Peter Walker, Carta’s Head of Insights and Chief (Data) Storyteller joins The Look Back to share insights on the current state of fundraising, VC trends and building the best path toward growth.

Summary

The Look Back: Peter Walker on Fundraising, VC Trends, and Growth Strategies

Episode Release Date: March 11, 2025

Guests:

• Peter Walker: Head of Insights and Chief (Data) Storyteller at Carta
• Bobby Napletonia: Head of GTM at a leading firm, former Head of the App Exchange at Salesforce, first CRO at Twilio

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Introduction

In this insightful episode of The Look Back, host Keith Newman welcomes Peter Walker, Carta’s Head of Insights and Chief (Data) Storyteller. Joined by special collaborator Bobby Napletonia, Peter delves into the current state of fundraising, venture capital (VC) trends, and strategic paths toward sustainable growth for startups.

Notable Quote:

Keith Newman [00:22]: "You're the master of insights, the data storyteller at Carta... give us a brief description first."

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AI's Dominance in Venture Capital Funding

Peter Walker opens the discussion by addressing the pervasive influence of artificial intelligence (AI) in the startup ecosystem. According to Carta’s data, AI-driven startups are attracting higher funding rates, increased valuations, and substantial capital across all stages. However, Peter emphasizes that building groundbreaking AI models is not a prerequisite for success. Instead, integrating AI into existing workflows to solve meaningful customer problems is proving highly effective.

Notable Quote:

Peter Walker [04:23]: “AI founders are getting funded at higher rates for higher valuations and more cash in every stage across the ecosystem.”

Key Points:

• Definition and scope of AI companies vary, leading to debates on what constitutes an AI startup.
• Startups leveraging AI without building foundational models are thriving by creating "wrappers" around existing technologies.
• The AI wave extends beyond Silicon Valley, fostering innovation in diverse geographic locations.

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Geographic Shifts: Beyond Silicon Valley

Traditionally, Silicon Valley and New York dominated the startup landscape. However, Peter highlights a significant shift: startups are now flourishing in numerous other regions across the United States. While scaling often necessitates interactions with Silicon Valley for later-stage funding and networking, the early-stage ecosystem is becoming increasingly decentralized and vibrant.

Notable Quote:

Peter Walker [05:58]: “There are so many places across the US that have wonderful, welcoming, fertile ecosystems to build early stage companies.”

Key Points:

• Early-stage startups benefit from diverse regional ecosystems.
• Later-stage companies tend to migrate towards major hubs like San Francisco for strategic advantages.
• Talent is no longer confined to traditional hotspots, with remote and international hiring on the rise.

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Startup Team Dynamics: Embracing Capital Efficiency

A significant trend observed by Carta is the shift toward smaller, more capital-efficient teams. Startups are optimizing their workforce by leveraging AI and automation to perform tasks that previously required larger teams. This approach not only reduces operational costs but also enhances agility and scalability.

Notable Quote:

Peter Walker [07:05]: “People are trying to automate things that they used to put headcount against... small startups moving really quickly.”

Key Points:

• Reduction in team size from Series A onwards, driven by capital efficiency.
• Automation and AI integration enable startups to achieve more with less.
• The trend is fueled by both capital constraints and technological advancements.

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Early-Stage Funding: Diversity Without Volume

While there’s a noticeable increase in diverse funding sources such as SAFEs and convertible notes, the overall number of startups receiving funding hasn’t seen a proportional rise. Carta’s data suggests that venture capital is experiencing a "hangover" period, recovering from the aggressive funding spree of 2021 but not yet reaching previous high volumes.

Notable Quote:

Peter Walker [09:22]: “There have been two sort of big shifts... more diverse early stage funding sources are getting more and more diverse.”

Key Points:

• Variety in funding sources has expanded, encompassing friends and family, angels, institutional VCs, CVCs, and private equity.
• Despite diversification, the quantity of funded startups remains stagnant compared to the peak years.
• The ecosystem is transitioning from high-volume funding to more selective, quality-driven investments.

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The Evolving Venture Capital Landscape

The venture capital industry is undergoing significant changes, with large funds increasingly resembling private equity firms. This evolution presents challenges for emerging managers who find it harder to compete for capital as big names dominate investment allocations.

Notable Quote:

Peter Walker [24:07]: “The venture returns for the top five funds... power law is spoken about as though it's just a early stage or venture startup thing.”

Key Points:

• Large VC funds (e.g., over $5 billion) command a disproportionate share of venture investments.
• Emerging managers face a tough environment with limited access to capital and visibility.
• The venture capital sector is becoming more fragmented, requiring a redefined language and approach.

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Advice for Founders: Building Strong Foundations

Peter underscores the critical importance of selecting the right co-founders and establishing robust equity structures. Proper co-founder agreements and vesting schedules are essential to maintaining a healthy cap table and ensuring long-term sustainability.

Notable Quotes:

Peter Walker [27:52]: “There is no more important decision that you will ever make as a founder than who are your co founders.”

Peter Walker [28:22]: “Every founder needs a vesting schedule. Do not just grant everybody that 50% of equity outright.”

