Strategic Perspectives on M&A

First failed acquisition story

I'll give you the story of the first acquisition that didn't work out, or rather, that we didn't buy. There was a 409A firm around 2014 or 2015. We were getting into the 409A business. We had a cap table product, but what customers really wanted were 409As, and we didn't know how to do them.

So, we partnered with a valuations firm out of Utah that did valuations. We became their distribution channel. We would sell the 409A service and keep 20% of the revenue, and they would get the other 80% for doing it. 

We started working with this firm and growing that business dramatically. We sold a ton of 409As. When we started, that firm was three people, and then they grew to 20 or 25 people in Utah in less than a year. We were building all the infrastructure to support this team to do these 409As.

I realized we had a single point of failure—the most important product we had at the time. People cared more about the 409A than the cap table back then. If something happened to this 409A firm or if the founders wanted to go in a different direction, we would lose our ability to produce our mission-critical product.

So, I approached them and offered to buy them. I remember, it sounds so quaint now—the business was making about a million dollars in revenue. They wanted $5 million, and we were willing to offer around two or two and a half. We just couldn't agree on the valuation.

We ended up not buying it, and in hindsight, I'm so glad it didn't work out because we ended up building our own core competency. We would have given away 15 to 20 percent of the company at that point for this service business, but we built it ourselves. 

Now, we do 30,000 409As a year. We're the biggest 409A provider in the country. It became the core flagship product for most of our cap table users. 

The reason I highlight that story is that even if deals don't go through, there's often something incredibly valuable that comes out of it—just from the learning that happens through the process. This is one of those classic examples: you do the partnership, you figure out the partnership, you can't get the deal done, and then you find another path.

Outside of that, we started doing a lot of deals from around 2016 to 2022, we did all nine or ten in that period. We've done everything from product tuck-ins to acquihires to book-of-business buys—every type of M&A deal. I'm happy to dive into any or all of them. Any of these M&A deals had a specific thesis or problem you were trying to solve? I can't think of a problem we haven't tried to solve with M&A. It's been a huge tool for us.

Lessons learned during early deals

I'll talk through two examples: one was a book of business buy, and the other was an acquihire because those are super common. We can also talk about the third type, which is usually a product tuck-in or cross-sell products.

One of the best deals we did was buying the 409A business from Silicon Valley Bank. In the early days, our biggest competitor for 409A was Silicon Valley Bank. We had many smaller competitors, but the giant, the gorilla in the room, was always Silicon Valley Bank. We were constantly competing with them.

We ended up getting to the right people at Silicon Valley Bank, above the leader running the 409A analytics team, who we used to deal with, and they hated us. We competed directly, and there was a lot of animosity. 

We were able to reach the COO level and convince them to get rid of the 409A business because it wasn't profitable for them. If they sold us the business, we would partner with them on selling Silicon Valley Bank commercial bank accounts to our startups.

It was a two-way swap and a classic example where if you had asked the team, they never would have sold—they saw us as the enemy. You had to get high enough in the organization to someone who didn't care about the specific business line we were trying to buy but cared about the bigger picture. 

We could solve their bigger problem, which was to gain more startup exposure, which we had. In exchange, they gave us the 409A business. We struck that deal on a Sunday night after about a week of negotiations. It went really fast once we got to the right people and convinced them with the right messaging.

That's a good example of what I'd call a semi-hostile takeover. I remember when they invited me to meet the team at Silicon Valley Bank to announce the acquisition—it was a small group, about 40 or 50 people. 

I walked into a room full of valuation analysts who had spent the last four years competing with us, and they absolutely hated us. When I walked in, I could see daggers in their eyes. It was really tough.

We gave them all the offers and brought them to our office. We tried our best to retain them, but many wouldn't even entertain the idea of working for us. Ultimately, about two-thirds were willing to stay, while the other third left, refusing to work for Carta. We worked hard to retain those who stayed and to convert them over to our side.

Despite the initial challenges, it turned out to be one of our most successful acquisitions. It brought us the entire Silicon Valley Bank book of business, which was around four or five million in revenue at the time—a significant amount for us back then. It also provided us with incredible capacity because we acquired all these experts, making it almost an acquihire. 

And finally, it solidified us as the brand name. Before us, Silicon Valley Bank was the recognized name, but by acquiring their book, we became the brand name. I think that was the inflection point for us.

We didn't have an expectation of how many would churn, but we knew that there was going to be high risk and it was on us to try to keep people and ask them to give us a chance of working at Carta.

I had developed a relationship with the COO at the time. My strategy and CorpDev team were working directly with their team, trying to figure out a thesis and a case, working around the edges. 

When they had enough context—understanding what Silicon Valley Bank would care about and what they wouldn't—they were trying to determine if it was actionable. They did this by talking to people around the carve-out and the business we wanted to acquire. When we had enough of that, I went to the COO and got some time with him to make the case.

In terms of introductions, I had met the COO, but I don't remember exactly how. I think we were connected as people we know in the industry about a year earlier, just as a "Hey, if we ever get a chance to work together" type of thing. 

Someone had introduced us in a sort of random way. So, I had him in my Rolodex. When I reached out, it wasn't completely cold—he knew who I was, and we had met before. But it was very much, "Hey, I know my team is working with your team on some ideas. Could I stop by your office for 30 minutes to pitch my ideas?"

Building the case for actionability

The hardest part about private M&A is actionability—how do you create action? There’s so much inertia around not doing anything, so just getting people to engage is crucial. For every deal we've done, I've probably worked on five to seven deals that we wanted to do but couldn't make actionable. Actionability is the number one challenge in private M&A.

To create actionability, you have to figure out who the decision-makers and stakeholders are on the other side. Understand what's important to them and build the case for them. No one will build the case for actionability on their own; you have to do it for them. 

If they are building the case themselves, they're effectively putting the asset up for sale and might as well get their bankers involved. But if you're hunting for an asset, you have to build the case for them—they're not going to do it themselves.

Especially in private markets and venture, you'd like to think people are financially rational, but that's almost never true. For example, with SVB, they don't care about $5 million in revenue or getting more bank accounts as a firm. 

What you have to map out is whether the COO will look good in front of the CEO if they do the deal. How will the chief of staff who's backing it be affected? If they do the deal, will the chief of staff get a promotion or a positive performance review? These are the things that matter. It's all very person-dependent.

You see it even when you're just trying to buy a company. The biggest blocker to buying a company is the CEO. Does the CEO want to sell the company or not? If they don't, you can provide all the financial analysis and prove that you're offering not just fair value but better than fair value. But if they don't want to sell, there's no actionability.

How do you convince, often, by definition, irrational founders? Venture-backed founders can be irrational. How do you convince them to be rational and sell an asset they don't want to sell? That's the hardest part—creating the actionability.

Convincing founders to sell

Convincing founders to sell is very idiosyncratic to the business. For example, acqui-hires tend to be easier because the companies are failing anyway, so you don't have to convince them much—they're already looking to be sold. 

Acqui-hires are usually straightforward. For carve-outs, you can make a solid business case, and those can be easier. However, when you're trying to buy a company with a product you want, if that product is doing well, it becomes challenging because no one wants to sell a successful product, and no one wants to buy a failing one. 

It's the old adage: companies are bought, not sold. If a company is up for sale, especially at an early stage, it tends to be harder to generate interest. You often have to seek out the target and express interest in buying them.

The approach often depends on the founder. One common playbook for smaller companies—like Series A or B companies that have product-market fit but haven't scaled—is to convince the founder that their vision of building a product for a large market can happen faster and more effectively by joining your company.

You might say, "We have the sales distribution. You have an amazing product, but your challenge is scaling it. We have 30,000 startups and 2,500 venture funds on our platform. If we had your product, we could sell it to them."

Another approach is appealing to founders who love building products but dislike the operational side of running a company. They might hate the day-to-day management, HR, legal, and compliance tasks. You can offer to take all that off their plate so they can focus on building a product people love while you handle the rest.

Sometimes, it's about setting realistic expectations for growth. You might have a great product, but the question is whether it can grow to become an IPO-worthy company. Many products are niche and reach a point where they can't scale further. 

In those cases, you can invite the founder to join your company as an executive. They wouldn't just manage the product you acquired but could also have a portfolio of products and a significant role in the broader company strategy.

