8 ms·

Liquidity Is Coming

129 points by drewrv 6y ago

crb002 6y ago
On the flip side, I see a lot more Github style buyout deals - but with companies splitting the pie by pooling their public stock. Like IBM and Walmart going in to buy GitLab.
- jskajakzkjx 6y ago
  If that’s happening, I think you just broke the news early.
ISL 6y ago
What's old is new again? The public markets are too fiddly, so companies seek financing/liquidity on a non-exchange exchange? Investors can buy and sell small shares of private companies on a "private" market in public view? Seems like the SEC would be grumpy about a public non-public market? What are the listing requirements? Is there an equivalent of the 10-K?
- ves 6y ago
  Presumably only accredited investors (and equity holders) can participate.
fiddlerwoaroof 6y ago
Is this going to only be open to accredited investors?
- blobbers 6y ago
  Would expect it to only be for accredited investors.
eyelidlessness 6y ago
This isn’t my topic so I’m not qualified to speak on it at all. That said I clicked anyway and... am I crazy for reading the first paragraph in a hyperventilating tone?
blobbers 6y ago
This is interesting. Will Carta be disclosing 409a valuations as well?
mleonhard 6y ago
The company's website: https://cartax.com https://cartax.com
choppaface 6y ago
Liquidity is coming? No, arbitrage is coming! Lots of bagholders, too. In tech, there are many accredited (potential) investors who have product expertise but no finance experience. This "slack capacity" of capital is what Carta wants to profit from. (If you want a public VC fund, there's Forge. Maybe Carta wants to go here some day, too). Why do tech employees join companies that doll out significantly better equity to investors? (In some cases, those investors even get dividends on their convertible debt). Why are there still startups who don't even have 83(b) elections yet, and why aren't all start-ups doing bonus-to-cover early exercise? Why are employees totally cool with dilution and a 10% employee pool? Because employees earn just enough to compete with each other, but not with the house. This is Carta's business opportunity.
- marton78 6y ago
  I'm sorry for being dull, but how does what you described translate to a business opportunity?
  - choppaface 6y ago
    There's a lot of demand for pre-IPO stock. Facebook was selling on the private market for ~$40-$45 per share before listing at $38. Uber had a similar run-up. Carta provides some equity tools for start-ups (at least, I've used their 83b product) and they want to expand to be a marketplace for helping sell that stock. Forge Global is similar operation (if you create an account there btw they were giving free Crunchbase data for a while). These equity transactions aren't as simple as buying and selling an ETF though. Moreover, most of the existing sales have been private, so sellers (e.g. accredited investors) and buyers (e.g. employees and founders) are at a steep information disadvantage when jumping into these deals-- Carta and Forge know the consequences, but the market participants do not. Moreover, the space isn't necessarily well-regulated. So that's a prime business opportunity: you have people who are too "dumb" to create a market themselves, but who want to transact. The snark in my narrative comes from personal observations that it's very easy to get burned (even in successful exits) and that these middlemen are typically even less trustworthy than big banks.
throwawaysea 6y ago
> It also means that all issuers will have to meet our listing requirements. And what are those requirements? If it’s anything like where Nasdaq is headed, with forced diversity quotas (https://www.npr.org/2020/12/01/940501693/nasdaq-pushes-to-require-corporate-boards-to-add-more-women-and-minorities https://www.npr.org/2020/12/01/940501693/nasdaq-pushes-to-re...), then no thanks.
voodootrucker 6y ago
Boiling down to a loss of faith in the existing financial structure.
briandw 6y ago
Slightly OT but has anyone else gotten equity grants vía Carta? They are “signed” with a unverifiable digital signature. So you just have to trust that the document that they have is signed and that they will keep track of the records correctly. It’s very poorly done and gives the impression that they are low in technical competence.
- derwiki 6y ago
  I mean.. don’t we use digital signature everywhere? We’re even starting to see that for home closing paperwork.
  - briandw 6y ago
    Yes but DocuSign gives you a certificate chain that you can check the digital signature with.
- mchusma 6y ago
  E-signature law is rock solid, there had never in the US been a contract tossed out solely because the signature was electronic. This ship has sailed a long time ago. Scribbling on a dead tree is not superior.
  - briandw 6y ago
    I agree completely that real signatures aren’t really useful. What I was trying to say is that they don’t give you a way to verify the digital signature. I believe that DocuSign does provide a certificate chain that you can use the check the signature.
JumpCrisscross 6y ago
There is a multibillion dollar secondary market for private shares. It is ignored because it undermines this pitch. That market is fragmented and disorganised and inefficient. But it’s deep, cross border and growing. Issuers write their own transfer policies which range from nope to fully permissive. The former aren’t interested in something like this because they aren’t focussed on shareholder liquidity. The latter don’t gain anything from forcing shareholders to only do business through Carta. (If they do want to do all that work, they can just do a tender. It is cheaper. And has no lock-in.) This is a product in search of a problem. Disclosure: I work in the private markets.
- SirHound 6y ago
  > It is fragmented and disorganised and inefficient. Sounds like you've found the problem
  - JumpCrisscross 6y ago
    Forcing a single venue for an issuer doesn’t solve that. If anything, it isolates that issuer’s securities thereby furthering the fragmentation—it’s a gift for anyone in a position to arbitrage.
  - lucasverra 6y ago
    He seems to argue that "it' not a bug ,it's a feature" TM
- amasad 6y ago
  What are examples of those secondary markets?
  - derwiki 6y ago
    Shares post
- fishcakes 6y ago
  You said it perfectly. Agree 100%
refurb 6y ago
I'm a little confused. If you look at their listing requirements it's $500M+, with a target of $1B+. That's a pretty small list of startups that achieve that, no? So this doesn't help employees of a start-up with a post-money valuation of $50M or even $200M, where I assume the vast majority of start-ups spend their time (if they see some initial success).
fasteo 6y ago
>>> It is an odd artifact of history that private markets have zero liquidity This is formally true, but in practice, not so. I have invested in a bunch of private equities funds over the last 8-10 years and the average life of an operation is about 3 years, which is about what they are aiming for: >>> They would only have to hold positions for 2–3 years, instead of ten, and could recycle their cash back into early stage startups. And I'm doing precisely this. Recycling my cash into private equity.
greenkey 6y ago
Carta was eShares: https://techcrunch.com/tag/eshares/ https://techcrunch.com/tag/eshares/
x87678r 6y ago
There are enough shady scams on the listed markets without making non SEC regulated companies available as well.
dblock 6y ago
This could be really great for existing investors to buy employee equity. There's no easy way for an employee to reach the broad set of existing investors with a relatively small amount of options/shares. Founders are very much against this happening being worried that it sends the wrong signal. And at a later stage nobody will want to help a small employee do this as the amounts are not significant enough.
Mc_Big_G 6y ago
Alternatively, issue your new company's stock in Ethereum and get all the same benefits immediately. I'm sure there's some laws that prevent this, for now.

