How to split equity between startup founders? with Peter Walker of Carta

60% startups dont split equity 50-50

The conversation with Peter Walker covers various topics related to startups, including structuring compensation packages, equity distribution among early hires, co-founder splits, raising capital, startup failure rates, and alternative financing options. Peter shares insights based on data from Carta, providing valuable information for founders and investors. 

The conversation highlights the challenges and opportunities in the startup ecosystem, particularly in the context of the changing landscape in 2023. Overall, the discussion provides valuable insights into the world of startups and venture capital. In this conversation, Peter Walker discusses various aspects of venture capital and startup funding. He provides insights into different funding rounds, including pre-seed, seed, and series A. 

He also highlights the changing valuations in the venture capital landscape. Peter shares his thoughts on concerns about investment in SaaS startups and the differences between B2B and B2C SaaS companies. He discusses the trends he is excited about in 2024, including the shift towards capital-efficient startups and the growth of hard sciences. Peter emphasizes the importance of data storytelling and shares his perspective on the future of AI. He also discusses red flags to watch out for in cap tables.

Chapters

00:00 Introduction
00:38 Understanding Peter Walker's Background
02:21 The Best and Worst Parts of Peter's Job
03:44 Structuring Compensation Packages in 2023
07:11 Equity Distribution Among First Five Hires
10:45 Factors Influencing Co-Founder Split and CEO Background
15:09 The Impact of 2023 on Startups
19:11 Raising Capital as a Success Metric
21:34 Startup Failure Rates and Reasons for Closure
25:24 Exploring Alternative Financing Options
29:18 Evaluating Startups and Factors Influencing Valuation
34:13 The Use of SAFEs in Fundraising
36:25 Raising Multiple SAFEs and Conversion
39:46 Comparison of Valuations in Pre-Seed, Seed, and Series A Rounds
41:28 Pre-Seed and Angel Rounds
42:28 Seed Rounds
43:26 Series A
44:46 Later Stage Rounds
45:29 Investor Concerns about SaaS Startups
46:43 B2B vs B2C SaaS Companies
48:44 Future of Crypto, Web3, and AI
50:43 Trends in 2024
56:19 Importance of Data Storytelling
58:55 Cap Table Red Flags

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Transcript

Mudassir (00:02.186)
In fact, I think we're already. Okay. Please do a clap for me.

Awesome. This is not a gimmick. It helps us in syncing audio and video later on. The moment you clap, the moment it produces the sound. So it was that. OK? Cool. Rolling now. Hey, Peter. Welcome to the show, sir. How are you doing today?

Peter Walker (00:17.873)
for sure, for sure.

Peter Walker (00:24.601)
I'm doing alright, how are you?

Mudassir (00:26.902)
I'm awesome, thank you so much for the time. I really, really appreciate your time and I hope we have a good conversation today.

Peter Walker (00:36.686)
Yeah, I'm looking forward to it.

Mudassir (00:38.998)
Awesome. So every single time we have anybody on the podcast, and we have had the privilege of hosting a lot of people on the podcast so far, I ask them one particular question to begin. And the reason why I ask them is because our lives are some of, you know, events and things that have happened. So I want to understand from you, what's the context of your life? Like, who is Peter Walker, and how did you end up where you are today?

Peter Walker (01:08.593)
Sure, I mean, we could go back a long time, I guess, on context, but for the purposes of this conversation, the current context I'm in, I got married last year, which has been fantastic. My wife and I also then adopted this tiny corgi puppy named Penny, who's amazing, even though she's a lot of work sometimes. So that's been super fun. And then I spent the last three years at CARTA that...

coming into this position called Head of Insights, and I get, I mean, my job is pretty fantastic. I get to play around with all of these datasets that Carda has access to. And my only goal is to build things that help people make better decisions, whether those people are founders, investors, startup employees, just kind of take the veil of secrecy off of some of what happens in venture and startups, which can be a really difficult space to find any good data on.

and put that data out into the public and hopefully help some people in their startup journeys. So it's been an awesome, awesome time over the last three years.

Mudassir (02:21.935)
Tell me one thing, you work with us as a head of insights, right? So what's the best and the worst part of your job? Because you're swamped with data. So yeah, what's the best part of it and what's the worst part of it? Yeah.

Peter Walker (02:33.085)
Right. What's the best and worst part of my job? Let's start with the worst part. I think the worst part of my job is when I spend a lot of time building something and it just turns out that nobody really cares about it, which is honestly not that bad. There are definitely worse parts of jobs, but you do in this business spend some time on ideas that you think are great and then you just, you didn't get the right feedback. You weren't...

thinking about the customer enough or whatever it is. And it turns out nobody cares. And that's okay, that happens sometimes. The best part of my job though, the best part of my job is when I can see that direct one-to-one impact on founders. We may be having a conversation about how to think about hiring your first 10 employees and I can see a light bulb go off and they say, oh, I did it. I'm gonna structure my compensation this way or I'm gonna look for this kind of person. And it's...

Hopefully I can see myself giving them that tiny step up to the next part of their fundraising journey, their hiring journey, or growing their startup in general. It's really cool. I feel pretty lucky to be able to play that role.

Mudassir (03:44.81)
Yeah, awesome. So I'm going to start us off with a very notorious point, and that is building the right team, hiring the co-founders, hiring the first five, 10 people, and then figuring out the vesting schedules, and then equity, and this and that. So based off of the data, based off the access that you have, and I can imagine like Carta has one of the biggest data sets available on these sort of startups.

What have you seen in 2023, like how people are structuring compensation packages compared to, let's say, post-COVID, which is 2020 and 2022? Because I think those three years have been tremendously different than the last one. So how do you see those two windows are different when it comes to compensation packages?

Peter Walker (04:36.817)
Hmm. Yeah, I think it depends on the kind of person that you're talking about. So if you're talking about a co-founder, those packages in so far as they are compensation packages haven't really changed too much. I mean, there's been some adjustment in who owns what percentage of the company, but the structure of them is relatively the same. You know, the founders split the company as they get going and then they kind of set aside a portion for employees as the stock option pool.

And then of course they give a compensation in the form of equity to investors as they as, or they sell, I should say parts of their company to investors as they fundraise. But when it comes to employees, there's been a really big shift. So it's, it's kind of true that if you look across, say compare 2022 or 2023, excuse me, to say 2020, there's been two shifts that have happened. So first equity.

Mudassir (05:19.476)
Okay.

Peter Walker (05:34.937)
and salary for across the employee base went up pretty strongly in 2020, 2021, and then early 2022. And then the whole world changed, interest rates, all of the things that we know, in fact, startups, and those packages have come down in 2023. But it's really difficult to have salaries actually come down. It's much harder. People, one, they have a better conception of what the kind of salary they expect is. And then two, it's just

You know, you're probably aware of this. Like it's very difficult to go to a person and say, we're going to decrease your salary. That doesn't happen very often. Um, so what's happened is that salaries have stayed kind of flat, you know, maybe 1% down on average, whereas equity packages have gotten much smaller. The average equity package for an employee on Carta is 25% smaller for an employee hired in 2023 than the employee, the same employee at the same position hired in say 2021. Um, that's a.

big gap. And it's not just because the companies themselves are worthless. It's because you're literally getting fewer shares of the company for a given position. And it's, you know, a lot of startup employees have difficulty even noticing this because they don't really understand how much of the company they should be expecting in the first place. So it's been a big, big shift in equity. And it kind of remains to be seen whether or not that's going to

bounce back in 2024 or if it's going to remain sort of flat, it's definitely a hiring market as opposed to a candidate market.

