An interview with Charly Kevers, CFO at Carta
One trend that we have been following at Two Sigma Ventures for quite some time is the unbundling of the HR tech stack. Companies are no longer adopting a single, all-in-one, tool to manage their HR and people functions. Instead, they are adopting separate tooling for payroll, performance management, culture surveys, recruiting, and more.
One area of the HR tech stack that we believe is currently underdeveloped, but better positioned than ever before for strong market adoption, is compensation management. We are living in an incredible time in history where teams are increasingly global and diverse. Top companies that prioritize talent recruitment and retention want and need to pay you fairly – no matter who you are, or what part of the world you are working from.
One company that we have admired for their work in this space, and their unique ability to build incredibly powerful tools for both employee and employer, is Carta. Carta has matured far beyond their original cap table management tool, and has now become a staple for startups. Their suite of products enabled them to amass one of the largest treasure troves of data on private companies in the world, from valuations, to equity programs, to salaries.
We couldn’t think of a better team to chat with about the future of compensation management—particularly given Carta’s recently launched compensation management tool Carta Total Comp. In the interview below, Charly Kevers, CFO at Carta, tells us more about the biggest opportunities he sees in the space, what Carta is doing to capitalize on them, and what he hopes to see become table stakes for employers in the coming years.
Tell us a bit about your background and what you do at Carta.
I spent most of my career in strategic finance and M&A. Before joining Carta I was at Salesforce and Lending Club. At Salesforce, I spent a bunch of time investing and in the weeds of cap tables. At Lending Club, I really developed an appreciation for FinTech and the compliance and infrastructure that go with it. Both of these experiences made Carta a unique opportunity for me. We were 150 people when I joined, and now we’re over 1,000.
Outside of my obvious responsibilities (like making sure the numbers are right), I spend a lot of time helping customers think through what their liquidity strategy could look like. At Carta, we have now done four liquidity transactions for our employees. The last one was on our own platform, CartaX. We also launched a new compensation management tool, Carta Total Comp that private companies can use to compare their salary and equity packages to market compensation rates.
How have you personally seen employers change the way they are thinking about compensation management in the last 5 years?
One of the first significant changes I’ve seen for ourselves, and also for a lot of our peers, is that compensation is no longer a static number. Historically, an accountant might be paid one rate according to data from an annual survey of national compensation rates for accountants. But now, companies are looking at real-time “market rates” outside of their organization and the location of their company headquarters. What should I pay an accountant that I hired in NYC vs. San Francisco vs. Denver?
The last year only accelerated this trend— emphasizing the importance of having real time, local info. Things are changing quickly. Employees want to know that they are competitive with the market, and companies are under pressure to deliver. And for many that means adjusting their old benchmarking processes.
Companies are also thinking a lot more about liquidity and the structure of compensation, beyond cash and equity. Two years ago, this wasn’t the case. Now, I have several conversations with customers per week about how they might think about liquidity. More and more, people are realizing they don’t have to wait until they’re public to provide their employees with regular opportunities for liquidity.
Could you speak to what a typical compensation management tech stack looks like today, and how it has evolved in the last few years? What tooling do you often see sitting around Carta?
I think a lot of it is still very manual—this is a space where spreadsheets still rule. Companies have moved a lot more to software, like payroll and HRIS, but other areas still lag behind. In the very early days of Carta, I remember doing this personally. We had a massive spreadsheet with everybody’s names, what the person gets paid, their equity grant, and their vesting schedule.
The other issue is that companies rely on compensation surveys that become available every six months or so, but by today’s standards that is very stale. Beyond that, these traditional surveys are surveying such a broad peer set that can make it far less relevant for startup and tech companies, which are unique from the rest of the market. And few of them include equity data, in addition to salary data.
We wanted to solve for all this with Carta Total Comp, to support organizations wanting to move towards real-time benchmarking, workflow tools to make better decisions about what exactly to offer new hires in terms of salary and equity, or how much to issue as a raise when it comes time for reviews. Moving all of this into software and enabling the integration of all this data gives you the ability to leverage it effectively.
Let’s dig into the benchmarking data question specifically. A lot of employers don’t want to share data about what they’re paying. What are some of the other big challenges around actually collecting this benchmark data? How is Carta thinking about tackling them?
