Carta Business Model and SWOT Analysis – How Does Carta Make Money

Overview

Carta is a Software-as-a-Service database that assists investors and businesses, particularly startups, manage and tracking their finances. This includes investments, valuations, equity plans, and cap tables.

Founded in 2012, this SaaS database positively impacts equity holders of private companies to track and control ownership, plus conduct the back-office functions. Over 21,000 firms trust this entity, have more than 1.5 million unique stakeholders, and have over $1.8 trillion in private assets.

Company Profile

Company NameCarta, Inc.
Websitehttps://carta.com/
Founded2012
FoundersHenry Ward, Manu Kumar
Key PeopleManu Kumar – Chairman, Henry Ward – CEO, Charly Kevers – CFO, Jeff Perry – Chief Revenue Officer, Michael Wu – VP, Deputy General Counsel, Brian Allen –  VP, Corporate Controller, Adrian Facini – VP of Product, Brokerage Services and Markets, Preeti Kaur – VP of Engineering Preeti Kaur, Frank Lennox – Chief Compliance Officer, Brokerage and Markets, Jerry Talton – Chief Technology Officer, Suzy Walther – Chief People Officer, Jane Alexander – Chief Marketing Officer, Heidi Johnson – Chief Product Officer, David Kim – Chief Delivery Officer, April Lindauer –  General Counsel.
HeadquarterSan Francisco, California, United States
Company Revenue$55 million (2019)
Key CompetitorsGust, Capdesk, Eqvista, Vestd, Pulley

What is Carta? A Brief History

In 2012, serial investor Manu Kumar and entrepreneur Henry Ward started Carta as eShares. Ward was the CEO, while Kumar was the Chairman of the company. The firm was created when founders noticed venture-backed firms’ needs for managing equity electronically, issuing securities, and tracking their cap tables.

The company generates revenue by scenario modeling, valuations, ASC 718 reporting, private company liquidity, and other services regarding managing cap tables. Besides, Spark Capital led a $17 million Series B round in August 2015 for eShares. Then, this leading software raised $42 million in a Series C round headed by Social Capital and Menlo Ventures in October.

Also, the cap table secured $80 million in series D funding in December 2018, and was valued at $800 million by Meritech Capital Partners and Tribe Capital. In 2019, Andreessen Horowitz led a $300 million Series E investment in May, valuing the firm at $1.7 billion.

As employees worried more about their ownership shares, the corporation was one of the first to lengthen option exercise periods for departing employees. The cloud-based software was valued at $3.1 billion in a Series F fundraising transaction in 2020.

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In January 2021, CartaX, a private stock market, was launched to allow shareholders and employees to sell private shares prior to an IPO or acquisition. The firm sold slightly under $100 million of its own shares on CartaX in February.

How Does Carta Work and What Does it Offer?

So how exactly does Carta work?

Carta is a cloud-based tool that enables financial institutions to organize and manage portfolios, holdings, valuations and many more.

Supervisors can obtain capitalization tables and evaluate vital information depending on raised cash or the latest preferred value. It allows organizations to securely keep paper certificates in a vault, reducing the risk of theft or loss.

This software includes an application programming interface that allows users to combine the system with a variety of third-party systems, including Namely, Xero, QuickBooks, and others.

What does Carta offer to its consumers?

Carta creates software to assist businesses in maintaining their capitalization tables, which reflect a company’s ownership percentages, stock dilution, and equity worth in each round of investment by investors, founders, and other owners. Customers may also use the company’s software to digitally manage their portfolio investments, equity plans, and valuations.

The firm has been dubbed “the NASDAQ for private companies” by the financial news website Business Insider. Using the company’s software, entrepreneurs may issue digital share certificates to employees, investors, and anyone eligible for stock options.

The firm also runs the CartaX private stock exchange, allowing stockholders and employees to sell their shares before the corporate firm goes public or is bought.

Table Stakes is a series of equity gap analyses based on the company’s concentration on capitalization tables.

Carta Business Model

The business model that Carta operates is to offer a resourceful infrastructure to assist private firms administered on their capital tables, investment portfolios, valuations, investments and ESOPs. It is the most renowned cap table management software that offers the most recent and accurate information of markets for private entities.

Although they’re built as a SaaS database, they would ultimately want to establish an online marketplace for private markets.

This platform is advertised by using various media, including company websites and blogs, company news and magazines, podcasts, testimonials and YouTube, etc.

The plan is to decrease the burn rate in the future at $600,000/month. Its strategy to make money is to cut down on its burn rate until its revenues exceed costs. The initial goal was to cut their costs by two-thirds over 2 years and to be profitable by the end of 2019.

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Carta Unique Selling Propositions

They offer a list of services, including the most leading cap tables and other services such as equity plans, compliance modelling, investment valuation, compliance, the issuance of certificates to investors, and liquidity.