Mudassir (07:11.082)
Yeah, yeah, I agree with that. I agree with that. You know, one thing that you mentioned is, and I think this is not just like last year, this is even previous years, most of the employees do not have the idea like how much of a percentage of the company they should ask for. Like people just do not have any idea. I think it depends on like founder to founder, but I wanna take, like I wanna ask like, what's your opinion on this thing?

Like what an average employee, the first five hires, I think they are the people who usually qualify for that equity anyway. So in your opinion or in base of the data, what's the best distribution of equity that you have seen among the first five hires? Like what usually people are willing to give, for example, 1% or 0.01%. So where do you think this all lies?

Peter Walker (08:08.677)
Yeah, I think it's a great question. On Carta, we see a ton of employees. Well, first take a step back. Most startups on Carta give equity to most of their employees. So that's why Carta exists or why we started to exist in the first place is cap table management. So there's a ton of equity being granted, not just to the first 10 employees, but across the board. But when you're talking about those first five, those are really crucial hires for the co-founders to get right. Those are gonna be the people that.

Mudassir (08:23.136)
Exactly.

Peter Walker (08:37.477)
your first believers, they're going to be the people that are most instrumental in building your product and building your business and building your go-to-market, whatever it is. So across all of the employees hired in 2023, the median equity given to that first hire, which is the first person who's not a co-founder, was just about 1% of the company. That's to take it a little bit more detailed.

That 1% comes is a total grant for four years. So it follows the same standard four year equity grant that you see from Big Tech, which is a four year equity grant. It vests every month or every quarter, and there's a one year cliff, meaning it doesn't start vesting until the employee has been there for at least a year. So that's 1% of the company. There's a big range on that first hire though. As you can imagine, this person might be, you might be joining a company with really technical co-founders.

So you're, as the first hire, you are a business person and you might command a little bit less equity. Or the reverse, your co-founders are not technical and you are coming in to be the founding engineer and you command a little bit more equity. So the range on that is anywhere from half a percent to even up to 3% or so. It's quite wide. It depends on personal relationships, how well do you know this person, all sorts of stuff.

And then you see the grants for hires two, three, four, and five. It falls off really quickly. Um, hire number five gets about. Point 2% of, uh, of the company versus 1% for the first hire. So it goes down pretty quick. Um, it's definitely true that, uh, for the risk that those early employees take on, they are not compensated quite as highly as a founder who take, you know, gets five, 10, 20, 30% of the company.

depending on their co-founder agreement. So that's where we see equity falling at the moment. But again, the range is really wide and you're going to find all sorts of values depending on the kind of company, the kind of founders, all those things.

Mudassir (10:45.77)
Okay, yeah, awesome. One personal question that I want to ask you is, so what I've seen is most successful companies, by successful I mean anybody who hits a hundred million dollars in enterprise valuation. So that is my decent level of success, I would say. Not like Unicom or anything like that, okay? So what I've seen that is these companies, they do have,

Peter Walker (10:50.626)
Yeah.

Peter Walker (11:01.604)
Mm.

Peter Walker (11:07.377)
Yep.

Mudassir (11:11.758)
two or three co-founders maximum, like not more than that usually. And it's usually a mixture of, if there's three like marketing, product, engineering, or like business and engineering or something like that. So, because you get the access to the data, so I actually wanna know, what's the co-founder split looks like overall based on the data system. And so that is question number one. And question number two is,

Peter Walker (11:14.659)
Ahem.

Peter Walker (11:21.969)
Mm-hmm.

Mudassir (11:40.886)
What's the best, so all the successful companies having the CEO, what's their background looks like? If you can plot us like, okay, so 40% maybe, companies hitting 100 million valuation, 40% of the CEOs are tech CEOs, 20% of the CEOs are marketing background. So yeah, it's a two part question, yeah.

Peter Walker (11:53.798)
Ahem.

Peter Walker (11:59.505)
Gotcha. Yeah. I'm not going to be able to help with the second part. We depending on the CEO, we don't have great data on their backgrounds. So we don't know whether or not they're technical or not through our data sets. So unfortunately I'm not going to be able to answer that first, that second one on the first question though, you made a couple of interesting points, you know, two or three founders as the sort of Goldilocks zone for founders. I would push back on that in that there's no right number of founders to have.

Mudassir (12:15.229)
Mm-hmm.

Peter Walker (12:30.193)
We see companies, about 25% of the companies on Cardo have one founder, solo founders. About 35, 36% have two founders and then fewer for three, four and five. But it really is super highly dependent on the company that you're building. We see a lot of four and five founder teams in really highly technical spaces like biotech, medical devices, difficult new hardware companies. Those tend to have a larger founding teams.

and your typical SaaS or gaming, health tech startup, those have smaller founding teams. So there's no right answer there. When it comes to splits between those founders, so one of the things that's been popularized by Y Combinator here in the Valley is every founder should have an equal share of the company. And I'm not saying that's wrong, that's a wonderful way to split the company. What I am saying is it's wrong to do that if you're just doing it to check a box and you haven't had a difficult conversation.

Mudassir (13:21.73)
Mm-hmm.

Peter Walker (13:28.997)
The founders should get together as they began this company and have a really serious conversation about who owns what percentage, for what reasons, who's bringing the ability to fundraise, who's been working on this idea for a year. There's a whole host of criteria that you can use. But when you look at the data, actually, most companies do not split equity equally among the founders. The median, about 40% of companies that have two founders split the equity 50-50.

So it's not everybody. In fact, it's a minority of people. And then you can imagine if you have four founders, it's actually pretty rare for each of those founders to get 25, 25. So there's a lot of different ways to split equity, but if you're splitting it unequally, just know that that's okay. And a lot of companies are doing that as well. And actually to your point about success, if you look at the companies that have IPO'd that are tech businesses in the last five years,

Mudassir (14:01.087)
Yeah.

Mudassir (14:19.362)
Yeah.

Peter Walker (14:27.557)
the vast majority of them, if they have more than one founder, do not split equity equally. So I think this equal equity point is a wonderful way to build a business, but it's not the only way to build a business.

Mudassir (14:39.902)
Yeah, and I think it's not very popular either. So it's just like, yeah, why Combinator is backing that? So that is why it's gaining more and more notoriety, you can say that, but it's just not a very widely accepted way of building companies. Like, okay, two guys got together and one is investing like, you know, bootstrapping that and then investing like 18 hours a day. The other one is just like coming and consulting and doing a couple hours. So 50-50 doesn't make any sense at all, right? Okay, awesome.