Benchmarking data is powerful. If a company can compare themselves to other series A companies that have raised roughly the same amount of money in a specific region—that’s information that can help them grow.
We’ve found that as long as data is anonymized, data-sharing becomes less of an issue for employers. The bigger problem we hear about has to do with the administrative burden of data collection. It can be very painful for companies to share this data manually.
The only way this happens is if you make the process fully automated. A process where peers can contribute anonymous data in real-time as they hire new employees across different geographies. Carta is already connected with 20,000+ companies from an equity standpoint. Because of this, we can actually make it quite easy to facilitate a much broader benchmarking dataset through Carta Total Comp without much effort from the company. We have simplified it to just an opt-in question and we haven’t seen any pushback.
Let’s talk a little bit about CartaX, which has been getting a lot of buzz lately. What is CartaX? What types of employers have you seen interest from? What pieces of pushback do you get from employers, if anything?
The amount of capital that is available today to invest in companies is larger than what balance sheets can absorb, and secondaries are an interesting way to handle that. Investors are a lot more open to them. It’s a great way to accumulate a bigger position in a great asset. What you see most often as an alternative solution today is that companies do a primary raise, and on the back of it do a tender offer. As a point of reference, we moved $2.2B in tender offer volume in the first 6 months of this year.
We designed CartaX as a marketplace to give companies the ability to offer regular liquidity events while they remain private. Companies that list on CartaX get all the benefits of listing without the drawbacks of the process to go public. When companies list on CartaX, employees get predictable access to liquidity. They can sell their shares on CartaX. At the same time, companies get an efficient price discovery mechanism to help them with future financing events—whether they decide to stay private or not.
We are having ongoing discussions with many CEOs, GCs, CFOs, and other folks who manage equity offerings at companies. The most forward-looking companies that are very focused on hiring and retention are all considering options for liquidity to be able to compete for talent in this market.
I’m curious if you hear companies concerned about the signaling around many employees wanting to sell. Obviously at a small scale, it’s not very meaningful, but on a larger scale it may be different.
That has not come up, but probably because I talk to mostly late-stage companies. And employers can limit the amount of shares an employee can sell. For example, we allow people to sell 20% of what they have vested. On average, we see employees selling only about half of what they are allowed to sell. Because liquidity events on CartaX can be scheduled on a recurring basis, employees aren’t compelled to sell everything all at once. They know they’ll have another opportunity, and they know roughly when it’ll be.
Are there any good metrics on the amount of employee churn that’s related to compensation mismanagement?
It’s hard to pin employee churn back to mismanagement of compensation, but there are a large number of employees in the market that feel underpaid right now.
If you aren’t able to confidently tell employees that you are looking at market data, and ensuring throughout review cycles that you are marking employees to their market rate, they will be frustrated. You can’t just do 3% a year—because you will quickly fall out of sync with market rates. This doesn’t completely remove attrition of course, but I think it makes employees feel much happier with their employer.
What advice would you give to founders selling tools in this market?
Make sure you understand the problem your customers are living with. A lot of times you need to help educate the founder, and give them a better understanding of the tools available to support decision-making around compensation—how to scenario-model, understand market rates, and communicate the value of equity to employees.
What tools do you think employees, not employers, need to better understand their compensation?
The challenge with equity is that it is not always easy to understand. And so a lot of people end up leaving meaningful amounts of equity on the table. One of the hardest things for employees to do is understand what an outcome might look like for a company. Investors have this expertise, but most startup employees do not.
Carta provides resources around understanding when to exercise, tax implications, and financial requirements. Things like whether or not a company is QSBS eligible is really important and relatively simple to figure out, but not everyone is aware that they should pay attention to this. And there’s of course the question of the affordability of exercising your equity. Too often, young employees don’t have capital to exercise—and that is the worst outcome possible. We are really excited to start providing tools in this arena as well.
What tools would you like to see emerge in the next 5 years that you feel like are still missing?
The core problems people like me who look at compensation face are (1) what is best for our employees today, and (2) how do we maximize every dollar that we have. We spend a lot of time on these questions. I’m excited to see the kind of innovative, emerging technologies that start to address these questions in the next five years and beyond.
If you are building something in this area, please reach out to kyra@twosigmaventures.com. We would love to hear from you!
Check out other posts from the operator interview series: