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Henry Ward

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69
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2022-04-21
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2022-04-21
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  1. “Today it's a lot of institutional driven. Finding alpha in the public market today is really, really hard. And so they're all moving into the private markets to find alpha. And finding alpha in the private markets is much easier. There's a lot there. Right now, we only allow institutional investors to trade on CAR to X, but my hope is in two years to your question, we'll allow accredited investors. And then I hope in five to ten years we'll find a way for retail for everybody to participate. We're working a lot with the SEC. We have a policy team that's working on amending the credit investor rule to be not a net worth-based or financial means-based metric or threshold, but rather an education qualification. So you can basically test them to being an AI. And if we can get that passed, we almost had a pass with the previous administration. We're working through it with the current one. But if we can get that passed, that will wildly open up private markets to 300 million Americans. And we're really excited about that.”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “When there's so few price setters, and in fact, many of the price setters aren't on Carda X because they're the ones that are out finding founders. We attract more passive capital versus the active capital. And that's one of the things we're trying to think through.”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “We've talked about, and that you'll see what will happen is the sellers will then put in bid their limit orders, how much they want to sell, what price on the sell side. The buyers will come in and put in their limit orders, how much they want to buy and at what price. And then we'll find a clearing price that clears the most trades. So everybody gets the same price. This is a periodic auction-based market, not a continuous trading market. And so everybody gets that same price that clears the most shares. One of the challenges that we have is that in the public world, I hate this term, it's so derogatory, but smart money and dumb money model of who's a smart money, they go first and then dumb money follows. I prefer to say price setters and price takers. One of the challenges in the private markets is there's many, many price takers. There are very few price setters. There's very few firms that know how to price a private company. And on the employee side, they don't know how to price it either. And so one of the challenges that we're having is how do you set price?”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “Today, how supply works is a company will come to us and say, CARTA, CARTAX, we want to run liquidity. Can you help us? And we'll hopefully say yes. The company gives us the rules of the stock market. So one of the advances CARTAX in the public market, there's one stock market rule set by the SEC, and everybody abides by those rules. And there's two exchanges that have their own nuances on top of those rules. And CARTAX, we view it as the company gets to set their rules. So they get to set what the total available float is, who's allowed to sell, who's allowed to buy, how much people are allowed to sell and buy. They can figure the entire parameters, their own personal stock market. So they'll come to us and say, here's what we want to set up. Employees can sell 20% of their vested options. Nobody can sell more than a million bucks, et cetera. We'll set that program up for them. And then we'll find buyers that they approve and those buyers then bid on that supply. Most of the buyers today are institutional crossover funds. So it's all the people you think in late stage growth.”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “There's embedded demand that people wanted to sleep on people's couches, and then Airbnb figured out how to unlock that supply and get people to do it. And the same for us, I think we have figured out how to unlock supply. I think companies are coming to us at scale. We run 20 liquidity events a month these days to unlock supply and create liquidity on their cap tables. The challenge now is as supplies starts to rise, every marketplace has this question, how do you then have demand rise as well? And it's always that balancing act. And I think we're in the demand side of this equation. How do we attract more investors to car to X so that they can start buying into these pre-IPO liquidity trades?”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “We're definitely in the new market creation business. One question to ask is how do you define a new market? And our definition is anything where you've made a way for money to exchange hands that hasn't happened before. One example of that is even captables. We weren't the first cap table provider. We're the first captable provider to charge companies. As an example, in CARTAX, we're the first exchange where we're charging buyers and sellers commissions to trade and provide crossing trades for them as a service. These things are really hard to get going, but when they go, they accelerate very, very quickly. If I were to grade ourselves, they'd give us a B minus on Cardacs. I think we're attracting a lot of supply, and now we're building up the demand side of the equation. All marketplaces start this way. So if you're an investor looking at marketplace companies, all marketplaces start with this thesis that there's hidden embedded demand that you can't see. And then the marketplaces somehow figured out how to unlock supply. So if you look at Airbnb,”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “Are starting to solve this employee question by offering liquidity. And we do this. I'll do the employee pitch for CARTA. Hey, come to CARTA because we get great benefits. You get cash. You get stock options and you get biannual liquidity here, which if you go work for that other private company, you won't get liquidity. You're just hoping for a public exit. And I think the more that happens, the more companies will have to follow suit. And I think we're at that inflection point where companies are starting to have to do this to attract talent.”