Peter Walker (14:59.195)
Yeah.

Peter Walker (15:03.897)
Yep. Totally.

Mudassir (15:09.542)
So, you know, we were talking to, I was talking to you before the recording. So just going to go back to that particular point. So I personally believe, and that's a very contrarian take that I have is. 2023 is probably the best thing that has happened to the startups in the recent years. And the reason why I say that is because yeah, it looks bad. Funding has been dried up, you know, good ideas are becoming more and more challenging to raise funds, like all kinds of things. But the reason why I say that, like it's the best year that has happened.

If you look at all the businesses that have started in like post COVID, especially D2C, CPG brands, companies that have started, there is like shit a lot of money, like, you know, a few millions easily pre-seed, pre-revenue. The reason why I say that is because I believe now founders have this sort of, this sort of an idea in their head, like they need to, it's okay to make a more sustainable brand, it's okay to grow slowly. It's okay to build.

a company that is sustainable and maybe in the next, I don't know, next 15 years, it's gonna be a $50 million company compared to, everybody is looking for that sort of a hockey stick. And I think in the last three years, that is what was happening is every idea, getting funding very competitively easily. I'm not gonna say it's very easily because it was still a hard work. So, and everybody was like, okay. So there was this data going on that in the past decade,

a handful of companies become unicorn, and in the last three years, just, I don't know, you know, 50 or something companies are labeled that these are going to be unicorns. So what do you think about that? Do you agree? Do you not agree? And the second question on top of that is, what exactly is happening with DDC, CPG brands, who have raised a lot of money in the last couple of years?

Peter Walker (17:00.249)
Mm.

Peter Walker (17:04.689)
So I guess my take on the first point is a little bit nuanced. I wouldn't say, like a lot of people over the last year have said, oh, this is actually good for startups. It means that people are no longer A, getting totally outside valuations for their companies that they can't grow into, and then B, raising a ton of money, not knowing what to do with it. And you know, it's no longer the era of zero interest rates. So this is a good pivot. That's true in so far as far as it goes.

That's true that people are taking bootstrapping more seriously and looking to do a lot of fundraising through revenue if possible. That's fantastic. And it's true that a lot of companies probably got out over their skis in 2022 and 2021. That's all true. But I don't want to paint this as like the, this is a wonderful time for startups when a lot of the people that raised are going through some serious pain. There's a lot of layoffs. There's a lot of companies being affected. This isn't just like.

people with ideas that, oh shucks, now I got to go do something else. These are real people's lives who've invested a ton of time and effort into these businesses and perhaps they're not going to make it out. That's no joke and I don't want to paint it as a joke. The second thing is when you talk about DTC specifically, I think this is actually a really difficult area for venture capital. There were some exits in prior years, things like Allbirds, Warby Parker, et cetera, that sort of painted the idea that DTC retail.

would be a place that venture could play. Based on our data for 2023, investors got much, much more pessimistic about the valuations and rounds for DTC companies in particular, even relative to the general decline. We're seeing far fewer DTC companies raise any money at all. And it kind of seems like people are being pushed to say, if you can do this without outside capital, fantastic, but it may not be a venture scale business.

I would imagine that kind of holds through at least this year. I wouldn't put a ton of bets on DTC as a major sector for 2024.

Mudassir (19:11.502)
Okay, a very different sort of a question. Do you think raising capital is a success metric?

Peter Walker (19:20.605)
I think raising capital, I think if it's the only thing that you celebrate, that's probably a misalignment of incentives, right? You shouldn't be building a business in order to raise a bunch of capital. However, and I think this is a point that's been made not enough over the past year, if you are going to build a venture scale business, meaning a billion dollars or more, it is very unlikely that you're going to be able to get to that by bootstrapping. It's possible. We have MailChimp. We have other companies, et cetera.

Mudassir (19:31.639)
Yeah.

Mudassir (19:36.802)
Mm-hmm.

Mudassir (19:49.482)
Yeah.

Peter Walker (19:49.777)
But the vast majority of companies that have made it to a venture scale business in the last dozen years have taken some venture capital. So I don't want to paint fundraising as this terrible thing that you shouldn't care about. But money is just a means to an end. It's lifelines for your business. I'm going to stay alive. I'm going to get to grow as fast. I think the biggest point that's been lost over the last year is to say there's been a push from investors to founders to say, become profitable.

become profitable at all costs. You know, we care about unit economics. We care about margin. We care about those things that in 2021, we weren't really caring about. We were just saying, grow, grow. What I'm worried about happening this year is that a lot of founders are going to internalize that advice. They're gonna have already taken some venture capital and now they're gonna pivot all the way to profitability. And then they're gonna go look for their next round and the venture investors are gonna say, you're not growing fast enough. And they've like made that trade off too strongly. In the end,

Mudassir (20:44.685)
Yeah.

Peter Walker (20:45.597)
venture, if you're going to raise venture capital, and if you bootstrap, that's awesome. You don't need venture capital. But if you're going to raise VC money, it's a growth business in the end of the day. You have to grow very quickly in order for VCs to continue to bet on your company. So at the end of the day, growth is the most important venture can venture and it always will be.

Mudassir (21:05.55)
Okay. I think that's the best definition of this particular question that I've heard. So you mentioned this thing and I wholeheartedly agree that these companies shutting down is like people's life are at stake. This is not fun. I totally agree with all of that. And I don't want to have this sort of a notion like we're being entertaining that as a joke or anything at all. My question to you is...

What's the percentage of startups that has closed in 2023? So that is, obviously you're gonna have the data. But the question that I have on top of that is, have you guys based on the data figured out or narrowed it down to a few reasons, like, okay. So these companies have raised because of like one, two, three, four reasons. And the reason why I'm asking that is so, because 2024 is not gonna be drastically different, honestly speaking, I don't expect that.

Peter Walker (21:53.563)
Mm.

Mudassir (22:01.73)
So at least, you know, what founders can do is like, just keep this thing in mind, like, okay, let's just plan proactively, because these has been the key areas that, you know, a lot of people lacked focus, and which is why they ran out of the business. So, yeah.

Peter Walker (22:13.181)
Hmm. Yeah. I mean, on the first question in terms of a failure rate in startups, I can't really express it as a percentage for two reasons. One, there's a lot of companies are joining CART every day. So our denominator in this case keeps growing. But more than that, it's sort of just like, do you measure it on a cohort basis and say, you know, of the companies that raised the seed round? Because the truism that you hear a lot in startups is nine out of 10 startups fail is actually probably higher than that. If you

Mudassir (22:28.914)
Mm-hmm.

Mudassir (22:33.898)
Yeah.

Mudassir (22:40.942)
Mm-hmm.

Peter Walker (22:43.569)
go from the moment a company is incorporated. But sometimes people are saying nine out of 10 companies that raise a pre-seed money fail, or nine out of 10 companies that raise a seed round fail, or whatever it is. And it should be getting smaller and smaller as you go up the fundraising rounds. Those fundraising rounds should be an indicator that you're gonna survive in some cases. What I can say is that startups are shutting down at higher rates in the last year than they have in a long time. 761, I think, companies.