Key Points:

• Choosing compatible co-founders is paramount for startup success.
• Implement vesting schedules to protect the cap table from "dead equity."
• Regularly evaluate and right-size equity allocations to reflect actual contributions.

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Trends in Unicorns and Mergers & Acquisitions

Peter reveals that many unicorns—startups valued over $1 billion—are experiencing funding challenges, with only about 30% raising additional capital since their initial unicorn valuation. Moreover, M&A activity is on the rise, indicating a potential shift towards consolidation in the market.

Notable Quote:

Peter Walker [34:20]: “Only about 30% of them have actually raised more capital. Of that 30%, half raised a major down round.”

Key Points:

• A significant number of unicorns may face downgrades or funding shortages.
• M&A transactions have increased, suggesting a trend towards market consolidation.
• The IPO landscape remains uncertain, with expectations of more small-scale public offerings rather than high-profile listings.

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Fractional Roles and Capital Efficiency

The rise of fractional roles within startups is another notable trend. Companies are increasingly hiring part-time or contract-based specialists (e.g., fractional CTOs or HR heads) to optimize costs while accessing high-level expertise.

Notable Quote:

Peter Walker [19:12]: “You're competing with the other founders at Andreessen... playing this world of obscurity.”

Key Points:

• Fractional roles allow startups to access specialized talent without the financial burden of full-time hires.
• This model supports scalability and flexibility, enabling startups to adapt quickly to changing needs.
• Fractional assistance is becoming a strategic component of modern startup operations.

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Underrepresented Founders and Funding Inequities

Despite the growing diversity of funding sources, underrepresented founders continue to face significant challenges. Peter attributes this to a shift towards risk-averse investments, favoring repeat founders who predominantly fit the traditional VC demographic.

Notable Quote:

Peter Walker [33:05]: “There's a decline in underrepresented founders being funded... investment has been a return to risk management.”

Key Points:

• Funding disparities remain persistent, with underrepresented founders receiving less attention.
• The preference for repeat founders exacerbates existing inequities in the venture ecosystem.
• Addressing these disparities requires intentional efforts to broaden investment criteria and support diverse entrepreneurs.

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Unveiling Surprising Data Insights

Among the myriad data points Carta monitors, a striking revelation is the precarious position of unicorns. With only a fraction able to sustain or grow their valuations, there is an impending risk of more high-profile shutdowns or downgrades in the coming years.

Notable Quote:

Peter Walker [34:59]: “There’s a lot more unicorns who have put off fundraising. Have they grown into those valuations? Perhaps... we’re going to get a few more [shutdowns].”

Key Points:

• The sustainability of previous unicorn valuations is questionable.
• Market corrections may lead to increased failures or strategic exits through M&A.
• Investors and founders alike should prepare for a more challenging funding environment.

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Conclusion: Navigating the Future of Startups

As the episode wraps up, Peter Walker offers compelling advice for first-time founders: prioritize finding the right co-founders and implement disciplined equity management practices. These foundational steps are crucial for enduring the complexities of the evolving venture landscape.

Notable Quote:

Peter Walker [27:52]: “The first one is there is no more important decision that you will ever make as a founder than who are your co founders.”

Key Takeaways:

• AI Integration: Leverage AI to enhance existing products and workflows rather than developing new models from scratch.
• Geographic Diversity: Explore and utilize regional startup ecosystems beyond traditional hubs.
• Team Efficiency: Embrace smaller, more agile teams supported by automation.
• Founder Foundations: Invest time in selecting co-founders and structuring equity wisely.
• VC Landscape Awareness: Understand the dominance of large VC funds and strategize accordingly.
• Support Diversity: Advocate for and support underrepresented founders to foster a more inclusive ecosystem.
• Prepare for Market Shifts: Anticipate and strategize for potential downturns in unicorn valuations and increased M&A activity.

As the startup world continues to evolve, insights from data leaders like Peter Walker provide invaluable guidance for entrepreneurs navigating the complexities of fundraising, growth, and sustainable success.

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Additional Resources:

• Carta: Visit Carta
• The Look Back Podcast: Listen on Apple Podcasts

Transcript

[Bobby Napletonia]

Foreign.

[Unknown Host]

We got another session of the Look Back podcast and I am here with Peter Walker, the head of Insights at Carta. But before I introduce Peter, I want to say I have a special collaborator on the call today. This podcast welcomes Bobby Napletonia, the head of the GTM firm and a former head of the App Exchange at Salesforce, the first CRO at Twilio, and a self confessed startup junkie who's worked with dozens upon dozens of startups helping them find that path to growth, acceleration and ultimately exit velocity. We'll talk with Peter a little bit about how you accomplish those things in terms of data. You're the master of insights, the data storyteller at Carta, and, and I'm so glad to have you on the show. You do a wonderful job of feeding the community with such great startup information on who's getting funded by who and how much and at what stages. I first, you know, on behalf of the industry, thank you for all that outpouring of sharing. I know it's your benevolence and maybe a little economic benefit because this company, Carta, does accept cash for all the great work it does. Now, I know you as being the standard bearer of Cap Table software. I mean, you have predominant lion's share of market share in the world of Cap Table, which means the venture capitalists, the law firms, the founders, all relying on you and your data, which is what gives you the access to this great insight. Give us a brief description first. Welcome to the podcast. I'm so happy to have you on board.