For many founders, this is appealing because they may not want to undertake the long, lonely journey of scaling a company by themselves. Joining a bigger team with more resources can be more attractive. Ultimately, it all depends on understanding the founder and what they care about.

A lot of people start with the economics, and sellers often want to start there too. They get inbound requests, including from me, asking, "How much am I worth? How much can I get for my company?" They're price-optimizing. 

But from a CEO perspective, my style is to push the financial conversation to the side initially. I tell them, "If you want to join Carta and be part of our portfolio and team, but only if I pay the highest price, I'm not sure that's the right approach.

I want you to want to come. If that's the case, then we'll figure out the economics. It really starts with what you want to do with your company. Do you see a path to join Carta, whether today or in the future? If so, then let's figure out the economics and how that fits."

For me, the conversation always begins with understanding what the founder wants to do with their career, life, and company. If Carta can help them achieve their goals, then we proceed. Often, the answer is, "No, I want to do it on my own," or "I don't see Carta as the place I want to be," and we don't even get into financials. 

I let it go. It only works if there's a founder fit because, especially in earlier companies, half the value of the company is the founder. The company doesn't exist without them, so you need their buy-in.

Assuming we get past that point and they're interested, I usually suggest we do some preliminary work. I ask if they'd be willing to open up a summary data room so we can do some rough calculations. They'll often push back, asking for a number first, but I explain it's hard to give a number without data.

There's some back-and-forth, but eventually, we aim to get enough data to provide a ballpark range. The number one reason deals fall through is a lack of founder alignment; the second is pricing.

For example, I had a conversation recently with a founder whose company had about $5 million in revenue, and they wanted $100 million for it. Nothing trades at 20x today or even last year. 

I asked them, "Where do you get the $100 million valuation?" They said they saw a path to $10 million in revenue, and at 10x, that's $100 million. They argued we should pay for that future growth. A lot of this is just an educational process.

When we value a company, we show our math. We use public market comps and walk the founder through how we think about valuation. This is the science of M&A—the science of valuation. 

If you just take the comps, normalize them, and create a median quartile, for example, you might determine the company is worth 6x revenue. 

The founder's growth rate is factored into that multiple, so they don't get forward credit unless they're growing significantly faster than the comparable companies. If their growth is around 20-40%, similar to the public comps, then the multiple reflects that.

If they're growing faster, say 100%, then the comps don't make sense, and we need a different model, forecasting three to five years out. In this case, if the median quartile is 6x, and they have $5 million in revenue, that puts them at $30 million.

Any third party would value it similarly. You can argue over the comps or whether to use the median or top quartile, but it might only shift the valuation slightly from 6x to 7x.

Once you set the scientific valuation, the art comes in deciding whether to pay a premium. You might pay a premium due to scarcity value if they're the only asset in the space. 

Conversely, I might argue to pay less because all the comps are at scale—growing at 20% with a billion in revenue—while the target is growing at 20% with $5 million in revenue, which isn't comparable.

Everything becomes a conversation around fair value. We discuss why it might move up due to scarcity value, the founder's expertise, strategic value to customers, or any other factor that might justify a premium. Conversely, we consider reasons for a discount. This clarity helps everyone understand what we're trying to buy and what the founder cares about.

I coach founders considering a sale to understand the difference between selling for the optimal price and selling for a fair price. If you're truly invested in a vision, get comfortable with selling for a fair price. In the long run, whether you sold for 6.5x or 7.5x won't matter much. What will matter is whether you made the sale and moved forward. That's the key decision to focus on.

Valuing high-growth companies

That's really the challenge, 100 percent. In this example, you might argue the comps are comparable. If you're growing 60 to 80 percent, you could adjust the comps to reflect companies growing at that rate. But it's hard to find those in the public markets today, so you would need to do an NTM (Next Twelve Months) valuation and look forward.

The thing that makes the 60 to 80 percent growth argument difficult, even if you agree on the valuation, is the growth discrepancy between the two companies' stock. 

For instance, if we're growing at 20 percent because we're larger and at scale, and your company is growing at 60 percent, all things being equal, your stock is appreciating at 60 percent while ours is at 20 percent.

