Carta’s Peter Walker: how venture data can be best used by founders, VC’s, and board members

A warm welcome to our newest Above Board subscribers. Today, we’re thrilled to welcome Peter Walker, Carta’s Head of Insights. Many of our subscribers are Carta clients themselves, but if you aren’t familiar with Carta, they have close to 45,000 startups and thousands of VC firms who use their platform for equity/cap table management, compensation, equity sales, and VC support.

If you spend time on LinkedIn, you’ve probably seen one of Peter’s many viral posts talking about startup fundraising and compensation data. We’re grateful he took the time to join us to go deep into the world of startup data.

AB: Welcome to Above Board, Peter. Thanks so much for joining us. Can you share more about Carta’s data practice and how it came to be?

PW: On a basic level, my job exists to make Carta data more useful because of Carta's trusted place in the middle of the startup ecosystem. We have all this data from the close to 45,000 startups now on the platform. 

So the reason we built the practice was because people were coming to us with questions all the time such as: tell me what median valuations are for a seed stage company. Tell me how much I should expect to raise. Tell me how difficult this raise is going to be. How long is it going to take me?

Before I came here, we really didn't know how to give them those answers. So my job was to figure that out.

AB: Can you please share examples of how Carta clients or anyone in the VC/startup community is using Carta data particularly well?

PW: Absolutely. I think that there's a bunch of examples I could give here. I know, for instance, of many, many conversations where a founder will come into a VC and the VC will say, “Look, this seems like an interesting deal, but we have trouble with X, Y, or Z (ie: your valuation cap).”

And then the founder can point to a published Carta data report and say “This is what the market is.” Founders have done that personally and so have VCs. And it's not as though someone is right or wrong; the impact of that benchmark data isn't to say we have to be on the median. 

The impact is that you're both talking about the same set of reality so that it doesn't seem as though someone is, for instance, trying to command a 2021 valuation here in 2024 and not realizing the massive change that's happened in the market in between.

The other way that people have used this data, which I love actually, and I think it's a hidden benefit to companies, is there are VCs and other people that are “influencers” in the VC space that use this data as a jumping off point for their own commentary.

So they'll take a piece of Carta data and say, “Hey, I found this chart really interesting. What we're seeing in our experience is X, Y, and Z.” I love that because one, of course, it promotes the Carta data, but two, they're working again off the ground truth that was provided, but their perspective is equally valid. After all, that’s why you have so many different opinions about how to build early stage startups.

AB: Obviously Carta has lots of VC fundraising data. What other types of data do you have? 

PW: I think there are probably four big, broad buckets of data.

One is fundraising and valuations. Two would be employee equity; not just how much equity each employee has, but also the trends around the terms and what they're doing with that equity. Are they exercising it? Are the grants that they're getting bigger or smaller based on their industry stage, etc.? What are the terms of that grant? Is it four years, one year cliff? There are companies that are experimenting on the edges with different vesting schedules, different post termination exercise periods, etc.

We also have things around hiring, such as salary trends over time, equity trends over time, and how much is a team function being valued within an organization.

Then there’s the last set of data, which to date is effectively unexplored by us at Carta, but it's the thing that I'm working on right now, which is fund administration data. At Carta, we manage the back office for about 2,500 venture funds. We would love to do some of the similar analysis that we do for portfolio companies, but for the funds themselves: performance reports like TVPI, DPI, net IRR, and other metrics that other funds or LPs judge these funds on, as well as again, the metadata around investment.

There’s all these interesting little nuances of building a venture fund: cashless commits, management fees, carry percentages, etc. There's a lot of broad data, but I think we can get really specific, especially for funds that tend to be smaller. It's just not something that we've put out to public quite yet, but I’m so excited to get digging into that.

AB: Similar to Carta, our audience at Above Board is a mix of board members, investors, and founders. What can founders learn from the VC data and vice versa?

PW: While VCs tend to pay a lot of attention to founder level data, I think the reverse is actually not nearly as true. So I think there's actually more for founders to learn from VCs. This may sound a little weird to say given the general attitude of “founder first,” but especially first time founders often come in with unrealistic expectations of their VC funds, not understanding the demands of the fund economics. If there's one thing that founders should understand, it’s that. 

A lot of the VC requests or demands of your business are driven by the economics of their fund. In other words, it's not that they dislike you as a person or that they're demanding so much of you because of some personal animosity. Rather, it's because their fund, in order to build returns that have their LPs invest into the following fund, they need home runs. They need outsized winners that are going to return the fund as a whole. 

In some cases, a company that sort of meddles along, maybe it makes a 1x return or maybe a little higher, is actually worse for a VC than a portfolio company that fails very quickly. Why? Because the VC is spending a lot of time and attention on something that isn't going to actually materially impact the output of the fund, but they don't want to be rude and ruin the relationship with the entrepreneur.

Obviously there are some bad VCs out there, but most of the time people are just trying to make decisions that work in their incentive structure and understanding where those incentives comes from, I think really helps.