[Peter Walker]

Thank you so much for having me. This is going to be a great conversation.

[Unknown Host]

Yeah, I'm fired up and Bobby is beyond that. So here we go. How are things at Carta? And give us your background on how you got there and what you're even working on today.

[Peter Walker]

Oh man, things at Carta are awesome. I feel very privileged to be here, to be honest. As you said, sort of like a little herald for venture capital data out in the ecosystem. So Karta, as you mentioned, it started life as a cap table management company. We have about 45,000 startups now that use us for cap table issuing equity to employees, advisors, investors, all that stuff. And then over the last couple years, we've actually grown this whole other fantastic business around fund administration. So helping venture capitalists run their back office, portfolio, valuations, audit, tax, the unfun parts, the unsexy parts of running a venture fund, we help you handle those and then you get to invest in the great founders. My journey to Carta Carta is like by far the biggest place I've ever worked. My journey was I started a little company in college and then I bounced around at small startups early in my career. And I think after Carta I'll probably, probably go back to building something really, really small with a good group of friends because there's really nothing like it. And I hope more people get the chance to try it.

[Unknown Host]

The people with your background in data and what's happening right now in AI you probably have offers coming to you on a regular basis, but I have.

[Peter Walker]

Offers to evaluate startups. I don't know about job offers. I get a lot of like, what are you thinking about this one? You.

[Unknown Host]

Yeah, I'll call you after this.

[Bobby Napletonia]

Anyway, I was just going to say that we could use a body like you over at the firm and what we're building and when you think about the data and the direction, it's really can we be Magellan and the compass? How do we avoid no false starts? What are the things? And if you think about the view in which you get you may have one of the most unique in the world.

[Peter Walker]

I honestly, I think that's very true and it's again, I feel pretty lucky to be here and Henry, our CEO, allowing me to sort of dance through all this data, hopefully it's providing a lot of value. Back to the.

[Unknown Host]

That's what I was going to say because there's one thing to having access to it. Right. And there's another thing to making, turning that into value. Yeah, but, but I know that people do do love the presentation, so let me just start with a softball. Peter, you know, in kicking off this conversation, who's getting funded today in this whole, you know, AI tsunami world that we're living in and the world robotics and all this other great technology coming out, who's getting funded and why?

[Peter Walker]

Well, you said the magic word or the hated word in some circles here because people are getting a little tired of it, which is AI of course has been the dominant story across Silicon Valley and all of startups over the last call it to two plus years. Now I think the general sense from our data is all of those headlines are true. AI founders are getting funded at higher rates for higher valuations and more cash in every stage across the ecosystem. Of course that begs the question, what is an AI company? What counts as an AI company? There's been many, many debates about do you have to build foundational models? Is it okay to just call ChatGPT's API, et cetera, et cetera down the line. When you look at the data, the interesting thing is it doesn't seem as though while there are significant gaps between, say, someone trying to build a startup to take on OpenAI or anthropic and someone who's just trying to solve an industry problem using AI in their workflows, both of those things are getting funded at higher rates by investors. So one of the things that we are talking to founders about is you don't actually have to build your own models, you don't have to be some sort of deep AI research scientist, but you should be adopting this latest technology into your workflows with the point of solving customer problems that actually matter. And we've really seen an explosion of what were derogatory called wrappers, but are actually just wonderful businesses using the latest technology. I think that is kind of the wave of 2025. Beyond AI, there's a whole host of things. The way that we talk about it, especially in terms of location, is there used to be this idea that you had to be in Silicon Valley or New York to start a startup. And I think that's totally untrue these days there are so many places across the US that have wonderful, welcoming, fertile ecosystems to build early stage companies. What remains true is once you get big enough, there is this sort of siren song towards San Francisco, where a lot of later stage companies end up being here, opening offices here, talking to investors here, of course, and that dynamic of start anywhere, but probably as you scale, you're going to interact with Silicon Valley. I think that's actually a fairly healthy one that we've seen in the last couple years.

[Bobby Napletonia]

Is that because you're later stage and you've now raised enough money, you can afford the rent and the people? And because when you say that, it's not like I can lift, shift and move my group, I actually have to account for a 30 to 50% increase in expenses.

[Peter Walker]

You do, although the round category, about that much bigger.

[Bobby Napletonia]

Right.

[Peter Walker]

Well, I got to also worry about.

[Bobby Napletonia]

Competing for talent too.