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “10, 20 years ago in tech, going public with the way that you got liquidity, and companies went public a lot sooner than they used to. I mean, Amazon went public, I think, a $200 million market cap. You can't imagine that today. The timeframe from starting a company going public was much shorter and the bar was much slower going public was the form of liquidity. And there was this ethos that I think venture and private markets created over the last 20, 30 years that nobody got liquidity until everybody got liquidity. So IPO was the moment of liquidity for everybody. And in fact, there was this view that employees selling before IPO was a vote of no confidence on the company. Fast forward to this decade, I think what has changed is because companies are going public later, some companies are just not going public at all, employees are starting to question this idea of why would I go join this company for a lottery ticket on going public, which may or may never materialize.”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “In that company you're working for just like tech. That trend is already starting. I think you're starting to see it in movies now where people like Zendaya are giving equity out in the films and the entertainment industry is moving from a royalty model to an M&A model where you create a movie, build a cap table on that movie, and then sell it to a streamer. So you're starting to see pockets of this happen. You can see Hamdi at Chobani, who gave equity to all of his employees, including the dairy farmers. So you're seeing this start to expand. Our mission is twofold. One is to make it so much easier so that when you start a new job, you're going to get on a payroll and an equity platform, which couldn't have been true before 2014. I think 20 years from now, Patrick, it will feel weird. People won't understand how we went to go work for a company and all we got was cash. So that's part one. Part two is once all these people have equity, you have to give them the ability to get liquidity. And the public markets isn't the answer for all companies. And so that's really the part two of the thesis is how do we create liquidity for these companies.”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “So we have this historical worldview that labor compensation really started with indentured servitude and it started with feudalism and it progressed over time. A lot of changes have made, including no more child labor and all these types of things. Labor compensation and how labor materialized and different economies has changed over time. And we're currently in this era that I'll call the payroll era where we rent our time for money. I think the next era of labor compensation is going to be an ownership one. And sort of the old adage that the future is here is just not evenly distributed. I think the future is in tech right now where if you're a tech worker today, of course you get equity in the company you work for. You get put on a payroll system to pay your rent and then you're put on an equity system to participate in the upside of the company you're building that has not expanded outside of tech very much but it's starting. We're seeing this for example in private equity. I think in five years seven years if you work for a PE back company you will automatically get equity”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “Always going to have higher pricing in the public market because there's more buyers available. And so they were trying to build an index fund effectively on late stage private growth to arbitrage the difference between seven buyers in the growth market, private growth market, and infinite number of buyers in the public market. Obviously, that's changed a lot recently, but that was the strategy.”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  12. “To see more bidders come in, you'll see more efficient prices discovery. Today, the way that I would raise capital as I go up and down Sandhill Road, I'd collect hopefully half a dozen to 10 term sheets, and then I would manually create the auction process. I think what you'll see is if you have 20, 30, 40, 50 potential bidders, you now start to automate this. And CARTAX, which is our liquidity platform, is building out the ability to create auctions for primary stock. Of course, all this stuff is different because one of the great things that the public markets did is they standardize on common stock. In the private world, there's a lot of structure. So it's more complicated on how you set up these bids. But I think that's where the world's heading. And if you look at why private market valuations have gone up so much is the last couple years, a lot of the large growth and crossover funds like Tiger Global basically saw this price discrepancy between there's eight bidders in the late stage growth market and there's an infinite number of marginal bidders in the public market. And so you're”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  13. “Other corollary of having the first buyer set price is that there's no cost to waiting because you get the same price that everybody else does in the public markets. If you have buyers come in before you, they get better pricing because that naturally moves the price up. And that's why you see this phenomenon and this herd mentality in private markets that you don't see in the public where lead investor comes into the term sheet, sets a price, and then everybody wants to follow. Because by definition, they get the best deal. They get the deal with the most information after everybody else has already bid. They know who's going to invest. And that's why you see massive momentum into all these rounds once somebody is set a price. But there's nothing happening until that happens. I think what you'll see in the private markets as they mature and you see more bidders come in used to be in the gross markets just in the last couple of years. There were like seven people that really mattered. There's Andreessen Horowett, Sequoia Growth, D1, Tiger Global. There was like seven bidders in this market that really mattered.”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  14. “All goes back to the 1933 Securities Exchange Act, where they bifurcated that were registered. Termed for public securities that are available for public consumption. And then Largely to protect investors. That was the goal of the 33 Securities Exchange Act that came out of the Depression. And so part of the registered securities problem was, well, how do you make this accessible to everybody at the time, 80 million Americans and now over 300? And that created this wave of standardization in the public markets that created all the infrastructure that we could build around in the private market because there was no problem of scale. You didn't have to scale public securities. Back then, there might have been 50,000 people worth a million bucks or more that could actually buy private securities. It was all just kept in paperwork and contract law and became incredibly bespoke. And so you see all kinds of weird differences between private and public markets. So one example is pricing. In the public markets, price is determined by the last buyer, by the marginal buyer. In the private markets, it's determined by the first buyer, the buyer that gives you a term sheet. And so that's just one example of all the differences between public and private where they just don't work the same because of that simple.”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  15. “So, in 2016, we moved to a subscription based model and became a very traditional SaaS business. But it's one of these great lessons I tell all founders that the business model you started with may not be the business model you end up with. And that was classic for us”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  16. “Business model when we started was we charged $20 per issued stock certificate. Our competition was FedEx. So as all early customers are, they're friends of the CEO, the friends of the founder. So I called all my friends. I said, hey, don't pay FedEx $30 to ship your stock certificate to you. Pay us $20 to do it online. And that was the business model for the first two years. And then after we got enough traction on it, we then changed it to a subscription model because what we realized was the real value is not issuing the security. It's the real value is tracking it in the cap table. And that's what people wanted because we were effectively building the cap table bottoms up by issuing the securities.”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  17. “Our idea was let's build a really easy and simple way for issuers to issue stock certificates, issue securities online via email, just like you would send money with PayPal 20 years ago. We're going to send securities via email with e-shares. We're now called CARTA. Back then, we were called eShares. And in exchange for that service, they tell us who owned what. So if I issue Patrick 100 shares of Acme Inc. stock, I now know Patrick owns 100 shares. I record that in my database. Build this dat And that's what we launched in 2014. Really understand us. We're just a transfer agent for private markets. Now we've assembled a couple trillion dollars of private market assets in the database that we can now turn into the infrastructure for private liquidity. That was the origin story of how we started.”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  18. “resemble the public markets. And our idea was could we build this database, which would be think of it as like the MLS, but a private assets. I just wanted to know what everybody owned. And if we had this database, that would become the central clearinghouse for all private market securities. And we could build an exchange on it. We could build liquidity. We could do all kinds of things on this database. Think of it. If you're familiar with the Depository Trust Corporation, the public world, that's what we were building is the DTC of private markets. The hard part, of course, is how do you get people to tell you what they own and get those assets?”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source

  19. “Thanks for having me. I would break Carda's beginning or origin into two parts. One is the observation that started it and then the solution that we started building. And the observation was we live in this weird world where you have hyper liquidity in the public market so much so that people are trying to buy machines closer to the exchanges. We talk about nanosecond liquidity and then the private markets, there's zero and everything's done in paperwork. There's zero liquidity to invest in two founders in a garage takes 30 days, tons of paperwork, $20,000 in legal fees and so on. And so that dichotomy was an interesting observation for us. And our explanation for why this dichotomy existed was that there was no infrastructure for private companies and private financial infrastructure, that all the infrastructure had been built for public securities, but nothing for private. It was still trapped in contract law, which meant it was still trapped in paperwork. So that was observation one. Solution was, well, how do you build the infrastructure for private markets so that it can look more and more”

    2022-04-21 · Invest Like the Best · Henry Ward - Transforming Private Markets - [Invest Like the Best, EP. 273] · IDENTIFIED FROM THE TRANSCRIPT · source