Mudassir (23:02.582)
Mm-hmm.

Peter Walker (23:13.025)
went bankrupt last year off of Carta. That compares to 450 or so in 2022 and only 250 in 2021. So big, big jumps. But I think the more illustrative point is if you just look at companies who've already raised $10 million, which is a sizable amount of money, the number of companies that have raised 10 million that still went bankrupt last year was up by like 2X.

Peter Walker (23:43.017)
not just companies who haven't raised any money and were just ideas. To your second point, why are they shutting down? I think in the end, most of the companies are shutting down because they don't have enough cash. That's the proximate reason for a lot of these. The other reason is that some of them, a lot of when we talk to VCs across the ecosystem, there's a lot of different ways to structure around that might come to a recapitalization of this company.

So that's a down round or a round with a lot of structure involved in it. And they say, look, you got valued at, let's say you got valued at $500 million in 2021, and now it's 2023 and you have to go back out for money. And, uh, the investors are saying, look, your company is probably only worth 150 million, 200 million. That's a big drop from that 500 that you were stated. Some founders are okay with taking that down round and moving forward and growing their business. Some founders are not.

And then some investors are not comfortable saying, look, even if we gave you this down round, even if we recapitalized your company, we don't think that you can grow fast enough to make that new valuation worthwhile. So they kind of get caught in this overvalued place and they have to shift tracks. That's why a lot of people say this year and next year are gonna be very great times to start a company because you can grow up in this new environment.

but it's a really difficult time to run a company, especially if you're kind of in that middle part of the market. So that venture is gonna feel very odd and different depending on who you are over the next, I would say, year, year or two.

Mudassir (25:24.01)
Okay, awesome. So Peter, I consider myself as a student of venture capital. I don't understand like all the things. So I try to learn as much as I can. So my question is gonna feel like dumb and like very, very childish or something like that. So wait, okay. Yeah, so a very innocent question that I wanna ask you is instead of, you know, doing, raising it down, down or something like that. And then I just recently learned that, you know, down, down.

Peter Walker (25:33.152)
Mm.

Peter Walker (25:38.199)
No dumb questions, no worries.

Mudassir (25:54.162)
you know, it's not a very preferable thing for founders and a lot of time, prep stack things is happening and this and that is happening. So there's a lot of things that goes behind the scene. So my question to you is, why companies do not look out for traditional loans or line of credit or debt financing or something like that? Like why only focus on that one venture capital because this is not the only reason to finance your business. So why does that happen?

Peter Walker (26:09.977)
Mm.

Peter Walker (26:21.698)
I think that many companies do try for more, either traditional or more creative forms of financing. So you mentioned a couple, there's traditional loans from a bank. That's really difficult for startups. It's very difficult for a bank to bet on a company with a 90% failure rate. You're not going to get a lot of banks excited about that. So the main reason that you don't see a lot of traditional players in that space is because they don't think it's worth the risk.

Mudassir (26:32.544)
Mm-hmm.

Mudassir (26:40.756)
Mm-hmm.

Mudassir (26:46.368)
Okay.

Peter Walker (26:49.465)
The second thing that you mentioned was venture debt. That is definitely an option. Candidly, it got kind of hit by the collapse of SVB and the banking sort of shenanigans that went on last year. The venture debt market was really only three or four major players for a lot of startups. So maybe that'll come back a little bit in 24, but it's not as much of an option these days. Then there's other kinds of creative financing. So...

crowdfunding is one. Reg CF, which is sort of a form of crowdfunding is another. There's companies like, you know, out there that will sort of pay forward revenue. So if you prove, hey, I'm going to have this much revenue over the next 12 months, they might give you that revenue upfront in exchange for a percentage of the revenue as it comes in. So that's a way to turn your revenue business into financing.

Mudassir (27:21.335)
Mm-hmm.

Peter Walker (27:46.761)
lot of really interesting creative ways. But again, companies should be clear about what kind of business they're building. If you want to build an amazing business that isn't venture scale, awesome. Just don't take venture capital. But once you start taking venture capital, you're on the hamster wheel and the investors that are invested into your company sort of because of the way their fund economics work, they need you to get big and they need you to get

big really fast. So they're going to push you to grow. And if you don't want to be pushed to grow, if you think this business doesn't grow that way, that's fantastic. Then just try to get capital in the door that isn't from VCs.

Mudassir (28:29.338)
Yeah, I think at the end of the day, what you're trying to say is it's a choice. Like what type of business you want to build. If it was a lifestyle business, okay, fine. Don't take venture capital. If you want to grow like crazy, if you want to hit that billion dollar in revenue or something like that. So yeah. Okay. So another.

Peter Walker (28:35.722)
Yes.

Peter Walker (28:45.689)
And it's kind of tough, to your point, it can be tough for entrepreneurs to know at the very beginning, what kind of business am I building, right? Like they might, it's not an easy decision because you might think, well, I don't know, I think this is a good idea. I think it could be a big business, but I'm not sure. But the structure of venture capital will push you to grow fast, really fast. So if you're not sure that you want to be on that treadmill all the time.

Mudassir (28:51.892)
Yeah.

Mudassir (29:02.892)
Yeah.

Peter Walker (29:15.169)
then not taking venture might be the right path for you.

Mudassir (29:18.982)
Yeah, but then again, I also think that bootstrapping comes with its own challenging. It's like all the time you just have to be worried about like, okay, so it's running out of cash. We don't have enough cash. So that brings a lot of challenge. Another childish question, innocent question, whatever you want to call that. And I never get the answer to this particular question clearly from anybody. And I have interviewed at least two dozen VCs on the podcast. How do you exactly evaluate any startup?

Peter Walker (29:30.917)
Totally.

Peter Walker (29:41.373)
Mm.

Mudassir (29:49.102)
especially the one that are pre-revenue. Because you know, there's like not a formula, to me it feels like a gut feeling. So I like Peter, so yeah, his idea is a couple of million dollars. So how do you do that? Like how do people do that?

Peter Walker (29:52.463)
Yeah.

No. It is.

Peter Walker (30:04.209)
So I think it's a great question. And it's, if anyone tells you that there's a formula, they're lying. That's, there isn't there. It's definitely not true. When you're talking about a startup, that's let's talk about pre-revenue startups. So these are pre-seed. They may have a product, but they don't have any customers yet. That's an incredibly difficult business to value. So what a lot of people do is that they fundraise on a safe, a simple agreement for future equity, which explicitly does not value the business.

The reason that they're doing that is they're saying, look, we don't know how much this business is worth. You, the founder, don't know, we, the investors don't know. Nobody knows. But we like your idea, we like you, we wanna bet on it. So what we're gonna do is we're gonna give you some cash now, and then whenever your business gets big enough to raise a priced equity round, those investors will value your company, will put a valuation on your company, and will take that valuation. We agree upfront to take the valuation that they give you.

Mudassir (30:40.417)
Mm-hmm.