[Peter Walker]

You certainly do. That's right. And there's, you know, there are proponents of San Francisco, I think, Gary Tan at Y Combinator and others, most among them that would say in this conversation, good compete for the best talent. Like they live here, you should be here. I think you can actually find great talent in many, many places across the US and actually one of the interesting things from our data is early stage startups are actually increasingly looking abroad as well to bring on whole teams. Sometimes outsourced engineering, outsourced Design or marketing, et cetera. So I think there's a thousand ways to build a great company with talent. But Bobby, you actually just touched on a really interesting nerve that's going around in startups, which is how many people do I actually need? The biggest change we've seen in our data over the last two years is the number of people that work at these startups on the day they raise big rounds. So it used to be like Series A. You'd have call it 18 to 20 people, maybe full time employees at a series A. Now it's more like 15, maybe more like 13 soon and kind of getting smaller all the time. Lots of people want to attribute that to AI. I'm thinking at the moment over the last year or so it's been mostly about capital efficiency and maybe some decline in fundraising. But as we move forward, I do see a big trend of people trying to automate things that they used to put headcount against. So small startups moving really quickly. It's the, it's sort of the, the general theme across all of our data.

[Unknown Host]

And does that trend continue along B and C series companies with less, less team?

[Peter Walker]

Absolutely. It actually gets bigger the gap from where they used to be in say 21 to where they are now again. People like to paint AI on top of a lot of things that are actually just being more capital efficient. But I'm sure that the AI voice will come through in that data soon as well.

[Unknown Host]

Yeah. Peter, are you seeing anything in terms of the number of companies that are getting funded today at the early stage? Is it the same percentages for the last 10 years? What's happened over this period? And is it coming from the same sources that we've seen a broadening out of sources for funding percentage wise, that's.

[Peter Walker]

A really difficult thing to measure because of course we don't know all of the companies that are attempting to raise venture capital. I will say there have been two sort of big shifts. The first is there is so much more activity on pre priced funding than there was even five years ago that the whole world of safes and convertible notes where most early stage founders get their initial capital that can come from a thousand sources, friends and family angels, institutional vc, cvc, private equity in some cases, like there's, there's like a whole world of early stage funding sources that are getting more and more diverse. Unfortunately from our data I don't see a gigantic leap in the number of businesses actually being funded. You know, some of the capital raised looked better in 24 than 23. But those were mostly on the kind of bigger rounds as opposed to more companies actually getting funded. So whatever, you know, we, we. I like to paint this picture of venture capital as we're, we're in a hangover period where we were for the last couple of years versus from the. We got a little too drunk in 2021 and did some silly things and then we were sort of paying for those silly things for a while. We're starting to exit that period. But we're nowhere near the level of total businesses being funded as we were call it in 21 in the heyday.

[Bobby Napletonia]

And those ripple effects will last for decades. Now VCs are getting batting practice. We don't, you know, the king makers are happening and we don't even know if they're king worthy. Right. Well, let's be honest. And so innovative startups are struggling for what you just said because that early seed, and I was rereading your article today, is what's the new 20% of a seed? Is it 10? What is it? Is it. Do I need less is more?

[Peter Walker]

Yeah.

[Bobby Napletonia]

And, and is it maybe second time founders versus first time founders? There's probably so much to build and dig into that data, but I'm in complete agreement we don't need what we used to need. And how do we educate that? And the one that I always point to is how do we WhatsApp every company employees $19 billion. Does it get better? And it came from a state school. It just happened. That state school was in Silicon Valley.

[Peter Walker]

Right. Here's a question though. I'm totally on board with the idea that a lot of these startups need less talent than they used to or need less people as talented as ever, of course. But it does present this thing that's worrisome to me a little bit because I got my start in startups and I want that to be available to people because I wasn't ready to be a founder when I exited college. Really. I had started a company, but I probably shouldn't have. Um, but I was ready to join an early stage startup, be one of the first 10 employees and learned more in those two years than at any point in my entire career. And I want that to be available to people. But I don't know, like we may have passed peak startup employment a couple years back.

[Bobby Napletonia]

No, I think we actually have to readdress where the problem exists, which is why we're spending time in schools. Entrepreneurship is being taught at the engineering level so you don't have to go to Y Combinator to get a clue. Think about. Those were bumper guards for bowlers that didn't want to roll bumper. You know, gutter balls. Y Combinator and tech stars on that. So you didn't. But you don't need the gutter ball like anymore. To your point, we can be anywhere. It's. Where's the strength of. Of smarts? Where is the opportunity? Maybe from the commercialization and then is that the new spiral that you can actually do from? Which is why we're trying to spend as much time in some of these engineering schools. Because if you think about how you go deeper or broadly based ones where they're teaching that intersection. Because I believe the next problems will be solved by not people my age.

[Unknown Host]

I don't have Bobby, you're really pointing to university as being a better teacher of entrepreneurship 100%.

[Bobby Napletonia]

And you're seeing a buddy of mine from Salesforce is in the IR at Penn State. Like I'm seeing AIR is coming from industry to come help and which is why I'm spending time. I'm here at the University of Alabama this week. I just left the robotics lab this morning. Is that this innovation and what they don't know is the intersection of commercialization and that's really where you go to venture and get that money to understand and explore that. So if we could cut that off at the pass, what could it look like?

[Peter Walker]

Interesting. I think. I hope you're right. I really do.

[Bobby Napletonia]

I have to be right. We have to be right. Otherwise we have the bottleneck called Silicon Valley. Guess what? We don't need to make that trip to Mecca. It's not the pilgrimage people think.