129 points by drewrv 6y ago

On the flip side, I see a lot more Github style buyout deals - but with companies splitting the pie by pooling their public stock. Like IBM and Walmart going in to buy GitLab.

jskajakzkjx 6y ago
If that’s happening, I think you just broke the news early.

ISL 6y ago

What's old is new again? The public markets are too fiddly, so companies seek financing/liquidity on a non-exchange exchange? Investors can buy and sell small shares of private companies on a "private" market in public view? Seems like the SEC would be grumpy about a public non-public market? What are the listing requirements? Is there an equivalent of the 10-K?

ves 6y ago
Presumably only accredited investors (and equity holders) can participate.

fiddlerwoaroof 6y ago

Is this going to only be open to accredited investors?

blobbers 6y ago
Would expect it to only be for accredited investors.

eyelidlessness 6y ago

This isn’t my topic so I’m not qualified to speak on it at all. That said I clicked anyway and... am I crazy for reading the first paragraph in a hyperventilating tone?

blobbers 6y ago

This is interesting. Will Carta be disclosing 409a valuations as well?

mleonhard 6y ago

The company's website: https://cartax.com https://cartax.com

choppaface 6y ago

Liquidity is coming? No, arbitrage is coming! Lots of bagholders, too. In tech, there are many accredited (potential) investors who have product expertise but no finance experience. This "slack capacity" of capital is what Carta wants to profit from. (If you want a public VC fund, there's Forge. Maybe Carta wants to go here some day, too). Why do tech employees join companies that doll out significantly better equity to investors? (In some cases, those investors even get dividends on their convertible debt). Why are there still startups who don't even have 83(b) elections yet, and why aren't all start-ups doing bonus-to-cover early exercise? Why are employees totally cool with dilution and a 10% employee pool? Because employees earn just enough to compete with each other, but not with the house. This is Carta's business opportunity.