Peter Walker (31:04.333)
Now that seems really generous, right? Why would you take a valuation later down the line? And what they're doing is they'll put a valuation cap on that safe and say, if the valuation that those next round investors give you is higher than the cap that we received, we get more of your company. We get some extra shares, because we believed in you first. I think it's a great structure. A lot of people think that valuation caps on safe are valuations. They definitely are not. They...

Mudassir (31:08.532)
Yeah.

Mudassir (31:29.791)
Mm-hmm.

Peter Walker (31:32.237)
Sometimes they are used and tossed around as valuations, but when it comes to that next round raise, if you raise a safe and you have a $10 million valuation cap and then you end up raising a seed round from priced equity and it's a $20 million business, your safe investors will get two shares to every one share of that new investor. They will convert as though you were a $10 million business, not a $20 million one. They get more equity because they bet on you earlier.

I think that's a great way to avoid this valuation question. No one knows what these early businesses are worth. A lot of it comes down to how much of the company does your investor need to own in order to make their fund economics work. That has nothing to do with the company growth prospects. That's just as an investor, this is how I need 20% or whatever the number is.

Mudassir (32:01.849)
Mm-hmm.

Mudassir (32:18.823)
Yeah.

Mudassir (32:22.944)
Mm-hmm.

Peter Walker (32:28.821)
They're talked about as though they're real tangible things, but they're not really tangible things. They're bets, just like anything else.

Mudassir (32:36.706)
Do you think numbers like TAM maybe having, you know, second time co-founder on the, you know, on the pitch deck or something like that, that helps in raising that valuation?

Peter Walker (32:50.265)
It definitely does. Especially these days, I think people in the retraction, in the tough times of 2023, a lot of investors said, we're going to prioritize investing in people who've done this before. Repeat founders, founders with exits, that kind of thing is always a way to get a higher valuation. There also, this can sound...

Mudassir (33:06.955)
Mm-hmm.

Peter Walker (33:18.221)
very unfair and in some ways it is, but the founder who's built a startup before and had an exit, they don't have to show as much traction. They don't need as good of metrics when they go into those conversations with investors as the first time founder does. So that second time repeat founder, they might be able to fundraise at a $10 million valuation cap on a safe with just an idea or a-

Mudassir (33:36.536)
Mm-hmm.

Peter Walker (33:47.989)
or beginnings of a product. Whereas the first time founder might need to show product and customers and a wait list and all this other stuff. And it's just because the investor is betting on the person who's done it before. That can be unfair. It can also skew the demographics really poorly, but it's just a fact of life and venture that a lot of them will bet on repeat founders much more quickly than new ones.

Mudassir (34:13.322)
Yeah, so I'm coding Karda's data here. So 50% of the seed round happening now is happening through safe and not priced equity. But what I'm gonna ask you is why is that a good thing and why is not a good thing?

Peter Walker (34:23.481)
Mm-hmm. Yep.

Peter Walker (34:32.838)
It's a good thing because, so the difference between a safe and a price equity round, a safe is this two page document really with very few clauses that a founder and an investor can read through. You still probably want a lawyer to take a look at it, but regardless, you can do it through Carta. You can do it through a lot of different platforms. And so it just speeds up the amount of, or it lowers the amount of time you spend fundraising.

and you can spend that time building your business if you're a founder. That's the good part. Way less legal cost, way more time spent building your business, much easier to sign and agree to. Speed and time to value much higher with a safe. The difficult part, the cons of a safe, is that it kind of pushes those tricky conversations down the line. You say, look, we're not gonna decide on an exact evaluation, we're not gonna decide on...

exact pro rata or all these different terms that venture deals take. We're just going to get the money in the door. We're going to build with it. What can happen, what we've seen happen as safes have gotten much more popular is sometimes founders don't really understand how much of their company they've already sold. And then they get to that first price round and they look at how much they own and they say, wait, I thought I owned 45% of my company and I own 40% or 35%. That's not enough.

So, I made a mistake in giving out so much of my company early on through all these different states. So, it's just the con side is not being able to understand the dilution upfront. Whereas, if you're in a price round, you got lawyers on both sides, it's very clear who owns what. It's more expensive and it takes longer for sure, but at least you're very clear on who owns what percentage of the business.

Mudassir (36:18.254)
Yeah.

Mudassir (36:25.934)
Okay, another dumb question. Can you raise a safe on top of a safe? Can you do that? Or does people do that? Okay. And how does that work? Like what's the economics of that?

Peter Walker (36:28.585)
Noice.

Peter Walker (36:33.305)
Yes, you can. And people do it. Yeah, so each of those safes will convert at the terms under which they were signed. So if we wanna do this as an example, say you are building a company and you're raising from friends and family, and you say, look, we're gonna set the valuation cap of this safe at $3 million and I'm gonna raise, I don't know.

Mudassir (36:47.179)
Mm-hmm.

Peter Walker (37:01.201)
50 or $100,000 just to get started. Okay, you do that, you get some investors on your cap table, you've signed those safes, it's all good. You build for six, nine, 12 months, something like that. You say, okay, we're in different places of business now, but I don't really wanna do a price round yet. So what I'm gonna do is I'm gonna go back out to the angels or maybe even bigger funds that invest on safes. And I'm gonna say, we're gonna fundraise now at a $10 million valuation cap. So the jump is from three to 10.

Mudassir (37:04.319)
Mm-hmm.

Peter Walker (37:29.637)
But again, no one has converted. There's no priced equity yet. You can do that. You raise some more capital. Maybe you raise like, I don't know, $500,000 now. And then a year after that, so this is two years into the business or something, you look and you raise your first price round. We'll call it a seed round. And that is for a valuation of, the median valuation right now is like 13 million for a seed round. So you've gone from three to 10 to 13.

The first two are valuation caps. The last one is an actual valuation. So your $3 million investors, the ones who believed in you earliest, they're gonna convert at very high values to that 13 million. You know, they're gonna get four shares to every one of that price round investor. The $10 million investors are gonna get like 1.2 shares to every one of the new investor. And the new investor gets one share. And then you are left with whatever you're left with. Now, the tricky part is,

Sometimes the safes that you signed early on were post money safes or pre money safes. They maybe came with rights or conditions that the next safe round doesn't have. So modeling this all out in Excel, unless you're good at Excel, it's going to be pretty difficult. You can actually use Cardiff for free to do this and you can make sure that you're keeping track of how much you've given out. But it's possible that from all of that fundraising, you own, you know, you started out as the founder with 100% of your company, maybe by the end of it you own

80% or maybe you own 85%. The difference of 5% there is actually really big. That's a lot of your company that you may have already given away. So it's just important that founders don't just use safes and think it's free money. You're giving up parts of your company and you got to be concerned or at least conscious of how much that is.

Mudassir (39:17.258)
Yeah, yeah, totally agree. So you mentioned one thing, which is the median seed round valuation is $30 million these days. So can you just give us some high levels, especially for pre-seed, seed, and series A? Like a couple of years ago, series A was like, I think, $20 million or something like that. Pre-seed was like, I don't know, $5 million or something. So can you just give us comparison, like how two years ago, maybe a year ago, looked like?

compared to what 2023 had. So yeah, that would be a very nice data to have, I think.

