“You can’t connect the dots looking forward; you can only connect them looking backwards.”  — Steve Jobs, Stanford Commencement, 2005

An immense privilege of early-stage investing is to witness the birth of new companies and support them years before their ideas become “obvious.” Once they reach scale, everyone else connects the dots of their seemingly overnight success looking backward — often obscuring the many unknowns, high-risk decisions, and serendipitous turning points of their early years. 

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One such obvious idea today in the Unusual portfolio family is Carta, which helps more than 20,000 companies manage their equity and is currently valued at over $7B. 

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In July 2021, Carta’s CEO and Co-Founder, Henry Ward, and I got together to chronicle the company’s early years and key facts in their evolution from 2012–2017. 

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“I remember when we made our first $700 in January 2014 and we were so excited — it was incredible,” Henry said when I asked him to recall the Carta origin story.

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Seven years ago, this startup, then known as eShares, employed fewer than 20 people and offered basic equity management software — cap table management and electronic shares that companies could issue at a fee of $20/certificate. 

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“I didn't know then that it would take seven years to build the equity exchange that we now call CartaX, but that was the genesis. We always wanted to build liquidity — a private stock market — but we had to solve the cap table problem first.”

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Problem-solve they did, but before Carta could become the multi-product powerhouse it is today, they had to transform the equity management industry from spreadsheets and physical certificate books managed by paralegals to a completely digital platform with strong network effects. 

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Encouraged by an investor from his previous startup (and now Co-Founder Manu Kumar from K9 Ventures) to take on equity management as a problem, Henry started the Carta journey as CEO in July 2012. Almost immediately, Henry had to confront the fact that many startup founders—their target customers — didn’t really understand the nuances of cap tables. Plus, Carta had a significant awareness problem. “Nobody knew that cap table software existed at the time — cap tables were what law firms managed,” Henry said to me with a grin. 

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2012: Building empathy and authenticity 

The very first problem Henry wanted to solve was the management of physical stock certificates. He hired two paralegals immediately and discovered that it took $150 to make and print each certificate, as well as $20 to ship via FedEx. “We learned the whole workflow step by step in great detail and replicated exactly what they did in real life, but online,” Henry said. 

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What I particularly appreciated here is the early investment Carta made in building extreme empathy and authenticity — not only with their customers but the service providers that were the current status quo solution. You can’t disrupt the status quo without living the status quo. 

2013: Solving the cold-start problem 

Carta had little credibility when it started. As Henry reached out to founders in his network to enroll them in the private beta phase in June 2013, he discovered founders worried about whether their investors and lawyers would approve of them trying a new software for something as critical and sensitive as a cap table. Carta wasn’t offering them a product that founders could trial — this was an all-or-nothing decision for their entire company. Cold calls proved ineffective.

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Therein lay both Carta’s go-to-market problem and solution: getting buy-in from investors who could get Carta distributed to multiple founders (and other investors on their cap tables). As Carta’s only salesperson, Henry poured his energy into meeting with investors, with a two-birds-with-one-stone mentality. “We needed investors and I was busy fundraising myself.” Some of these investors would ask new founders to try the product.  

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This early experience and exposure to the potential network effects of Carta gave Henry an incredibly important early insight to what would become the company’s entire strategy. Both GTM and, in particular, its product roadmap needed to optimize on how it would be distributed to their market. 

Communicating value and price: an early positioning lesson

Another early lesson for Henry was how to communicate Carta’s value. Founders who managed their cap tables in a spreadsheet saw the alternative to Carta as “free.” Henry got pushback from founders when he tested their desire to pay a subscription fee for access to the cap table software. They would say, “Henry, I pay $20 a month for Quickbooks and I use that every day. I might log into my cap table once a quarter — why would I pay you $50 a month?” 

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That feedback inspired Henry to shift away from subscription pricing to focus on a transaction fee per certificate. The fact that every electronic share certificate issued would cost $20 felt like a no-brainer because it was the same price that companies paid to ship physical certificates. 

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“All we did was switch the comparison costs for them, so now they weren't comparing us to other B2B software, which is very cheap. They were comparing us to legal bills, which turned out to be a lot more money. They might issue 20 stock certificates and pay $400 right off the bat, no problem.”

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With this simple switch in comparison costs, founders began paying Carta upfront on a transaction basis.

2014: Finding early product-market fit (PMF)

Although he felt like he made a breakthrough, Henry was continuously rejected by investors on Sand Hill Road. They worried that the market for electronic shares was too small and didn’t like the transaction-based business model. Henry knew this might be true, but had a vision for a very different way to build Carta — what he called the “N-of-1” market strategy. Carta’s vision was to build a suite of equity products rapidly, each addressing a new market segment and leveraging network effects to quickly dominate each segment. 

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After their electronic share product entered GA (general availability) in January 2014, Carta launched their second product, 409A valuations, in April — a game changer for the company. 