By doing a stock swap with us, you're trading your stock, which is appreciating at 60 percent, for ours at 20 percent. If both companies were growing at 20 percent, it would be fine; no big deal. 

But if you're growing at 60 percent, it's not just about paying the premium—you're also decelerating the growth of your stock. That's why high-growth companies are incredibly hard to buy; you have to offer unreasonable premiums.

There are essentially two types of companies: those you’d pay a good price for and those you’d pay any price for. Super high-growth companies fall into the latter category.

Even if you can agree on a premium, the question is how far ahead you pay that premium. Is it one year, two years, three years? If the company is compounding at 80 percent growth and you believe it can continue, it's tough to justify a five or ten-year premium.

It's like the WhatsApp or Instagram deals, where they paid way ahead of time, and looking back, they didn't pay ahead enough—they could have charged a lot more.

Bridging valuation gaps

I'm personally not a huge fan of earnouts. They can be useful to close the gap if you're really close but not quite covering the bid-ask. So, you throw in an earnout to make everyone feel more comfortable. In practice, earnouts almost always get paid, whether the numbers are met or not. I'm not a fan for that reason, but also because they can create conflicts of interest.

For example, let's say you buy a company with an earnout based on revenue. After six months or a year of integration, you might realize you don't care about revenue; you care about ubiquity and usage. You might want to discount the product as a loss leader for your other products. 

Now you have a conflict because the people in charge are focused on revenue. Then you have to renegotiate the terms. Ideally, you want a founder who is brought into the vision and wants to support the company. 

Generally, if you're willing to pay $100 million for a company because you see a lot of potential and they want $120 million, and you’re considering a $20 million earnout, I'd suggest just paying the $120 million. Don’t make them take the risk—make them join you fully.

When referencing multipliers, we consider the growth rate of the company and the appropriate comp set. For example, if the company is an ARR-based company growing 20 to 40 percent, it's easy to find public comps. 

If the company is growing at 100 percent, you need to look at forward earnings to give them credit for future progress not reflected in public market comps.

Sometimes it feels like I talk to too many bankers, and they always go with the run rate or whatever the bigger number is. It's very conflated and convoluted. In general, for a B2B SaaS business, we usually think in terms of multiples on current ARR. 

For private companies, if we're looking at larger ones that have transitioned to more traditional revenue models, we look at GAAP revenue, not ARR or bookings, usually on an NTM basis.

For us, it’s typically a two-step process. First, establish conviction with the founder that we should work together—that's my job. Second, cross the spread on economics. That part is usually handled by my CFO and Charlie and Davis, who run Corp Dev. They handle most of the financial negotiations so that I stay out of it unless I need to step in.

Acquihires and product tuck-ins

Our big acqui-hire was about 60 to 70 people in Waterloo from a company called Kik, which was a consumer chat app for teens. They couldn't quite hit the inflection point and were starting to run out of money, so they had to sell the company quickly. 

We got involved because one of our investors was also an investor in Kik, so we had early access. They were willing to go with whoever could move quickly. Being small and nimble at the time, with just a few hundred people, we had an inside track to the CEO—I had met him at conferences. 

Once we got the call that the company and team were up for sale, we jumped on a plane to Waterloo, started interviewing, and got involved.

Deals like these, where you have an inside advantage because you know the team, the investors, and the founder, and it’s a forced sale, are powerful. When acqui-hires have more time to shop, it's hard to compete with big firms like Google or Shopify. They are much more likely to pay for talent. 

Our approach was to give them enough money to clear some of the preference stack, pay off liabilities, and promise great jobs for everyone—which is what we did. But the companies willing to pay a million dollars per engineer instead of recruiting them are really big players like Google or Facebook.

When we think about product tuck-ins, there are two ways to approach them. One is for products you actively seek out—you know you want to build a specific product but lack the time or engineering resources to do it in-house. 

M&A becomes a way to accelerate getting that product to market. You find a product that fits what you want to do and bring it into your portfolio. That's probably the best way to run a corporate development strategy—the Corp Dev team becomes an extension of the R&D team, accelerating development.

The other approach is opportunistic. Sometimes, we come across a company while canvassing the market, and they’re doing something really interesting that we hadn't thought of. You start talking to them and form a thesis afterward. 

