less than half. I mean, you can’t even say half. It’s literally less than half. I’ve got two daughters that I’m raising with my wife and it’s shocking. So to your question, you know, I don’t know if we have the answer. I can tell you Henry and our exec team and the company as a whole, we’re absolutely devoted to kind of shining the light on this, to highlight in this, and to doing what we can as a company again. It’s going to take…This behavioral change is going to take a very long time.

But we’ll say the plug is if you are underrepresented minority or women specifically, ask for equity, negotiate. People don’t, I mean, most candidates don’t do that but women especially, asked for it, it’s you’re right. Most companies, most of them won’t rescind the offer. And I think probably all of them expect you to. Ask for what you deserve.


GUNDERSON: From a hiring standpoint, don’t pay people what you think the job rep pays them, pay people for their value, right? And then from an investor standpoint, I think in California, you might know this better than I do, I believe there’s a lot of public companies at some point in the future, if not now, have to have one underrepresented minority on the board. I believe that’s a law. I could be wrong, but I believe it’s a lot for public companies.

So investors, when you’re looking for entrepreneurs and funding, as an investor, take the responsibility to ask the question, how do you think about diversity in your organization? Do you care about it or not?

BALDACHIN: Very interesting on the data though. You could also imagine predictive analytics with respect to which startups perform better and why, based on some cap table factors. I mean, there are a lot of other factors; market size, experience of founders, etc. but my guess is your option program and how you build the company and how much money you take on and when has something to do with it. So you could imagine some very rich, sort of predictive models coming out of your data.

GUNDERSON: I’m incredibly excited about that. Actually, we have a data science team that’s web smart. And yeah, I am actually, I’m on pins and needles to figure out how we can get…

BALDACHIN: Those data sets are going to be valuable. Well, listen, Tim, this was a fantastic conversation. Thanks for being my last guest of 2019 and a fitting one. We use Carta all the time. We love the company. We’ve had a great partnership with Carta. We would really recommend it to any founders out there particularly once funded. It makes your life so much easier. It makes our life easier. And thanks for coming in.

GUNDERSON: Thanks so much for having me. Appreciate it.


OUTRO: That’s a wrap on this episode of The Medium Rules with Alan Baldachin. For more information, go to our and you can also follow us on Instagram, Twitter and Facebook. And don’t forget to rate us on Apple Podcasts.


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