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Henry knew all too well that the startup world — in his words — “hated 409As.” Not only was Henry actively engaged in conversations with founders, but he knew from experience founding his first company, Secondsight, that 409A valuations can be an expensive process with a poor customer experience. In other words, the 409A industry was ripe for disruption.

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Henry pitched investors for funding and even if they weren’t interested, he’d say, “No problem, but hey, we do 409A valuations. Would you be interested in a discount code for all your portfolio companies to get a valuation report from us?”

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Every investor Henry met said they were happy to receive a follow-up message about 409As. Henry shared a “discount code” (“I’d run my finger across the keyboard and share”) for all their portfolio companies and instructed them to make their founders email him with it. 

2014: Getting to their first 100 customers

Those investor-referred founders did in fact contact Henry, ultimately fueling a powerful flywheel — “because the investors forwarded the discount codes, they implicitly endorsed our service to founders. Cap tables are critical sensitive information, so by getting an investor to say, ‘you should check out eShares,’ it gave us credibility.”

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Investor referrals ignited the network effect and the 409A product was an easy sell. At $1,000, Carta’s 409As cost about one-third of the traditional 409A with valuation firms, who charged approximately $5,000. 

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No self-serve: Educating price-sensitive customers 

The founders referred to Carta paid $100 to sign up and when customers onboarded, they would also pay $20 for each certificate issued. However, a number of founders signed up without fully understanding Carta’s pricing model. They were initially surprised when a Carta onboarding manager walked them through the details —but quickly bought in thereafter. Henry’s critical learning from this experience was the importance of education. Very few founders understood cap table management —setting it up and managing option flow. But as long as they paid $100, they were happy to learn. 

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“We forced people to talk to us. We wouldn’t tell them the full pricing until they talked on the phone with us, so that we could explain the process to them. You have to get this product set up right from the get-go; you can’t experiment with this.”   

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By August 2014, Carta had crossed 100 paying customers using their cap table software and 409A valuation service. They were now approaching $1M in annualized revenue. In August, $15,000 in revenue came from 409A subscription fees and $60,000 from new stock certificates issued. 

Product-market fit: you know it when you see it

Product-market fit is magical because it allows startups to get away with many mistakes when it comes to early execution. 

In late 2014, Henry realized that they might have found product-market fit. Here’s how:

“We moved from our phone software to Dialpad but made a mistake setting it up. If someone pressed 1 for sales, it would hang up on you and we didn't find out for a month! This was also the best month in revenue we had ever had.” Henry discovered the mistake when someone called in their support extension complaining that they had been trying to reach their sales people for days and couldn’t get anybody on the phone. 

Henry cites many such examples of best practices that the company didn’t adopt until around 2016 or later — including implementing CRM software and tracking their acquisition funnel in detail. 

2015 and beyond: Scaling GTM

While their 409A product was proving to be a great door-opener, it often took months for the referrals to convert to paying customers because startups didn’t need the service frequently. The next obvious priority for Carta was to build awareness at scale for their core cap table and electronic shares platform. 

Driving inbound with thought leadership 

In classic category creation mode, Henry needed to evangelize the industry’s biggest problems. There were two primary promotion tactics that delivered results: deep blog posts and Quora. 

In 2014, Quora was just getting off the ground. “Everyone in Silicon Valley was starting to use it,” Henry said. “We would answer all the questions about 409A and talk about how we do it.” 

In January 2015, Henry published a seminal blog post titled “Broken cap tables,” which became the foundation of their messaging and was picked up and promoted by critical influencers, including investors, journalists, and eventually — some forward-thinking lawyers like Jose Ancer. “Jose’s post got to page one on Hacker News and it just gave us so much credibility. Getting other people to validate us was so critical in our market.” 

Scaling outbound with email lists

Email is a crowded channel today but it wasn’t in 2014, when the Carta team purchased email lists to grow their founder database substantially. Carta created email campaigns to reach founders at critical milestones in their journey — often around fundraising announcements with an offer to complete a 409A valuation. 

Lessons that translate from Carta’s early GTM experience 

What worked for Henry at Carta in 2014 may not work the same in 2021, but here are some translatable lessons on early GTM to take away as a Seed Stage founder:  

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• If your product addresses a very sensitive problem and can’t be “trialed” without risk, cold calling is unlikely to work for you. You need referrals from a credible source to a decision maker. For Carta, this source was investors. 
• Until there’s a critical mass of awareness around both the problem and the solution in a market, paid advertising is unlikely to work. You need to focus on finding communities of early adopters and engage with them organically where they discuss the problem. For Carta, this community was on Quora at the time. 
• While product-led growth with a free, self-serve sign-up experience is all the rage, it’s not the right strategy for many products. For Carta, it was critical for every customer to be rigorously onboarded by an expert. 
• All growth tactics have a half-life. They work at first because they’re novel, but can later yield decreasing returns as they become industry best practices. Look for new channels to dominate and new concepts to leverage for customer attention. For Carta, discount codes and email lists worked because they were relatively novel at the time. 
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I hope you enjoyed this post as much as I enjoyed my conversation with Henry!