Peter Walker (39:52.893)
Absolutely. So let's start with pre-seed. We're talking about pre-seed on Carta. That exclusively means either safes or convertible notes. Difference there being a safe is the instrument we've been talking about for a little while. And a convertible note is a safe in everything, but it also comes with an interest rate. So it is actually debt. That is a more sort of old school conservative way to fundraise and pre-seed. The safe is the new shiny thing. Depending on the investor, they prefer one or the other.

Mudassir (40:20.942)
Mm-hmm.

Peter Walker (40:23.453)
So, medians for safes and convertible notes right now for pre-seed companies. So this is the tricky part because some people consider any fundraising before a priced round to be pre-seed. And some people say, if you're raising a million dollars or more, that's actually a seed round, you're just doing it on a safe. And nobody agrees on the definitions and it's like, it's all over the place. So it can be pretty confusing. We're just talking about.

Mudassir (40:23.604)
Okay.

Mudassir (40:39.714)
Mm-hmm.

Mudassir (40:47.094)
Okay.

Mudassir (40:53.824)
Yeah, that was one of the questions that I was going to ask. What's a seed? How do you define that? Okay, cool. Okay.

Peter Walker (40:54.313)
Yeah, it's...

Peter Walker (40:59.365)
Oh man, some people do by traction. Some people do by how much is raised. You'll get a hundred different answers from a hundred different people. If you just focus a little bit on let's, I like to default it to quantitative value. So we just talk about how much money you're raising. If you're raising a million bucks or less, I consider that a pre seed round. If you're raising a million bucks or more, I consider that a seed round. Just that's a simple definition. Other people will disagree with me.

Mudassir (41:06.862)
Mm-hmm.

Peter Walker (41:28.081)
For those companies raising a pre-seed, so a million dollars or less, the median raise was something like $600,000 or so, between 450 and $600,000 for those companies. And the median valuation cap on those was about 10 million. Now you could raise an angel rounder of friends and family that like very, very early money in the door. And there the valuation caps are more like three to $4 million.

rises up as you scale. We go to seed rounds. This is a little bit easier, more concrete. We just talked about priced seed rounds. The median, as you mentioned, for the US in Q4 was just a little bit under 14 million. So that's the valuation. And those companies raise about $3 million in cash. So if you add that up, that's $17 million post-money valuation.

Mudassir (42:15.858)
Okay.

Mudassir (42:28.298)
Mm-hmm.

Peter Walker (42:28.613)
That compares, that's like a really healthy valuation. That's almost as high as it's ever been. You know, seed rounds are like pretty expensive right now, even though there's not as many of them happening. And then when you get later into venture, it gets a lot trickier. So, Series A, the median Series A on Carta is about 40 to $42 million for last year. That's the valuation, that's pre-money.

Mudassir (42:31.838)
Yeah.

Peter Walker (42:57.425)
And then the companies raise about between nine and $10 million. So you round that up $50 million, essentially as opposed to money valuation for a series a fewer of those happening though. And then if you get into B, C and D now, those are, you know, seed in series A, those valuations are still very robust. You know, that'd be a good valuation, even in 2020 or 2021. C, B, C, D, the valuations have come down way more. Um, you know,

Mudassir (43:01.41)
So almost 50.

Mudassir (43:06.907)
Mm-hmm.

Peter Walker (43:26.801)
I think the peak valuation for a Series B on Carta was in 2021 and it was like $150 million. And now it's down to 90 to 100. In Series C, it used to be 400 million almost in 2021 when everyone was going crazy. And now it's down to 200 million. So big, big haircuts for those later stage rounds.

Mudassir (43:47.922)
Yeah, okay. Okay, awesome. So thank you so much for, you know, sharing all these insights, Peter. So what we do is we have a decent big open audience. It's a new year, so very excited to share that we crossed almost 25,000 people, you know, across all the platforms. Yeah, we just like recently become top 15 podcasts in the US in entrepreneurship. So we're topping the charts and

Peter Walker (44:06.855)
Oh great.

Mudassir (44:17.09)
So what we do is, and I think you have seen that, so what we do is before anybody comes over to the podcast, we just float out this questionnaire in the newsletter, on LinkedIn, everywhere else, like, hey, you know, Peter is coming tomorrow. Give us all the fancy questions you wanna ask. So there's all kind of questions, but we have managed to, yeah, but we have managed to, hopefully we have managed to pick the good ones, the one that you will enjoy answering, okay? So just gonna read them to you, and then please hear your opinion on that. So the first one.

Peter Walker (44:31.985)
next.

Peter Walker (44:38.737)
Mm hm.

Mudassir (44:46.966)
Given its high growth potential, what is wrong with most frequently raised concerns about investment in two SaaS startups?

Peter Walker (44:59.357)
I mean, there's a lot of concerns. Actually, you know what? I maybe push back on this question. I think most investors are very familiar with and kind of fans of the SaaS model these days. It's basically the standard way to build software companies. Makes a ton of sense. You get recurring revenue. It's very predictable revenue model. So you know at the beginning of the year, hey, if we keep this percentage of comp customers that already starts us off with this much revenue and you can add on for following years, et cetera.

Mudassir (45:13.035)
Yep.

Peter Walker (45:29.433)
It also allows you to expand that recurring revenue called NDR, you know, so that you are actually making more than a dollar for each dollar that you took in from current customers. Maybe you sell them new products, maybe they grow with you, all those kind of wonderful things about SaaS. What's changed is that the public market is valuing SaaS companies when you look on a forward basis from their revenues today at a much lower multiple than they used to.

Mudassir (45:38.751)
Mm-hmm.

Peter Walker (45:58.193)
So it's not that investors have given up on SaaS. It's just that, you know, whereas in the boom times, you might've gotten a 20, 40X valuation multiple for your revenue. Now you're getting a six to eight X revenue multiple. And that's, you know, if Snowflake or big public companies are only getting that multiple, it's likely that each individual startup is not going to hit the valuation of a Snowflake or the growth potential of a Snowflake. So...

Mudassir (46:00.929)
Mm-hmm.

Mudassir (46:11.512)
Yeah.

Peter Walker (46:26.798)
it makes sense that the valuations have sort of come down.

Mudassir (46:29.694)
Yeah. So there's a question that is further down the list, but I'm going to ask you because you're talking about the same thing. So what does the data say about B2B versus B2C SaaS companies?

Peter Walker (46:40.474)
Hmm.

B2B SaaS is sort of standard enterprise SaaS, I think is getting a little bit more attention now than B2C, although both are still valid ways to build a business. Consumer in general got hit a little bit harder than other industries that we track. If I look at the difference, say, in the amount of capital invested into each of these industries, consumer was below B2B SaaS.

Mudassir (46:51.575)
Yeah.