Their revenue stream depends on their annual subscription fee and relies on the level of complexity, plan they subscribed to, and stakeholder count.

As a software leading company, Carta takes solving problems for consumers as the main priority to serve them greater services and build more products that match their needs. Since the transactions are bilateral, trades are not required for sponsorship, making them more affordable and tax-efficient.

How Does Carta Make Money?

Carta is a SaaS database that helps investors and companies manage and track their finances, especially startups. Specifically, this means cap tables, valuations, investments, and equity plans. Its pricing starts at $2800.00 per year. There is also a free version for trial.

Cap Tables

Many have spoken concerning cap tables. If you’re not familiar with cap tables, they’re used to finance startups and private companies. A cap table removes the confusion using an electronic table that is simple to modify.

It may be odd to imagine that this platform can create such an impressive business from what may appear a glorified spreadsheet.  However, it’s not only about the calculation and display of information, but it is the idea that gives a concise and clear presentation to investors.

This company also creates valuation services for their clients, so the investors of clients will be able to see how these valuations are justifiable.

Liquidity And CartaX

Carta is aiming to become an exchange for private businesses via the CartaX function. This new feature will act as a leading revenue stream that has integrated liquidity.

CartaX has an advanced software platform designed to help find liquidity in a market it owns, and it claims not to have any issues finding the necessary liquidity for its clients.

Carta SWOT Analysis

Strengths

  • Carta is suitable for both first-time digital entrepreneurs and experienced since it combines comprehensive and intuition.
  • The equity management procedure is time-saving and efficient because of the easy-to-use and uncluttered interface.
  • ESOPs and RSUs can both be managed in one place.
  • Provides support for various sorts of security (restricted stock units, restricted stock awards, issue preferred stock, profits interests, convertible notes, SAFEs, warrants, etc.)
  • The Real-time cap table updates are available, and reports with formulae are audit-ready.
  • Has built-in checks (Rule 144, Rule 701, and the ISO $100K limit) to guarantee compliance when issuing stock.
  • The “Big 4” accounting firms audit the ASC 718 reports and 409A appraisals regularly.
  • It offers powerful scenario modelling tools to extract data straightforwardly from the cap table, making it simple to prepare for fundraising rounds and exits.
  • Trusted by over 21,000 firms, 1.5 million unique stakeholders, and has a value of over $1.8 trillion in private assets.
  • All essential footnote disclosures and accounting computations are automatically calculated and appropriately supported for the goal of external.
  • Streamlined and efficient user interface: One of the most significant aspects of any software is how designed the user interface is. The symbols in Carta are easily seen and readily comprehended. When you click on a certificate, all pertinent ESO information is displayed. For simple visual consumption, issue dates, cash cost and share quantities are all displayed prominently. It becomes easier to use due to this, which is something that all online app software should strive towards.
  • Two Factor Authentication​ – EQUIFAX is hacked just when you thought you were protected from the rest of the world. Carta, thankfully, has properly examined the benefits of 2FA and has authorized it!
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Weaknesses

  • Smaller businesses may not find comprehensive capabilities to be very useful.
  • Some of the features are pricey and a little hidden.
  • They refuse to recognise or address the flaws.
  • It takes a long time for their live chat team to reply.
  • Technical support is necessary to resolve various difficulties with the auto-generated Excel file for calculating the stock.
  • Could provide integration with HR/payroll or accounting platforms to reduce human input even further.
  • It should enable the development of custom users to allow for varying levels of access according to the company’s function; so far, all security roles are out of the box and cannot be modified.
  • The BoardRoom is a bit of a letdown. We considered implementing it into our Board meetings, but it lacked the functionality we needed.

Threats

  • To determine whether you have complied with the license agreement, it is necessary to coordinate your license rights with the software you have installed.
  • Data privacy is the most serious problem. One of these lingering devices might hold proprietary information, such as intellectual property, or personal information like client lists, customer private data, client addresses, etc.
  • Security: Every device in your company is automatically linked and recognized by the network. An unauthorized individual may acquire access to one of those devices and have immediate access to important corporate resources if you have not properly and completely decommissioned them. Internal and external hackers might use old PCs as a privileged platform to carry out their nefarious operations.
  • Legal/compliance: If you have not properly and totally decommissioned devices, licenses will continue to be consumed by the software on them. If you are audited, this covert license usage might put you out of compliance with your licensing agreements, exposing you to repayments and fines.

Opportunities

  • The factor to support the growth of the equity management software industry is equity issuance and governance.
  • The Equity Management Software Market has been developing quicker with considerable growth rates in recent years. In the forecasted period, it is expected to increase significantly, i.e. 2020 to 2027. (Market Research Verified)
  • The Global Equity Management Software Market is expected to rise due to increased demand from major companies as it improves technical advancements and efficiency of equity management software.
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