[Peter Walker]

Yeah, I'm in agreement with you completely. I think you can begin and you should begin your startup wherever you are and take advantage of all the latest tools. I do look out and there's a. Well, it depends on what you think of the durability of some of this AI revenue. Is everything just going to be a tiny team with a ton of AI agents kind of running around with them or are there sort of lasting advantages to having more capital? I think we're in a very interesting period where that is up in the air and hopefully we kind of come to some conclusions over the next couple years.

[Bobby Napletonia]

But I'd like to have your opinion on how does this parallel to SaaS. Because if you think about it, startups couldn't acquire software because you didn't have IT departments and hardware and the money and the SaaS allowed you to over consume. Which is why The SMB has 200 SaaS apps. I'm thinking, what do they even have? You need five.

[Peter Walker]

Right.

[Bobby Napletonia]

And so if you think about, it's the same thing for AI, isn't it? I don't need as much, I can, I can afford, it's more affordable, I don't need as much, I can do more, less, and it's just the next thing.

[Peter Walker]

I agree. That's where I mean, our data points entirely in that direction. Where you are being, you know, there are startups that are kind of approaching the idea of fundraising in varied ways. Whereas it used to be this bifurcation of bootstrap. Don't take any capital and do that yourself or get on the venture treadmill. And then you are beholden to obviously your outside investor expectations in terms of growth, et cetera. I think there's a lot of founders who are saying, as you mentioned, I can do more with less today. Maybe I take in no capital at the beginning, but reserve the right to go and approach those VCs later on. Or maybe I take in what we're calling venture light or seed strapping, where you take one round, one slug of capital gets you going and then you see how far you can get with it beyond. You know, so you don't matriculate up through series A, B and C. Whatever. You take a seed round and then that might be the last capital you raise for five or 10 years. That's much more on the minds of many, many founders that I'm talking to who are thinking about their ownership and also how much capital do I really need to build a great business?

[Bobby Napletonia]

Yeah, the money raise used to be the vanity. It's really the milestones of acceptance. You know, Anshu Garg over at Foundation Capital, we spar online about this because it's the new hundred million dollar company is probably worth way more than what their valuation is because it takes so much to get to 100 million in revenue. I'm more, I'm more interested, given you're the data guy. Recently. Last week, Karn Space had a big announcement. Historical data is dead. And Given Card is built on historical data. What are your thoughts around that statement and where your data is probably more richly different but valuable in a way. What are your thoughts on that angle?

[Peter Walker]

Yeah, I thought that was a weird pronouncement given that their new predictive analytics are built on historical data. So it seemed odd to me to frame it that way. But I actually love the team over at Crunchbase. We've spoken a lot. I would say that data, proprietary data assets are only becoming more important as we move forward. I think Carta obviously sits on an unbelievable one, but what we're thinking about with our data is more how do we connect the nodes of a network? So in a traditional sort of SaaS, where our cap table product began, you might expect that we sit within, all right, we serve founders and we're just going to keep building products that serve the same ICP over and over again. I think one of the interesting things about Carta is we've kind of done this network approach where we say, by dint of serving founders so well and earning that trust, we now have access to other parts of the network. So GPs at venture funds, LPs at venture funds, and then beyond to other private capital sources. How do we build so that the entire ecosystem benefits not just for each person? And so that's where the fund administration business comes. And like connecting the nodes of these networks. It's very early stages, but the ways that we can sort of drift between the fundraising world, the VC world and the LP world I think are really exciting. And all of that is due to a lot of it is due to the data advantage that we have. So I would be shocked if you got a couple drinks in those Crunchbase folks and said, well, does historical data really not matter? I'd be surprised if they agree with you.

[Bobby Napletonia]

Yeah, I was poking Jaeger on that.

[Unknown Host]

We worked together.

[Bobby Napletonia]

So yeah, I agree with you. I mean, you can't have predictions without history. Nostradamus.

[Peter Walker]

Right, Exactly, Exactly. Well, you can have predictions without history. They just won't be very good ones.

[Bobby Napletonia]

Right. We all guess.

[Peter Walker]

Indeed, yes. Some of our guesses are more authoritative than others.

[Bobby Napletonia]

So as you look at teams, there's a lot of talk around fractional help. Are you seeing founders thinking that I don't need to own everything as they look at that makeup and what is their perspective on fractional assistance? And what do the VCs even think about that?

[Peter Walker]

Yeah, we are seeing an increase in fractional roles. Typically what we see a startup do is they will fractionalize a part of the business that they think they're not quite ready to hire full time for. So the sort of the prototypical example of this is HR. Will they say, look, we're a company of 10 or 15, we don't really need a full time head of HR, but a fractional head of HR that can help us set up the systems and do all these things, that's totally worth it. So they'll kind of grab that person for a period of time. The interesting thing is that used to be reserved for a few functions. Now I think fractional as an idea has caught on in a way where you could see even fractional things like CTOs, which I'm not 100% sure I love as a strategy. But some founders are approaching it and they're thinking through all of these different ways to arbitrage for talent. So what do I do in terms of fractional? What do I do in terms of where my employees live? Am I willing to go abroad for tech talent that is now much more immediately available to me than it was five or eight years ago? How do I build this business where I am keeping costs as low as possible, but also having access to the right people? Every single founder that we talk to has a different answer for how they're doing. That.

