Carta debuts fund to invest in startups that tap into its platform

This morning Carta, a startup that helps private companies manage equity, announced it has created an investing vehicle called Carta Ventures. The well-funded unicorn wants to invest in young startups that it sees building off of its data-driven perspective into the world of private companies, helping to foster an ecosystem around its core products and services.

As TechCrunch has reported, the world of corporate venture capital has seen an enormous rise in the number of players active in the category, as cash-rich incumbents of all sizes deploy cash as a way to both keep an ear to the ground in their market and surrounding areas, and perhaps drive some cash-on-cash returns to boot. Companies like Slack have also compiled investing entities while private to put capital to work in companies that plug into their platform.

With all the activity in corporate venture capital, why do we care about Carta Ventures? Mostly because Carta itself is of growing importance in the expanding and increasingly crucial world of private companies, and the company has some pretty specific things it's looking to invest in.

Why private companies matter

Carta works with private companies to help with certain valuation varietals, cap tables and reporting. It also offers tools and services for the venture class. This puts it squarely in the middle of the private market, which is in the midst of a long crescendo.

Investment into private companies is growing. The number of public companies is falling, and it's taking longer for private companies to go public. The companies staying private are worth hundreds of billions of dollars. Hell, even The Economist dug into the private company boom, noting that "[i]nstitutional investors are rushing headlong into private markets, especially into venture capital, private equity and private debt."

And Carta provides behind-the-scenes sinew and tissue to both the players (startups and other private companies) and their fuel (investors of all stripes). Efforts that sum to the startup working to expand the world of companies supporting those same firms through its new venture fund.

Carta wants to accelerate (and even instigate, as we'll see) companies that add to its own platform, making investing and participating in the private markets a bit more limpid and simple - two things that the world of private capital and its constituent bets have never had in abundance.

Capital for whom?

To get a grip on who Carta wants to fund and why, TechCrunch caught up with James McGillicuddy, who heads up strategy for the company. Starting with the basics, the capital that Carta Ventures plans to invest will come out of Carta's own accounts. McGillicuddy said that the entity will invest "balance sheet capital, with no outside structure," meaning that the setup is "very much from the corporate ventures playbook."

Standard so far, then. Next we wanted to know about how many general partners Carta Ventures would muster to go into the market. Instead of answering that directly, McGillicuddy discussed a number of existing internal staffers, and a collection of folks that he considers a "pretty good group of folks in the classical sense on the investment committee that will be able to help these entrepreneurs and guide them towards a business that we think should exist now that we [are] programmatically opening up access to the markets."

Carta Ventures intends to write seed checks, according to a pre-release copy of a blog post shared with TechCrunch. McGillicuddy added that Carta Ventures' "first priority is helping folks think through how to leverage our platform to build things that we think should exist, that we don't have the expertise [in]."

As you can tell from McGillicuddy's last two answers, there is intentionality afoot at Carta Ventures in terms of what it wants to see built.

In a blog post written by Carta CEO Henry Ward, three companies are mentioned: A startup focused on helping other companies come up with fair and market-fitting "total compensation" for employees including both cash and stock; a startup focused on "build[ing] analytic investment tools for venture as an asset class;" and one final startup focused on executing and publishing research on private companies.

I was curious why Carta wouldn't just build this out itself, given how precise its anticipation of what it wants to be built. McGillicuddy said that the best people for all things that Carta wants to see aren't inside its offices (true), and that even if some of those folks were already working for Carta, his company has "many other priorities and so many things to build."

Fair enough. But it indicates that Carta isn't just building a corporate venture arm to go out and put money to work in companies that could later eat its lunch. Instead, it wants to put to use capital as a lever to power particular firms that could extend its reach.

What else?

Carta's venture fund is willing to put money to work in idea-stage companies, provided that you're doing stuff that it finds enticing (see above). And Carta is willing to put you up in its office and so forth. It's there to help if you want it.

Why is all this happening? Carta isn't public and probably isn't profitable. How can it afford to have its own venture arm? This is how:

Carta was just valued at $1.7 billion by Andreessen Horowitz, in a deal some see as rich

That was back in mid-2019 when it raised $300 million at a $1.7 billion valuation.

When the private capital markets are wiling to throw that much money at you, why not put it to work funding smaller companies who may profit off of your private company platform?¹

1. If you say "private companies" four times fast, you have to accept a check from Carta Ventures. It's the rule.