Peter Walker (47:13.297)
but not by much, they both fell by 50 to 60% this year. The place that actually got hit hardest is FinTech. Some of that was also probably, you know, Web3 and crypto companies, but FinTech got hit really hard in 2023. Whereas some places that did relatively better, you know, you're talking about places like biotech, hardware, AI companies did pretty well in 2023, as everybody knows. So...

Mudassir (47:26.161)
Mm-hmm.

Peter Walker (47:41.814)
B to C, both totally valid ways to build a business. You know, there's just different kinds of investors that prefer one or the other. I think there are probably fewer consumer investors than there are enterprise SaaS investors, so that kind of shrinks the total pool a little bit.

Mudassir (47:57.97)
Yeah, one question that I personally want to ask you now, because you mentioned crypto, web3, all of that. So I think a couple of years ago, I think early 2021, 2022, that timeframe was the hype season for metaverse, web3, crypto, blockchain, you can call that. And this year it's been AI. Like we haven't heard, I don't think I have heard any startup in these four categories, like crypto, web3,

Peter Walker (48:14.438)
Mm.

Yeah.

Mudassir (48:27.65)
blockchain or you know metaverse raising any money at all like literally no mention at all. Do you think AI is gonna It's gonna be like that like, you know, the bubble is gonna burst and then there's not gonna be many venture-backed AI businesses out there So what do you think?

Peter Walker (48:28.07)
Mm.

Peter Walker (48:34.439)
Mm-hmm.

Peter Walker (48:44.145)
Hmm. No, I don't. The thing about it is, you know, it may feel like there's no crypto or Web3 companies raising anymore. There definitely are. We see, you know, dozens of Web3 companies raising on the platform last year. It's not anything like the hype bubble that it was in 21, but there are, you know, these technologies haven't gone away. You know, blockchain is still around. There's still people building in blockchain. All of that.

Mudassir (49:05.582)
Mm-hmm.

Peter Walker (49:13.153)
AI is definitely in the hype space. The difference with AI, I think, is that there are just many, many more low-hanging fruit use cases than there were for crypto and blockchain. Everything from sales writing to marketing to AI for your data stack. There's just a lot of places. My gut is that some of the shine will wear off in 2024. There won't be quite as much hype. But I don't think that AI is going away.

in any real form over the next even call it five years. The big question that nobody really knows the answer yet to is, is all the value from AI going to accrue to a very small number of people and maybe even just big tech companies that are already public? Or can there be AI startups that rise up and challenge those big tech companies? Also, people have a lot of different definitions of what is AI. You know.

Mudassir (49:47.019)
Mm-hmm.

Mudassir (49:58.038)
Yep.

Peter Walker (50:07.473)
Do you have to be open AI or anthropic and actually building your own models in order to be an AI company? Or can you just be a standard SaaS software that kind of utilizes open AI to help your business? People kind of look down on those, they call them GPT wrapper companies, oh, you're just like a front end for open AI. A lot of companies are just front ends for other technology and they're great businesses. So I don't know, I don't want to downplay those companies.

Mudassir (50:13.601)
Mm-hmm.

Peter Walker (50:35.973)
I think that'll definitely still be around and that investors will continue to invest into AI pretty strongly this year.

Mudassir (50:43.074)
I was of the opinion exactly the same thing that most of these companies are GPT wrapper of like A, you know, all of that. But the reason why I used to think is, or I still think is, is because it's like they're literal to no differentiation when it comes to this thing. So you can use the same LLMs and you can pretty much do the same thing, long form content into short form content like this, a gazillion tool out there that are doing exactly the same thing. So can they be a good lifestyle business?

Peter Walker (50:50.909)
Mm-hmm.

Mudassir (51:12.142)
Can they make decent living, the founders? Absolutely. Are they venture backable? I don't think so. Like that was my opinion.

Peter Walker (51:20.365)
Yeah. I don't know. I mean, I could point to a lot of companies that are doing quote unquote the same thing. You know, if you just look in sales tools, you've got gone outreach, like a lot of these functionalities overlap. I don't, there are, there are very, very few businesses that actually have a product or technology moat that is super sustainable. A lot of the moats that you see in startups are go to market, distribution, brand, um,

Mudassir (51:26.198)
Mm-hmm.

Mudassir (51:41.495)
Mm-hmm.

Mudassir (51:45.483)
Yeah.

Peter Walker (51:48.817)
big customer base to begin with, like, those modes are sustainable. And if you have a advantage at the beginning and can build faster, even if you're building on someone else's tech, you know, remains to be seen. I don't think that wrapper companies are all, a lot of them will go away, but a lot of startups always go away. You know, I don't think it's unnecessarily because they're built on top of open AI.

Mudassir (52:11.594)
Good point, good point. Okay, so the next one is, is there a difference between the type of due diligence used when evaluating SaaS companies versus non-software investments? Or the DDC look the same? Go ahead, please.

Peter Walker (52:26.117)
Definitely. No, there's definitely different kinds of due diligence. They'd be interested. I'm not an investor, so I don't want to speak too deeply on this, but they'd be looking at different kinds of metrics. The difference between recurring and non-recurring revenue is a very big difference. It's why if you take a marketplace, for instance, they might be valued on different kinds of revenue metrics than your standard SaaS company, which is how many subscribers, how much, what's the...

Mudassir (52:41.323)
Mm-hmm.

Peter Walker (52:53.729)
average contract for each of those people, et cetera. So definitely some more due diligence. Due diligence is kind of back in vogue. A lot more due diligence happening this year than happened in the past couple of years. So definitely something. That's also candidly, to get back to an earlier question, the due diligence is not as often performed deeply during a safe round as it is during a priced equity round.

Mudassir (53:06.114)
Yeah.

Peter Walker (53:23.141)
So it definitely is one of the reasons why safes are sometimes preferred at the early stages is it just cuts down on that diligence time as well.

Mudassir (53:34.347)
Okay, awesome. So this is the most funniest one and I really wanted to have that one in the list. So who is the real winner of 2023?

Peter Walker (53:41.542)
Okay.

Peter Walker (53:46.361)
Ooh, Taylor Swift, right? Pretty clearly. Um, I think she definitely wins in tech and startups. Who's the real winner? You would have said, you would have said open AI would, man, that, that whole Sam thing was wild. Definitely shook some people about whether or not this business has a lot of great foundations. I'd still probably say open AI is the biggest winner, but candidly,

Mudassir (53:48.934)
You okay?

Mudassir (53:58.167)
Yeah.

Mudassir (54:02.675)
Yeah.

Mudassir (54:09.047)
Mm-hmm.

Peter Walker (54:12.997)
you know, any founder who made it through 2023 and is still a viable business, like, congrats. That was a tough year.

Mudassir (54:18.942)
Yeah, yeah, okay. So, trends you are excited about in 2024.

Peter Walker (54:25.705)
Ooh, trends I'm excited about. I think I am excited about some of the slight shift we're seeing from VC going primarily to subscription SaaS businesses, all wonderful businesses. Those are really cool. But it is fun to see a little bit more money going to hard sciences, long, long-term bets, things like nuclear energy, biotech, nanotech, deep tech in general, renewable energy broadly. It's cool to see

Mudassir (54:48.022)
Mm-hmm.