[Unknown Host]

Turn a little bit over if we dig in a little bit deeper in terms of who's getting funding. There was a period of time without those early stage companies. It was your proximity to Sandhill Road and then it was, okay, who do I know and who am I connected to? Who did I work with? How lucky was I the first time out? And that became a, you know, the critical element to getting funding, particularly from the top tier firms.

[Peter Walker]

Yeah.

[Unknown Host]

Where are we at today? How much of it is concept? And we hear so much, you know, of thesis, but we also hear of traction. Right. Where are you in your traction? Where are you at your growth levels?

[Peter Walker]

Yeah.

[Unknown Host]

And then team of which you're talking about now, it's sort of how solid is this group? Is it one person that's just the indomitable spirit or is it, you know, four or five people that all have really strong cred, background, experience, have done it before.

[Peter Walker]

I think maybe this is an answer that you're not going to be excited about. But you know, when we're talking to early stage founders, we always say that you need to expect this to be unfair because it is going to be unfair. Your, your differential access to capital has not. If anything, it's gotten more unfair lately. So look at some of the rises, the raises that you see in the news. Like if you're Brett Taylor and you're leaving Salesforce and you be you built Google Maps, congrats, you don't have to go out and pitch your traction. Right. Here's hundreds of millions of dollars whenever you want it. If you are a founder and we see this all the time, where a first time founder will go out with, call it $1,000,000 in ARR. And they have a product and they have some real customers etc. And they'll look across the way and see a founder with a less developed product, fewer customers, no real traction, get more money on a higher valuation than them. And it's a bet on the person and it's unfair completely. But it is the way that venture works where all of these early stage, especially seed stage and pre seed, they are effectively just betting on that founding team really when you strip away all the metrics and traction etc. Because most of the time that's not that real, that material at that point. So it's, it feels unfair to a lot of folks who are getting into venture. It's actually, I think one of the reasons why this turned towards, well look, if I'm not going to be quote unquote, fairly judged based on these traction metrics, maybe I try to bootstrap this and don't raise until I'm the one with the negotiating leverage.

[Unknown Host]

So we know it's all about risk mitigation. But now I'm sitting there thinking when they tell you that you don't have the proper traction, it's really that you don't have the right team.

[Peter Walker]

Right. Well, I mean VCs will say a lot of things in order to not say we just don't like it. Yeah. So you know, many of those reasons to say no are perhaps a little bit more about them, their feelings than yours.

[Bobby Napletonia]

But your statement made is about horse racing and handicapping. I don't know if you've ever been to the horse races, but I'm going to look at who was the jockey, what race did this horse do? Did it do a quarter mile, half mile, mile, how did it perform? And I even have the cheat sheets that, you know, the pink sheets are the blue sheets and then I can place a better bet, win, place, show, so I can actually know that I can make money on either of those categories. So the Keith's point, this fractional component for you bolstering your team could be a phenomenal intersection that all of a sudden a no name investor could look more real based upon what they surround themselves with.

[Peter Walker]

Yeah, that's definitely true. It really does all resolve back to the team. As prosaic as it is to say that. And now the question becomes, I don't think that venture as an asset class is very interesting because it has grown so much over the last decade and there's a lot of big debates about whether or not there are like venture as an asset class can handle all of this capital. You know, one of the biggest things that's been in the news or been in the conversation around venture this year is it feels as though we say the word venture capital, but we're actually talking about three or four distinct industries with your Andreessens and benchmarks and Sequoias at one end and your tiny emerging managers at the other. And those things, they, they have different motivations, they have different strategies, they're playing different games. And so it's almost as though women sport. We need a new language to talk about venture because it's no longer just this monolithic thing.

[Unknown Host]

What's that look like?

[Peter Walker]

Honestly, it looks like the biggest venture capital funds feeling and acting much more like private equity firms than they ever have before, like a bank and all sorts of things.

[Unknown Host]

What about the emerging fund manager? What's the go to there? What's their play?

[Peter Walker]

It's candidly, it's been a, it's been a not fun 18 months for emerging managers. So much of the capital invested into ventures now going to these big names, it always has, but it's maybe even more dispersed or disparate. Disparate than it has been before.

[Unknown Host]

But just to classify, this is a 10 to 20 million dollars fund or around that size.

[Peter Walker]

Yeah, Mega funds, I would say anything over 5 billion. But I think it was something like. I think I saw a graphic from Pitchbook recently that said that something like 60 or 70% of all the venture investment committed to this year went to.

[Bobby Napletonia]

Nine funds and which invest in four.

[Peter Walker]

Companies and sometimes the same four companies.

[Bobby Napletonia]

Yes, that's what I mean. Yes, yes, yes. And they all start. But the good news that rose the valuation they all wanted in the deal. Now again, that goes back to my kingmaker comment.