marton78 6y ago
I'm sorry for being dull, but how does what you described translate to a business opportunity?
- choppaface 6y ago
  There's a lot of demand for pre-IPO stock. Facebook was selling on the private market for ~$40-$45 per share before listing at $38. Uber had a similar run-up. Carta provides some equity tools for start-ups (at least, I've used their 83b product) and they want to expand to be a marketplace for helping sell that stock. Forge Global is similar operation (if you create an account there btw they were giving free Crunchbase data for a while). These equity transactions aren't as simple as buying and selling an ETF though. Moreover, most of the existing sales have been private, so sellers (e.g. accredited investors) and buyers (e.g. employees and founders) are at a steep information disadvantage when jumping into these deals-- Carta and Forge know the consequences, but the market participants do not. Moreover, the space isn't necessarily well-regulated. So that's a prime business opportunity: you have people who are too "dumb" to create a market themselves, but who want to transact. The snark in my narrative comes from personal observations that it's very easy to get burned (even in successful exits) and that these middlemen are typically even less trustworthy than big banks.

throwawaysea 6y ago

> It also means that all issuers will have to meet our listing requirements. And what are those requirements? If it’s anything like where Nasdaq is headed, with forced diversity quotas (https://www.npr.org/2020/12/01/940501693/nasdaq-pushes-to-require-corporate-boards-to-add-more-women-and-minorities https://www.npr.org/2020/12/01/940501693/nasdaq-pushes-to-re...), then no thanks.

voodootrucker 6y ago

Boiling down to a loss of faith in the existing financial structure.

briandw 6y ago

Slightly OT but has anyone else gotten equity grants vía Carta? They are “signed” with a unverifiable digital signature. So you just have to trust that the document that they have is signed and that they will keep track of the records correctly. It’s very poorly done and gives the impression that they are low in technical competence.

derwiki 6y ago
I mean.. don’t we use digital signature everywhere? We’re even starting to see that for home closing paperwork.
- briandw 6y ago
  Yes but DocuSign gives you a certificate chain that you can check the digital signature with.
mchusma 6y ago
E-signature law is rock solid, there had never in the US been a contract tossed out solely because the signature was electronic. This ship has sailed a long time ago. Scribbling on a dead tree is not superior.
- briandw 6y ago
  I agree completely that real signatures aren’t really useful. What I was trying to say is that they don’t give you a way to verify the digital signature. I believe that DocuSign does provide a certificate chain that you can use the check the signature.

JumpCrisscross 6y ago

There is a multibillion dollar secondary market for private shares. It is ignored because it undermines this pitch. That market is fragmented and disorganised and inefficient. But it’s deep, cross border and growing. Issuers write their own transfer policies which range from nope to fully permissive. The former aren’t interested in something like this because they aren’t focussed on shareholder liquidity. The latter don’t gain anything from forcing shareholders to only do business through Carta. (If they do want to do all that work, they can just do a tender. It is cheaper. And has no lock-in.) This is a product in search of a problem. Disclosure: I work in the private markets.

SirHound 6y ago
> It is fragmented and disorganised and inefficient. Sounds like you've found the problem
- JumpCrisscross 6y ago
  Forcing a single venue for an issuer doesn’t solve that. If anything, it isolates that issuer’s securities thereby furthering the fragmentation—it’s a gift for anyone in a position to arbitrage.
- lucasverra 6y ago
  He seems to argue that "it' not a bug ,it's a feature" TM
amasad 6y ago
What are examples of those secondary markets?
- derwiki 6y ago
  Shares post
fishcakes 6y ago
You said it perfectly. Agree 100%

refurb 6y ago

I'm a little confused. If you look at their listing requirements it's $500M+, with a target of $1B+. That's a pretty small list of startups that achieve that, no? So this doesn't help employees of a start-up with a post-money valuation of $50M or even $200M, where I assume the vast majority of start-ups spend their time (if they see some initial success).

fasteo 6y ago

>>> It is an odd artifact of history that private markets have zero liquidity This is formally true, but in practice, not so. I have invested in a bunch of private equities funds over the last 8-10 years and the average life of an operation is about 3 years, which is about what they are aiming for: >>> They would only have to hold positions for 2–3 years, instead of ten, and could recycle their cash back into early stage startups. And I'm doing precisely this. Recycling my cash into private equity.

greenkey 6y ago

Carta was eShares: https://techcrunch.com/tag/eshares/ https://techcrunch.com/tag/eshares/

x87678r 6y ago

There are enough shady scams on the listed markets without making non SEC regulated companies available as well.

dblock 6y ago

This could be really great for existing investors to buy employee equity. There's no easy way for an employee to reach the broad set of existing investors with a relatively small amount of options/shares. Founders are very much against this happening being worried that it sends the wrong signal. And at a later stage nobody will want to help a small employee do this as the amounts are not significant enough.

Mc_Big_G 6y ago

Alternatively, issue your new company's stock in Ethereum and get all the same benefits immediately. I'm sure there's some laws that prevent this, for now.