Carta for Public Companies
In 2017 we started supporting public companies. This is a risky bet for Carta. The cap table market for private companies is an easy market to enter. The incumbent is Excel and the competition is paper. In addition, the market itself is growing quickly with new companies being formed everyday, adding customers to the top of the funnel.
In contrast, public market equity management is crowded with vendors. Plus the public market as a whole is shrinking. In 1996 there were more than 8,000 publicly listed companies in the US. Today there are less than 4,000. It is a negative sum game. The overall pie is shrinking. Even the winners are losing.
So why did we enter the public market? For three reasons.
- Onramp to IPO
If you believe our thesis that private companies and their investors will converge on Carta, the path to IPO is through Carta. The 100–150 IPOs each year will be Carta Private customers. CFOs won’t have to worry about implementing new plan administration and stockholder tracking software when going public.
Today, we have 15–20 Carta Private companies in the pipeline preparing to go public in 2018. Almost certainly, the companies that IPO in 2020, 2022, and 2025 are on Carta today as early stage customers. Our job is to seamlessly transition them into the public capital markets as they accelerate towards IPO.
2. Transfer Agent + Equity Plan Administration
When a private company goes public their cap table is split in half. The stock ledger goes to a Transfer Agent like Computershare or American Stock Transfer. The other half of the cap table, the employee equity plan, goes to a broker like E-Trade or Schwab.
In this fractured world we have an advantage. We are an SEC Registered Transfer Agent and a FINRA Regulated Broker/Dealer. We also track the full capital structure of the company including the stock ledger and equity plans. We are the only platform for public companies to manage their entire shareholder base. Like private companies keep their full cap table on Carta, for the first time public companies can too.
There is administrative convenience to consolidating solutions. Managing two different systems to track shareholders and employee equity is painful. For shareholders and employees, logging into two different systems is a terrible user experience.
There are also cost savings. The transfer agent industry is an oligopoly that price gouges companies. Brokerages that offer employee equity software do the same. By combining services on one platform we can cut total costs in half.
But there is one more reason for owning the entire shareholder registry that is far more valuable.
3. Investor Relations 2.0
There are many differences between being a public company CEO and a private one. The biggest difference between private and public companies is that private company CEOs know their shareholders. Public company CEOs don’t.
This simple difference has large consequences. There is no such thing as an activist investor in the private market. Hostile takeovers and LBOs don’t exist. Neither do day-trading, market making, short-selling, and other business models that make money on short-term price changes.
Now that Carta is both the Transfer Agent, Broker/Dealer and Plan Administrator we can know the entire investor base. This means we can do two things:
First, we can give the CEO a 360 degree view of their shareholders. We can tell her if Carl Icahn has recently taken a large position. We can tell her what percentage of stock is institutionally owned versus retail. We can tell her who the biggest shareholders are and how long they have been holding the stock. We can even ask shareholders how long they plan to hold it.
Second, we can give the CEO a direct, secure, and compliant communication channel to all shareholders. Today, CEOs communicate to shareholders with 10Ks and quarterly calls. On Carta, a CEO can proactively communicate directly with shareholders. Shareholders can subscribe to the CEOs updates. Shareholder meetings can be conducted through online video conferencing. Voting can all be performed on mobile devices. And CEOs can know every shareholder that’s involved.
It will be a new way to do public company Investor Relations. Stay tuned…
*Securities transactions offered through Carta Securities, LLC a broker-dealer registered with the SEC, member of FINRA and SIPC.