AB: What can VCs learn from the company level data? 

PW: Perhaps the biggest thing is to give them an outside perspective on how other companies are building, so not necessarily on valuations and markets. I'm thinking in particular here about hiring headcount and team size. 

A lot of times, VCs will have come into their investor lives as founders previously. So they're taking a lot of lessons learned from that era of whenever they founded their companies or were early operators. But this new era might be completely different. 

At present, we're seeing a lot of teams be kept much, much smaller. So the actual ARR per employee is much higher than it used to be. There's capital efficiencies that have come into the business. So, learning from the data about what founders are doing today can help VCs maybe right size their advice a little bit.

AB: What is the time horizon of data at which a board should be looking?

PW: When it comes to the company economics and the actual financials going on at the company, I think quarterly makes sense. Maybe monthly at the very beginning, but generally the focus should be understanding what happened this quarter, projecting what's going to happen next quarter, and annual planning.

I wish there was a way for LPs in particular to evaluate funds more closely on the years one through five of the fund. There's no DPI. Yes, you have metrics like TVPI and Net IRR, but they're mostly driven on the internal valuations of that fund and may or may not reflect reality.

There’s a ton of data from other providers out there on past funds, but how useful is it to study the vintages of the early 90’s in venture? Maybe it's helpful to give you a sense of historical context, but I don't know whether or not it should be like really front and center when you're making decisions right now.

AB: Something people use Carta data for a lot is hiring comps. After how long are comps no longer really relevant anymore?

PW: The half-life of compensation data is a wonderful question. There are two ways to approach this: one is your access to data. So if you're using Carta Total Comp, we're updating our data monthly, but big updates are every quarter. But at startups, they are often not making major changes to their compensation expectations every quarter because it would throw off the plans that they've made, especially if they're running, say, half yearly promotion and merit cycles. 

They're probably updating their bands maybe once a year. So it actually comes down to how quickly can your internal teams adjust and digest data—it’s not actually always the case that changing your comp band every couple months is a good thing. Maybe that makes you too sensitive to swings in the market. So there's some discussion as to whether or not it's the half life of the data itself or the meta conversation about how the utility and where it's being plugged into your systems. In general, I think that companies should be updating their compensation frameworks at least once a year.

As you come to say the end of a calendar and look across our bands, you’ll likely want to be asking: Are we still in market? Are the engineers that we're currently hiring getting paid fairly versus the engineers that joined earlier? All those kinds of things, taking into account refresh grants, promotion cycles, etc.

AB: Is there any relationship between companies giving out equity grants to advisors and board members and the company’s ability to raise follow on capital? 

PW: I don't have a great mental model for that. I do know that a common complaint we get from founders is that they gave out too much equity to early stage advisors. There are many founders who find that one advisor inflects the business, but there are many more sadly who say, “Look, I gave this person some equity and I got a couple Zoom calls and that was basically it and I just It wasn't really worth it.”

AB: Are there any workarounds for this problem, such as more specific advising agreements?

PW: For one, make sure you have strong vesting schedules on those grants. The thing about it is if you asked, most founders could probably point to the advisors that are useful and the advisors that aren't. They're just unwilling to do the controversial thing and terminate the grant. Perhaps it is because they want to maintain the relationship or they say, “Oh, it was only a quarter of a percent.” They just don't want to do the final action of cutting that grant off.

My advice to founders would be that if you're not getting value out of that advice relationship, you can cut it off. You can end the vesting schedule. It's within your rights to do so. While performance criteria for advisors is hard, we see it work in some cases where you’re being very specific about what you're paying the advisor for.

AB: What data do you collect on board compensation and, and of what you've seen, what are the trends that stick out to you?

PW: We do collect some data on board members. We don't have any data on the cash compensation side of board members, but if they're granted equity, we would see that on the platform.

Boards are mostly a creature of priced equity. In the pre-Seed stage, although maybe it's happening a little bit more frequently as we see bigger SAFE, rounds, but in general, a board isn’t established until you start raising priced funding.

One of the trends that we've seen is big founding teams adding all of themselves to the board, which isn't amazing. I think that can introduce some structural problems later down the road. Usually it should be the CEO and maybe one other co-founder from the management side.

We track equity grants which advisors often receive. Advisors are much more common at the pre-Seed stage where there's a ton of advice, some of it great and some of it not very good. Typically we see founders are paying something like a quarter of 1 percent for that advice.

0.25% percent is the median pre-Seed advisor grant on Carta last year. The median Seed stage independent board member grant is about 0.5%. So, quite a bit higher at a later stage as the business should have been de-risked somewhat. Those numbers have essentially been flat for the last three or four years. So, in terms of trends, we're seeing board member equity pretty stable year over year and it comes in at a higher percentage, in many cases, than the advisors that are involved.

Thank you very much, Peter, for sharing such helpful data points and commentary. Before signing off for the weekend, please consider sharing Above Board with a colleague/friend and following Above Board on LinkedIn.