[Peter Walker]

Bobby, this is a great point. How actually correlated are the venture returns for the top five funds? They have to be like, really? I don't know what the difference is between giving money to a Sequoia and Andreessen. I know that there is a difference, but it does feel as though, look, if everyone's going to be in OpenAI's latest round, then what are we doing?

[Unknown Host]

And there's a parallel with, with the mag 7. There's an equivalency on the private top 5 or 10.

[Peter Walker]

Yeah, yeah, yeah, yeah. It's. Yeah. Everything is power law. Power law is spoken about as though it's just a early stage or venture startup thing. I think a lot of things in life are power law. And now people are now trying to get earlier and earlier and earlier in venture so they can grab, take option bets on promising founders and then kind of hold them through the journey. That idea of signaling risk where if a founder takes investment from a big VC fund, they kind of have to. They're not now competing with all other founders, they're competing with the other founders at Andreessen. And if they don't get that series A after Andreessen led the seed, there's this negative signal to the rest of the ecosystem that's probably unfair. But venture is a game of signals because there's so little data. So you're just always playing in this world of obscurity.

[Unknown Host]

Great. Peter. I love this. I'm going to help start to wind it down a little bit though. But sure. What's your advice to first time founders besides it's unfair and get ready for some a long slog and a few welts in the, in the the body.

[Peter Walker]

I think the two main points of advice which are certainly not unique but I think deserve to be driven home. The first one is there is no more important decision that you will ever make as a founder than who are your co founders. That is spend much more time than you think, finding the right people. And then we can talk about how you split equity at the beginning and all that kind of stuff. We have some good data on that. But yeah, your co founder matters.

[Bobby Napletonia]

Co founder agreements then what's that? Do you believe in co founder agreements?

[Peter Walker]

I do.

[Bobby Napletonia]

Like a prenup. If this doesn't work out, this happens.

[Peter Walker]

And even more than co founder agreements, I'd like to concretize those in equity with vesting schedules. Every founder needs a vesting schedule. Do not just grant everybody that 50 of equity outright and then that person leaves two years in and you're kind.

[Bobby Napletonia]

Of upside down already.

[Peter Walker]

Totally.

[Bobby Napletonia]

I try to tell founders protect the cap table. As you go through this, maybe you can tell the importance of that and why. And you know again rereading your article on the seed and the A and they both get around 20. It is. Until you get down to like the D. You're only giving up nine. Yeah, we need less people. How does that shift? Like how should I really think about that? Because that's an emotional mountain.

[Peter Walker]

It's so emotional. It's so you know, when you're a founder your, your self image is tied up in this number, this valuation number and watching it grow and all of these things. So I can totally understand how this gets blurred by emotion when we talk about cap table like ways to avoid a Bad cap table. What most people are talking about there is the concept of dead equity which means someone owns a big portion of your business but they're no longer actively contributing to the growth of that company. So the founder example is the is the typical one where if you and your co founder split 50, 50 at the beginning, but you both get that equity outright, no vesting, you just own it. Then if that person walks away, there's 50%, there's 50 points of your cap table gone. And how investors look at your business and say I like this business but you do not have enough equity to continue through the venture rounds. It's an uninvestable idea for me. What's that?

[Unknown Host]

How prevalent is that?

[Peter Walker]

Well, about 25% of companies on Carta will lose a co founder in the first three years or so. So the co founder breakups are, are pretty prevalent. It won't happen to anyone listening, I promise. But for, for the rest of the.

[Unknown Host]

Market it sometimes we've lived it, we've seen it a bunch of times. I mean lived it, lived it.

[Peter Walker]

But that's not the only debt equity idea you know, you've got. Oftentimes when I talk to European founders they get a little annoyed because they look at say the big stakes that some universities if their spin outs take in Europe and other places there's giving too much equity away to advisors who jump on a zoom call once every quarter and don't really provide much help. There's, there's lots of ways to kind of.

[Bobby Napletonia]

That one comes up a lot. I belong to the super founder group and at least once a week someone posts how should I look at advisors and what do they mean? I mean maybe we come up with what's that? Because you get to see what is a model and would that be a great follow on if we're thinking about fractional help? If we really want this to be about helping founders, which is I believe and entrepreneurs and we tell them how to economically not have false starts to get money. The next thing would be how not to spend it which would be fractional assistance. And you get to see who are the more successful companies that embraced fractional and advisors that drove their business that yes, it may have made their cap table but they preserved cash.

[Peter Walker]

Yeah, I mean that is the reason why you would enter into an advisor agreement based on equity alone is because you're cash light for sure. I do find and this is some advisors dislike me for this. It's very rare that I run across a founder who tells me damn, I really wish I had given that advisor more equity. But the reverse I hear weekly. And generally speaking, it's not to say that some advisors out there aren't worth every point of equity that they get. Typically what we see is for pre seed companies, the median amount of equity that you give to an advisor is 0.25%. So a quarter of 1% which doesn't sound like a lot because it isn't very much. But if you compare that to say your first hire as an engineer, if you are hiring your first employee that's not a founder at your startup, Carta sees between about a 1 and a half to 2% equity stake for that person. So compare, compare that to what is that advisor giving you who maybe you meet with twice a month. I think that you start to like, you know, right size, the idea of how much that that advice is worth.

