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This is so awful. Carta is the Facebook of B2B software (i.e., hoover up user data then find lots of ways your users don’t expect to monetize it). Their busines

This is so awful. Carta is the Facebook of B2B software (i.e., hoover up user data then find lots of ways your users don’t expect to monetize it). Their business model has always been premised on a bait-and-switch. It’s how they’ve justified their crazy high valuations (e.g., “Imagine it we could create the largest market for private securities!! We’ll be rich!!!”). Otherwise, the market for cap table management just isn’t that big. As a founder you should maintain tight control of who is on your cap table. Carta disagrees. That may be good for them but is terrible for startups. If you’re using Carta, call your support rep and insist they never market, offer, or induce any buyers or sellers of your stock without your explicit permission. If they refuse, change vendors.

candiddevmike 3y ago
What's wrong about folks selling shares they own? Maybe it's bad for the founders, but there's always a good chance these employees may not see a real liquidity event.
- xyzzy_plugh 3y ago
  It's wrong for Carta to market your investment details to solicit a deal without your consent.
- FreakLegion 3y ago
  It's generally bad for the company as a whole. Liquidity erodes the 409A discount[1], which then makes other grants (either future or existing, one way or another) less valuable. This is a pretty classic case of local vs. global optima, like in the prisoner's dilemma. If you're interested in startups, I'd look for founders who 1) give you the maximum exercise window (10 years with ISO->NSO conversion if you leave), 2) offer early exercise, and 3) support coordinated secondaries where the folks who want it can get some liquidity, without mucking things up the way a free-for-all can. 1. https://www.sethlevine.com/archives/2018/08/whats-a-fair-409a-discount.html https://www.sethlevine.com/archives/2018/08/whats-a-fair-409...
  - enra 3y ago
    This one of main points too. We also do or plan to do these all 3 items. We haven’t done a coordinated secondary (tender offer) yet since our team is relatively small and people haven’t been with the company that long that there would be that many shares to offer. Usually most people don’t want to sell or sell that much.
  - ccorcos 3y ago
    The 409a discount is the problem here, honestly. Maybe we should lobby the government to change the laws. Because it sucks for employees that the Y Combinator stock option agreement template includes a non-transferability clause. It’s unfair that employees have don’t have the same access to liquidity that founders get.
    - FreakLegion 3y ago
      Employees should have the same access to liquidity that founders get, but that's orthogonal to the 409A. The reason we want to keep the 409A low is so that when the company is valued at, say $100m, the common shares are much lower, say, $20m (even though they make up a majority of the company's shares!). Now when we hire that amazing person and offer them 1% of the company, their options have a strike price of $200k but already an expected value of $1m+. Really the games we play with 409A valuations are a reason for founders to limit their own liquidity, too. Outside of a few famous examples like Google and Facebook, founders and employees have the same common shares, and it's in both their interests to keep the common share price low while building the company. If founders are selling shares and not inviting employees to participate, it isn't because of the 409A. Those founders are just assholes.
      - statusgraph 3y ago
        It's comical how much of modern startup compensation is gymnastics around taxes. My understanding is that the most basic problem is if the startup gives you stock that's viewed as income and you will need to pay tax on an illiquid asset, and ISO/NSO/RSU/409a's are resulting from various elaborate schemes to give you stock-like upside tomorrow without having to pay taxes on an illiquid today.
patrickhogan1 3y ago
Upvoted this because this comment is from the CEO & co-founder of CloudFare - a public company. He clearly knows about liquidity going from private to public. Agree on the need for founders to guard their cap table, especially against strategic moves by competitors. Regarding better liquidity for employees, it's great that companies are exploring options. Carta is in a unique position to lead this. But it's key that both the company and investors opt-in (not buried in a ToS).
xyzzy_plugh 3y ago
What's the alternative? Solium with their Shareworks service, now under Morgan Stanley, did much of the same thing. You think Morgan Stanley isn't making informed bets off that data? I could agree that Carta may be doing it to an extreme but it's far from unprecedented.

candiddevmike 3y ago

What's wrong about folks selling shares they own? Maybe it's bad for the founders, but there's always a good chance these employees may not see a real liquidity event.

xyzzy_plugh 3y ago
It's wrong for Carta to market your investment details to solicit a deal without your consent.
FreakLegion 3y ago
It's generally bad for the company as a whole. Liquidity erodes the 409A discount[1], which then makes other grants (either future or existing, one way or another) less valuable. This is a pretty classic case of local vs. global optima, like in the prisoner's dilemma. If you're interested in startups, I'd look for founders who 1) give you the maximum exercise window (10 years with ISO->NSO conversion if you leave), 2) offer early exercise, and 3) support coordinated secondaries where the folks who want it can get some liquidity, without mucking things up the way a free-for-all can. 1. https://www.sethlevine.com/archives/2018/08/whats-a-fair-409a-discount.html https://www.sethlevine.com/archives/2018/08/whats-a-fair-409...
- enra 3y ago
  This one of main points too. We also do or plan to do these all 3 items. We haven’t done a coordinated secondary (tender offer) yet since our team is relatively small and people haven’t been with the company that long that there would be that many shares to offer. Usually most people don’t want to sell or sell that much.
- ccorcos 3y ago
  The 409a discount is the problem here, honestly. Maybe we should lobby the government to change the laws. Because it sucks for employees that the Y Combinator stock option agreement template includes a non-transferability clause. It’s unfair that employees have don’t have the same access to liquidity that founders get.
  - FreakLegion 3y ago
    Employees should have the same access to liquidity that founders get, but that's orthogonal to the 409A. The reason we want to keep the 409A low is so that when the company is valued at, say $100m, the common shares are much lower, say, $20m (even though they make up a majority of the company's shares!). Now when we hire that amazing person and offer them 1% of the company, their options have a strike price of $200k but already an expected value of $1m+. Really the games we play with 409A valuations are a reason for founders to limit their own liquidity, too. Outside of a few famous examples like Google and Facebook, founders and employees have the same common shares, and it's in both their interests to keep the common share price low while building the company. If founders are selling shares and not inviting employees to participate, it isn't because of the 409A. Those founders are just assholes.
    - statusgraph 3y ago
      It's comical how much of modern startup compensation is gymnastics around taxes. My understanding is that the most basic problem is if the startup gives you stock that's viewed as income and you will need to pay tax on an illiquid asset, and ISO/NSO/RSU/409a's are resulting from various elaborate schemes to give you stock-like upside tomorrow without having to pay taxes on an illiquid today.

patrickhogan1 3y ago

Upvoted this because this comment is from the CEO & co-founder of CloudFare - a public company. He clearly knows about liquidity going from private to public. Agree on the need for founders to guard their cap table, especially against strategic moves by competitors. Regarding better liquidity for employees, it's great that companies are exploring options. Carta is in a unique position to lead this. But it's key that both the company and investors opt-in (not buried in a ToS).

xyzzy_plugh 3y ago

What's the alternative? Solium with their Shareworks service, now under Morgan Stanley, did much of the same thing. You think Morgan Stanley isn't making informed bets off that data? I could agree that Carta may be doing it to an extreme but it's far from unprecedented.