Modeling capital and connecting workflows for Private Equity

Carta offers ownership management tools and fund services to three audiences: Companies, Funds, and Investors. For most of its history “Funds” and “Companies” meant venture capital firms and startups.

Venture backed startups are often legally structured as C-Corps because they allow for “Board Seats,” but the most common ownership structure in the USA is the LLC. Carta believed this was an under served market for managing ownership shares.

That market was, of course, too large to tackle. So, when I joined the company as a Director the team had narrowed the audience to:

• Oil & Gas firms: which have a lot of ownership shares
• Law firms: which incorporate lots of LLCs
• Private Equity firms: which have complex legal structures
• And any other LLC that expressed interest

How do you sell a broad solution to a narrow audience?—you don't.

After a month of pitching it was clear this wasn’t working. So, I met with our sales team, reviewed recordings of calls I couldn't join, and realized all our PE firm conversations were with fund managers who don't make back-office software decisions. We were talking to the wrong people! We needed to talk to the fund CFOs.

I pitched my product and engineering peers on reducing our bets from three to one: Private Equity.

• Oil & Gas firms: Sales conversations and competitive analysis showed that the competition was very entrenched.
• Law firms: There was no way to tell how much money would be “flowing” through their legal structures, which meant little opportunity to upsell new features.
• Private Equity firms: Have multiple (often complex) ownership structures, money flowing through those structures, and the need to model potential exit outcomes reliably.

At the time Carta didn't employ UX Researchers (after this project I hired Carta’s first UXRs). So, to prove my hypothesis I crafted a research plan alongside the VP of Design and leveraged our GTM team to convince 13 CFOs to talk to me about their challenges. They said a lot, but the most important thing they told me was that waterfalls—especially fund level waterfalls—are a huge headache. One CFO even told me they had to "breathe into a brown paper bag" when first introduced to the massive and unwieldy spreadsheet the firm used to process hundreds of millions of dollars in distributions.

Yikes! But also, what a clear product opportunity!

The original LLC product (built before my joining) had one big problem in light of this research: to facilitate speed to market for LLCs the team built a fundamentally separate codebase outside the Carta ecosystem.

But for Fund CFOs to find value in a waterfall tool the outcome of that waterfall had to "cash out" on the General Ledger in Carta's Fund Administration tool.

While my Enginering peers thought about that problem I collaborated with team PMs to break our product vision down into value-driven milestones based on sketches I had shown to the CFOs.

The PE waterfall product gained early traction and we started winning deals worth $250k+/yr. Around this time our CEO was developing a new vision for Carta to become an Enterprise Resource Platform (ERP) for all types of fund businesses. He saw the traction we were getting as a direct outcome of this deep Private Equity CFO research and asked me to repeat the process for all Carta Fund customers.

I presented my findings to the entire company which fundamentally reshaped Carta's approach to building products for fund businesses. Here are a few of the key findings:

• Fund firms outgrow quickbooks but what comes next is unclear because Netsuite and Investran are too complex.
• Funds have "secret sauce" valuations but the standards are subjective and justifications are critical for SEC compliance.
• Streamlined performance data collection is critical and a "drag/drop" experience for Portfolio Companies would ensure data requests are timely.
• Right now Carta treats Management Companies the same as fund entities but they are very clearly not fund entities.
• HR and payroll data is sensitive but is a necessary component for a full Management Company money flow.
• Limited Partners are the General Partner's customers and GPs will go to great lengths to maintain LP trust.
• Once the processes and procedures problem is solved it is very hard to get firms to switch.
• New features are valuable but the "under-the-hood" justification for all numbers across the product is what matters most.