Advocating for Private Markets at the U.S. House Financial Services Committee
This week I had the chance to testify in front of The House Financial Services Committee on Capitol Hill. It was an opportunity for me to advocate for the startup community and talk about about the importance of expanding ownership and bolstering venture capital to help fuel the next wave of innovation. Below is what I shared with them.
Testimony before the U.S. House Committee on Financial Services Subcommittee on Capital Markets
“A Roadmap for Growth: Reforms to Encourage Capital Formation and Investment Opportunities for All Americans”
Chair Wagner, Ranking Member Sherman, and members of the Committee, thank you for the opportunity to be here.
My name is Henry Ward, and I am the CEO and co-founder of Carta — a financial technology company that sits at the center of the innovation economy.
I am proud to be here today as an advocate for the venture ecosystem — for the entrepreneurs who have an idea, for the startups they create, for the investors who support them, and the employees who build for them. Startups are America’s innovation engine. And it is this venture ecosystem that allowed us to build Carta.
We started Carta with the vision of connecting startups with their investors and employees by lowering barriers for companies to issue and manage equity. We launched our product in January of 2014 with seven employees. Our first customer paid us $120. As an entrepreneur you never forget the first time someone paid you for something you built.
Today, we are 2,000 employees across nine offices with over $300 million in revenue. We continue to grow by supporting the founders that start companies and the investors that back them.
I understand the words “venture capital” may not elicit the most positive response today. But I’m here to remind us why entrepreneurs and the ecosystem that support them are vital to America’s growth story and leadership in the world.
Let me explain why.
First, the venture ecosystem drives innovation and growth.
Most of our innovative companies have been backed by venture. Apple was venture backed. Uber was venture backed. Amazon was venture backed. Moderna was venture backed. We take for granted what venture does for America’s innovation and how it has transformed our lives. So much of the technology we use today is a direct product of startups and venture capital.
America has driven every major technological innovation in the last thirty years. Not China, not Russia, not Europe, not Asia. It is one the most important ways we lead the world. And most of that innovation has come out of the venture ecosystem. We must not take this ecosystem for granted.
Second, we can make the venture model work better.
Innovation requires time to build, experiment, and scale. Uncertainty and volatility is inherent in building something new. The private markets provide patient capital with a tolerance for risk that allows entrepreneurs to transform concepts into companies.
This is the innovation engine of America and it should not be limited to coastal regions. It should be accessible to more. Much of the criticism of venture — the concentration, lack of diversity, exclusivity — are largely reflective of the private market regulatory framework. Let me give you two examples.
First, the primary avenue to raise capital requires entrepreneurs to have a “pre-existing relationship” with an investor. This rewards those who are in the club and excludes those who are not. It creates a slanted system where “It isn’t what you know but who you know.”
Second, the accredited investor definition limits investing to the wealthy. This rule, coupled with the pre-existing relationship rule, makes things worse. It limits access to not just people you know, but only rich people you know.
If we want to democratize access to America’s growth engine, we should take a hard look at that framework.
Third and last, a thriving venture ecosystem is the future of public markets.
A growing criticism is that private companies take too long to go public and that regulations should push companies public earlier. This is not a good idea for the company, the employees, the investors, or the public markets.
Every entrepreneur dreams of building a company that goes public. When companies wait to go public it is not because they don’t want to. They wait because they are not ready to.
Public markets have changed. Companies that went public twenty years ago could not go public today. The expectations for scale, quarterly predictability, resiliency of business model, and financial means have grown. For companies that have achieved this level of maturity the public markets are a wonderful place. But for companies that have not, the public markets are unforgiving.
We saw this recently with the SPAC craze, where many private companies were taken public prematurely. Those companies, employees, and investors were severely punished — and they are now picking up the pieces.
The answer to creating more public companies is not to make private markets more hostile, but to make private markets work better. Doing so makes it easier to start companies, nurture their growth, and create the pipeline of tomorrow’s public companies.
And that is why I am here today. To advocate for your involvement in creating a better framework for private markets and America’s innovation economy.
Thank you, and I look forward to your questions.
If you want to read or listen to the entire testimony, you can find it here.