Peter Walker (54:55.381)
investors taking those big bets, a lot of them won't work, obviously, but it's cool. I think it's useful for society for there to be more of those kind of bets happening. The other trend that I'm really interested in is I think that companies that are started maybe in the last six months or right now, they're growing up in an environment where there's a lot of capital available. There's still a lot of dry powder out there and it probably will get deployed over the next two to three years.

but they're also being pushed to be capital efficient from the very beginning. And the ones that can grow very quickly under those conditions are gonna be really fantastic businesses. They're gonna be capital efficient, probably a little bit lower head count, but super, super well suited to the environment that they're growing up in. So I think that there's gonna be some pretty stunning startups that are founded in the next six to 12 months. And

Mudassir (55:36.12)
Mm-hmm.

Peter Walker (55:54.801)
So it's super exciting to see that. If you look back at past downturns, you've got really household names that were founded, DoorDash, Uber, et cetera, et cetera, that are founded in kind of difficult times.

Mudassir (56:03.862)
Hm hm.

Mudassir (56:08.362)
Yeah. Okay. Why does Peter Walker see data storytelling as such an important skill and where he sees it's going in an AI world.

Peter Walker (56:19.409)
That's a fun question. I think I know who asked that question. Um, the, so storytelling, if you just take storytelling first and then we can add the data piece into it. Um, storytelling is just the most human natural of skills. You have to be able to storytell. You have to be able to bring, if it's an investor you're trying to convince or a new hire or whoever you are, storytelling is the foundation of how you'll persuade people to join you in the mission that you're building.

Mudassir (56:20.886)
Yeah.

Peter Walker (56:47.717)
The advantage that I have at Carta and the sort of work that I've been doing on the marketing side is I get to story tell with data evidence. So a lot of that is data viz or graphics, but it's not just quote unquote my opinion. I'm using data to inform and educate the broader startup ecosystem and then hopefully they believe in the story that we're building at Carta as well. So it's been an awesome marriage of those two things. I have seen on the AI front, there's a lot of cool AI companies.

who are building things like natural language to SQL. So you write a question in English and it returns you an answer as though you wrote that question in SQL. Also some cool charts and graphs that you can build again, just with natural language. As that gets better and better, I'm excited to see more people build with data, even if they don't have data skills to begin with. So just democratizing the number of people that can build cool charts and graphs. I love, I'm a huge nerd for charts and graphs, so I'm excited about that.

Mudassir (57:25.217)
Mm.

Mudassir (57:46.122)
Yeah, what tool do you use to create these amazing visualizations? I personally want to know, because there's a lot of cool charts that you publish here.

Peter Walker (57:54.489)
Yeah. The tech stack right now is, um, writing SQL to take stuff out of databases. Um, I probably most, I do most of my visualization in Tableau. Um, and love Tableau. I have for a long time, a lot of other cool programs popping up, you know, flourish is one of them. Data wrapper is one of them. If you don't have the cash for a Tableau license. Um, and then actually, I think the part that's a little different for me is I then take that data

and I put it into Figma, the design tool. And the reason I do that is because in Figma, I can really easily add all these annotations or titles or like arrows pointing you to the part of the chart that matters most. It's just, it's much easier to put the sort of structure around the data. And so you combine that data viz program with the design program and you can build a really cool stuff.

Mudassir (58:27.681)
Mm-hmm.

Mudassir (58:39.808)
Yeah.

Mudassir (58:49.434)
Awesome. So the last one on the list is what are the cap table red flags?

Peter Walker (58:55.665)
Cap table red flags. There's some easy ones right off the start. Yeah, easy ones right off the start is if a cap table has a ton of non full-time people owning a lot of the company. So by that I mean advisors, this might be like a university grant that got you going. Investors are gonna look at that and say, wow, you've already given 10% of your company to people who are not full-time employees.

Mudassir (58:57.266)
Yeah, the ones that you have seen. Yeah, okay, go ahead.

Peter Walker (59:25.553)
too much, there's not gonna be enough of your company left to invest in later on. So, debt equity, one. Two, and this really, this happens more than you think, if a co-founder leaves, and that co-founder wasn't on a vesting schedule, they just take their equity with them. You gotta go to court or figure it out to get that equity back. That is the biggest part of debt equity. So, the number one takeaway from this part of the section is always, always have a vesting schedule on every single person outside of investors.

that joins your company. Advisors, co-founders, employees, consultants, everyone should have a vesting schedule. So those are two big red flags for cap tables. The other one that we've already spoken about a little bit is if the founder is kind of unaware of how much of their company they've already sold through safes or other convertibles, that can be tricky for investors. It means that they're not really clued in to how the structure of their business is going.

So those are a couple of maybe three things to watch out for.

Mudassir (01:00:30.598)
Awesome. So, Peter, we do have one small ritual on the podcast. What we do is we ask all our guests a question for our next guest without telling who the next guest is going to be. So I got a question for you and I was going to take a question from you for the next guest, you know, after the recording. So the question that the last guest left for you is what recent piece of social media slash article or any content that has changed your opinion on anything? What is that one thing?

Peter Walker (01:01:01.409)
Good question. Okay, so there was this piece, I follow Elena Verna, who's a big sort of proponent on LinkedIn and other places of both two things. So one, product-led growth, which is a really cool movement within startups. And then two, just kind of, yeah, she worked at Dropbox. She's like a ton of places. She's fantastic. And she wrote this...

Mudassir (01:01:18.462)
Mm-hmm. He's the Dropbox one? Yeah, yeah, he works at, yeah, yeah.

Yeah.

Peter Walker (01:01:28.637)
She's been writing these pieces, there's been a couple of them, just kind of extolling the virtues of fractional leadership work, fractional CFOs, fractional growth leaders, et cetera. I really, when I was coming into this industry, I really thought fractional didn't make any sense at all because, hey, if you don't know the problems well enough, you're not in there every day. I kind of viewed it as consulting and I don't really have a super high opinion of a lot of consultants. They just kind of give recommendations and leave.

She's done a lot of work, her writing has done a lot of work to convince me that fractional is a really interesting way to get new perspectives in the business at a deep enough level that they're actually going to make an impact, even though they're not going to be a full-time employee for a long period of time. So I sort of changed my mind about the utility of fractional leadership at startups. I think it may even be something that I want to try in the future. So that's one thing that I've changed my mind about.

Mudassir (01:03:24.426)
I lost you. Yeah. You're back. OK. So let me just say goodbye is the bye thing. And then please stay after the recording, OK? All right. So thank you so much, Peter, for the time, sir. I appreciate it. Thank you so much for sharing and educating us all about venture capital, all about the data, and all insights being data backed. So there's nice fun to it. So thank you so much for that. I appreciate it. And enjoy the day, sir.

Peter Walker (01:03:25.978)
Yeah, now you're back.

Peter Walker (01:03:33.277)
Okay.

Peter Walker (01:03:53.277)
Absolutely. I had a great time. Thanks for having me.