So, you have acquisitions where you have a pre-formed thesis and those where you develop the thesis after meeting the company. Most conventional Corp Dev or M&A strategies advise against this because it can lead to rationalizing an acquisition, which can get you in trouble.

That's what gets us in trouble. Our perspective is that we find those opportunities incredibly fascinating. We love looking at them. As Andy Grove once said, no matter how smart your company is, there are smarter people outside your organization. 

Other people might come up with better products or ideas in certain segments. We don’t have to generate all the ideas ourselves.

Bounded vs. unbounded acquisitions

There's another way to segment ideas, companies, or targets. One is the bounded target, where you can buy an asset that gives you a path to, say, a hundred million in revenue. You know the limits—it's got a finite runway. Then there's the unbounded target, which could lead to a nonlinear growth curve for us.

Both strategies can be good. The bounded strategy is more like a private equity approach, where entry price matters. You only pay a fair or value price; you don't tend to overpay.

You're looking for a good deal. With bounded targets, you're aiming for singles. You want to be disciplined on pricing and execution, ensuring success. Losing one of these to zero is painful. 

With unbounded targets, you approach it more like a venture portfolio. You expect several might go to zero, hoping one will be a massive success—like Instagram for Facebook. You only need one big win to offset all the other bad M&A decisions.

For us, we've followed more of a bounded model. We've been very particular about the types of deals we do, generally aiming for singles and doubles in Corp Dev, rather than swinging for home runs. 

However, I believe in the opportunistic side of M&A. If we have a home run idea, we go after it. The challenge is that home run ideas are hard to come by. But if someone else has one and we think bringing it under the Carta umbrella could elevate it to a home run, we should absolutely pursue it. That's our unbounded thesis.

A lot of these opportunities might not be immediately seen as unbounded. Part of the acquirer's job is to recognize potential that others might not see and understand how it could become unbounded.

Balancing disciplined acquisitions with opportunistic ventures

I would say, maybe in the context of this bounded versus unbounded, or private equity versus venture portfolio approach, there's also, to your point, a strategic element. Here’s our strategy; here are the missing pieces of the puzzle. Go find those pieces and fit them in. 

For example, we're missing a product to do something—go find a product that does that. We're missing infrastructure—go find that. There’s a very clear thesis around it, and that’s a disciplined, process-driven approach.

Then there's another version where I might say to Davis, "Go find me the craziest ideas out there—no limits." Let's go talk to some of these founders and see what they're working on. Arguably, 19 out of 20 conversations go nowhere. But then you might find that one in 20 where you discover something you hadn't thought of before. 

We learn a ton about founders, markets, and opportunities through these conversations. There was one company that came to our attention—an area we never thought we'd enter—but through this "bring me your craziest ideas" approach, we discovered it. 

I was enamored with what they were doing. It was incredible, and it never would have been on our roadmap otherwise.

The strategy evolves. It's not enough to just say, "I love this company; we should buy it." Then we would just be investors. What happens is when you see something new and realize, "Wow, if we had this asset and combined it with Carta, we could unlock these seven things that we hadn't thought of." 

You then reflect, "Why didn't our strategy consider this from the start?" You back into what's missing in the strategy that didn't cover this new opportunity, which unlocks a set of possibilities we didn't have before.

You refine your strategy based on these insights. A good strategy adapts when you realize that combining two companies is incredibly powerful, but the current strategy doesn't account for it. If that’s the case, something is wrong with the strategy, and you need to refine it.

Lessons from unbounded M&A deals

We haven't successfully done an unbounded deal yet. The example I'm thinking of, unfortunately, I can't share, but I'll share one we thought had the potential to be unbounded. It didn't work. We bought a company started by a couple of former Carta employees who went through YC and developed a tax tool. 

Their thesis was strong: TurboTax is a great product, but if you're an employee receiving equity compensation, you can't really use it. There's an underserved population of tech employees who have to go to CPAs because they have tech stock and can't use TurboTax. 

They aimed to build a "TurboTax for employees of tech companies," specifically focused on equity. They built a good product and started getting users. They were a great team, great founders—former Carta employees. We decided to bring them back to Carta with their product, paying a premium. 

Our thesis was that if it worked, we could cross-sell this "TurboTax for equity" to our million and a half employees with stock on Carta. The company was initially called Year End, and we rebranded it as CartaTax for employees.

This was an example of an unbounded thesis—low chance of success, but a significant potential market if it worked. Competing in taxes is challenging, especially since it's an annual cycle. If you miss the window for that year, you're just waiting around, building and hoping the next year goes better. It's a tough market to break into.

It didn't work. We couldn't figure out the right product and distribution strategy. Taxes are tough because they're seasonal. Also, while the team and product were great, we failed as the acquirer to fully understand consumer go-to-market strategies. We're a B2B SaaS business, and selling to consumers requires a completely different approach.

This experience taught us a lot. We've not eliminated consumer products from our M&A perspective, but we've significantly deprioritized them. We've realized we're not consumer-focused—we're B2B. So now, we're primarily interested in B2B apps.

When we realized the thesis was invalidated, we wound down the consumer version of the product. However, we leveraged what we learned on the B2B side. Through our relationships with customers, we transformed it into a tax advisory product and a QSBS tax product for companies. 

While the initial thesis didn't hold, we gained valuable insights. Our QSBS tax product, which we provide to employees through their companies, has found strong product-market fit and is now our fastest-growing offering for startups.

Strategic capital allocation

We've been quite active in M&A from around 2016 to 2022. We acquired two companies in London, one in India in 2022, and seven other acquisitions in the four or five years before that. So, we were pretty active. 

In the last two to three years, however, we haven't been as active. Partly, that's because we've been digesting the acquisitions we made in 2021. It's also been a difficult market for deals—very volatile, with valuations all over the place.

I'd say one of the biggest criticisms of me as a CEO is that I haven't been more active in M&A or deployed more capital. This is a significant focus for me over the next 18 months: thinking about how to deploy that capital. Typically, when you're becoming profitable, as we are—with about $500 million on the balance sheet—you want to use most of it.

For most deals, you'd like to see them get done in a range of about 30 to 40 percent cash and 60 to 70 percent stock. Some deals may be 20 percent cash, others more, but on average, if you're thinking around 30 to 40 percent cash, you have roughly $1.5 billion of buying power. So, we have the capacity to buy up to $1.5 billion worth of assets.

The question then becomes, with $1.5 billion in buying power, do you acquire fifteen $100 million companies, or maybe two companies—one for $1 billion and another for $500 million? Those would be considered transformative M&A, not just tuck-ins.

One of the things we consider is whether we want transformative M&A or smaller ticket sizes and how to build that portfolio strategically.

Evaluating pipelines and allocating resources

We have a list of companies and targets we're interested in. Even without core data, we have a sense of their value, so we can map out how much buying power we have. We look at which companies we could buy and whether buying certain companies precludes buying others.

Part of the challenge is determining which companies are actionable and which to prioritize. If you buy Company A, does that mean you can’t buy Company B? But then, if Company A is actionable and Company B isn’t, do you hold off on A because you’d rather get B if both aren’t possible? There are a lot of permutations in the pipeline that we need to work through.

One of our challenges, but also opportunities, is that our market—venture capital and private equity—is very barbell-shaped. There are a lot of small companies that have carved out niches, and then there are huge conglomerates like BlackRock and FIS. 

For us, we have a pretty contained set of targets. They tend to be smaller, so we'll likely pursue a broader, more diverse set of companies.

How to make successful Corp Dev team and CEO relationships

I'm incredibly lucky. My CFO did M&A at Salesforce, my Chief Strategy Officer also has experience at Salesforce, and our Head of Corp Dev is fantastic—you might be speaking with him soon. I have a very experienced team, and I’m the novice on the team.

Our division of roles is pretty straightforward. My job is to convince the founder that making their company actionable is the right move. My focus is on uniting our visions and building a relationship.

The entire diligence process—evaluation of the company, data analysis, pricing—all of that is handled by the team. I even tell founders I'm not qualified to negotiate price; that's for the finance and Corp Dev team.

Of course, it eventually comes to me for the final ask to close the deal. But as much as possible, we keep the negotiations dispassionate, handled by the Corp Dev team, so I can focus on relationship-building with the founders.

It's a bit like salary negotiations; you're trying to convince someone to entrust their "baby," their life's work, to your company and work together for another five to ten years. You don't want to damage that relationship by haggling over details.

My team is very skilled at handling the financial discussions. By the time it comes to me to close the deal, the team has completed all the due diligence and negotiations. It then becomes about the final ask—the founder tells me, "Here's my last request that the team couldn’t fulfill. Can you make this happen?" That's when I decide if we can meet their terms.

This setup is ideal because it positions me as the hero who starts the relationship by helping the founder realize their dream of a successful exit.

Integration expectations from stakeholders

Right now, though this may change as we grow, Corp Dev handles both the deal and the integration. They can't just close a deal and hand it off; they're responsible for making it work. They have a comprehensive checklist and process. 

Even before the deal, our CPO, CTO, and Chief Revenue Officer will meet the team. We expose a lot of Carta's surface area, not just for us to understand them, but also for them to understand us. One of the biggest questions for the founders and employees of the acquired company is, "What's my job when I come over? What should I do?"

We spend a lot of time discussing this. We explain, "Your sales team will work for Jeff, your product team will work for Shaleh, and your engineering team will work for Will." We make sure they meet the respective executives and feel comfortable. 

The Corp Dev team runs this entire process. It's also part of our board diligence. When we present the deal to the board, we have to show everything we've done, including technical, product, and HR diligence.

Once the deal is closed, the same team handles the integration plan. They manage everything from offer letters to project management, gradually embedding employees and integrating the company into Carta.

The team manages it, but you want to stay informed, especially about key risks across departments. That way, you have a good overview and can answer any questions that come up.

It’s important to segment the conversations when coordinating these discussions. When you bring a new deal to an executive team, everyone tends to focus on what could go wrong. At the strategy level, we think about how great this could be. 

But if you're a VP of Engineering, CTO, or VP of Sales, you're thinking, "Am I going to lose my job over this? Am I going to get a bunch of new people who don't fit in or aren't effective?"

These conversations can easily turn into a list of potential problems rather than potential benefits. It's crucial to guide the executive team to consider both the risks and the opportunities. 

If the CEO isn't the deal sponsor and the sponsorship is passed to someone else, it's important to allow room for discussing what could go wrong, but also what could go right. People need to understand how the acquisition could succeed.

They need to see the vision of why we're doing this. Otherwise, for the average executive or senior leader, it just feels like more work. They already have a full-time job, and now they have to integrate new people. They need to understand the purpose and be fully on board.

Thoughts on international expansion

In general, M&A fits into two categories: either you know how to do something, and you use M&A to accelerate it, or you don't know how to do it, so you use M&A to learn. For us, in international markets, some companies expand organically by putting boots on the ground and figuring it out. We did that in Singapore; we went organically.

If you know how to do it, it's usually cheaper and less risky to go organically because you have more control. That’s what we did in Singapore. In Europe, we realized there were already companies doing exactly what we wanted to do. 

We didn’t have a first-mover advantage, and it’s more challenging due to regulations, culture, and slower processes. So, we acquired two companies: Capdesk, the leading cap table company in Europe, and Valbon, which is like AngelList for Europe. 

These acquisitions gave us 150 people on the ground and helped us get started. Both have been great acquisitions for us.

Our challenge in international markets is continuing to support these efforts while most of our focus is in the U.S. Ninety percent of our employees are in the U.S., and 95 percent of our revenue comes from there. 

We’re opening offices in Luxembourg and Abu Dhabi, but a big challenge is making sure our international teams don’t feel like they’re forgotten and that they’re integrated into the rest of the company.

Is now the right time to start expanding internationally? I think most companies do it too soon. It’s incredibly expensive, but more than that, the return on executive time is very low initially. It takes time to build a presence in these regions. 

I used to travel constantly to Singapore, Europe, the Middle East—this past April and May, I was home only 12 days out of 60. You’re on the road a lot, and you start wondering if this is the best use of your time, especially when 95 percent of our revenue is in California and New York. Shouldn't I be focusing there?

The return on time, especially for CEOs, is critical because the CEO is often the only person who can effectively open international offices. 

One important threshold before going international is ensuring that your U.S. business can run pretty well on its own. Once you start focusing on international expansion, if you want to make it successful, you won't be home very much.