CartaX: The Nasdaq for private markets
Breakthroughs in solving illiquidity in private markets
CartaX enabled Carta to unlock meaningfully more demand for its stock and engage in market-driven price discovery long before it would otherwise have raised new private capital or conducted an IPO to go public — Az16
About CartaX
Carta is a cap table management platform and has recently launched its liquidity platform CartaX. Through democratising access to secondary markets, CartaX solves imminent problems present in private financial markets dissolving the false binary of simply private or public. From the lack of democratised access in private markets to uncertainty regarding equity compensation, CartaX is promising for those investing in the early stages of a company given liquidity concerns over long-term growth horizons.
The key problem CartaX solves is Liquidity.
Liquidity is the key financial product to watch in 2021. CartaX unlocks the value of equity for all constituents, where previously zero liquidity existed in secondary markets.
Value proposition For Startup Employees
For employees working at an early stage startup, working for the paycheck is characterised as pure serfdom. However, the promise of growth and the fundamental belief a company will succeed is naturally an incentive for employees to work for a company that is on the path to IPO. Subsequently, employees are compensated with fractional ownership involving equity with substantial cuts to their paychecks. This continuum creates unbounded problems and uncertainty due to the unpredictability surrounding company exits.
CartaX aims to change that.
Ward addresses this critical problem which has formed the basis of Carta’s mission: What if issuing equity were as easy and cheap as paying payroll? Could we make ownership as ubiquitous as salaries?
By making private company equity liquid before a company goes public, through tender offers and repurchases, shareholders can realise the value of their equity stakes in the growth stages of a company.
For Early-stage Investors
The issue of liquidity for private markets is core to CartaX’s solution. For angel investors, venture capital firms investing in the seed round of a startup, the risk upon investment is high given that intrinsic valuation models DCF analysis are impractical at that stage and due to the lack of public market comparables. CartaX’s new capital market reduces the risk duration for seed investors where positions are held for 2–3 years rather than a 10 year period.
This provides a credible solution that greatly changes the nature of investing cycles, as hypothetically described below:
Imagine seed investors who could invest in the earliest stages of a pre-revenue startup, and then after the company finds product-market-fit and starts scaling, they can sell their stake to growth investors, and recycle that cash back into early stage pre-revenue companies, they could specialize in what they do best which is early stage investing.
In an earlier blog post, Henry Ward recalls his founding story where he noted that wealth inequality wasn’t just a construct of capital markets, but a consequence of modern labour compensation more broadly. The vision of Henry Ward is admirable as with his commitment to CartaX’s mission.
Fundamentally at the basis of Carta’s solution is the desire to democratise access to private companies. It is a platform that is better for buyers and sellers, optimising for liquidity of equity in private companies. CartaX’s solution resolves a critical problem area that is continuously brushed under the rug and has for the past two weeks been further entrenched. Wealth Inequality. Democratised access to markets.
For all constituents in the startup ecosystem, this truly has a profound cause and impact for startups, employees and investors with the opportunity to purchase equity and invest.
The Challenges of building breakthrough platforms
To reflect on Carta’s journey since its inception in 2013 is remarkable. Battling the onset of regulatory frameworks and scepticism, Carta has made steady gains over the last 7 years, building core infrastructure that exist public markets but not for private markets.
Previously branded as the “dark pool” due to looser regulatory oversight, CartaX was finally given approval in November by the US Securities and Exchange Commission.
CartaX provides a credible alternative to existing incumbents with its SaaS platform giving it a competitive edge over the solutions of Morgan Stanley’s Shareworks and Nasdaq Private Market, for high growth companies delaying going public. The public comparable of Solium a SaaS for stock administration and compliance was sold for $900 million to Morgan Stanley in 2019.
Formerly known as eShares, CartaX captures substantial market share.
Future of Financial Markets: The Rise of Modern Financial Platforms in Secondary Markets
The future of primary capital raising is changing. This advancement is rather notable through allowing private companies to raise capital, investors to liquidate investments and enabling people to benefit from value creation before a company is acquired or IPOs.
Exciting times lie ahead for innovative solutions that continue to create a market for all with access to fledging and high growth companies. This is news for angel investors, founders and startup employees.