[Unknown Host]

Right. So good feedback. What about the idea of the data that you're looking at today that would surprise some people. Things you review on a regular basis that really grabs you and says this is really surprising. I didn't know this or I bet the world at large would find this shocking.

[Peter Walker]

Man. There's a number of things that jump.

[Unknown Host]

I know one which I'll give you another minute to think about it. The amount of underrepresented founders in the ecosystem and how slow that continues to grow. We in fact saw a decline in that recently. So that's one piece of data. And I know you've shared some stuff in this area that continues to disappoint me.

[Peter Walker]

But a lot of that, what we think is happening there, and this is a complete, this is a bit of speculation on my part, is that as venture capital hit this downturn in 22 and 23, there was a return for many investors to, as you said, risk management. And one of the easiest ways to risk manage is to invest wholly or in large part into repeat founders who are repeat founders. Much more likely to be white dudes given where that where we were before. So it does. I think that some of that decrease into underrepresented funding has to do with this preference for repeat that has been very strong in the ecosystem of late.

[Unknown Host]

Yeah. Any other big aha's I'm stealing Bobby's question. We discussed yesterday what I think one.

[Peter Walker]

Of the biggest things that is yet, like I'm not sure if it's an aha, but it's a shoe that has yet to drop. And I actually spoke with Katie Roof at Bloomberg about this recently, which is unicorns that were minted before 2021, what is going to happen to them? So all these companies that were quote unquote worth over a billion during the heyday, it's been three to four years. Three years, let's call it, since they really exploded. And so what we see on Carta is only about 30% of them have actually raised more capital. Of that 30%, half raised a major down round.

[Bobby Napletonia]

Yep.

[Peter Walker]

That suggests that there's a lot more unicorns who have put off fundraising. Have they grown into those valuations? Perhaps. But my Spidey senses suggest that there's going to be like if you are tired of reading headlines about big startups shutting down, I don't know if 25 is going to be a good year for you because I think we're going to get a few more.

[Bobby Napletonia]

I like your Spidey sense. Instead of Peter Walker, we'll call you Peter Parker. It's been really Spidey resemblance too, by the way.

[Unknown Host]

Certainly.

[Bobby Napletonia]

And on that note, with that Spidey sense that you see, I mean you could see the categories that were overfunded because the tailwind of new entrants did it like re ops. Think about all those companies that have billion dollar valuations. They're not even going to be able to combine themselves and have a billion dollar valuation.

[Peter Walker]

Yeah, yeah, it's, there's a lot of categories. I mean, you know, crypto is the, is the typical example here of like you're either the highest you've ever been or it feels really low and there's no in between. But that applies to a lot of places.

[Unknown Host]

Are we in a consolidator phase? An aggregator roll up kind of of a mode for 25.

[Peter Walker]

Knock on wood. We saw mergers and acquisitions actually increase Fairly significantly from 23 to 24. Q4 was actually the, the total number was the highest it's ever been in terms of companies that were acquired that use Carta. So now a lot of, let's be honest, a lot of those acquisitions were not super material for the founders of the employees. They were probably buyer sales or aqua hires, things of that nature. But it does point to perhaps a brighter future in terms of M and A this year. We're all waiting, everyone's waiting for those IPOs to pop back. I, I just think that we're gonna get more IPOs this year. I'd be shocked if we didn't. But I don't think we're gonna get the big ones. I don't think we're gonna get the names that everyone knows you're not opening well, they just don't need to go public.

[Unknown Host]

Right.

[Bobby Napletonia]

It's the scrutiny associated with being public now with some of their businesses not being mature enough to understand would just be debilitating for them to grow. If you think about it, they wouldn't be able to do the maneuvering that they need to.

[Peter Walker]

That's completely right, Bobby. And on top of that they now have access to secondary liquidity for their employees in a way where you know that impetus to go public because your employees are going to like batten down the gates if you don't, doesn't really exist anymore. You have, you know, some of these companies have effectively unlimited private capital available.

[Bobby Napletonia]

Right.

[Unknown Host]

And plus they've created these, these channels to get rid of stock if current team members are looking to, you know, divest themselves of their private capital.

[Peter Walker]

Yep, yep. It's those late another interesting offers are much more prevalent than they used to be.

[Bobby Napletonia]

So with your spidey sense, I'm asking one question before Keith takes over. You have a magic wand and the three of us get to go do a startup tomorrow. What is it? What do we do?

[Peter Walker]

Come on. I can't give away startup idea. That's no fun, Bobby. Oh man. What do we do? I honestly think that one of the things that I would love to do is build AI for unsexy businesses that have yet to be touched by this technological change. I think even in San Francisco, which should be the home of it, you walk around and you see so many places where just a touch of automation would radically change the way that their capital stack works.

[Bobby Napletonia]

I want to hug you right now so badly because it is the holy grail for small business. I talk about this 20 years ago ago we had billion dollar companies that build websites. Science, Bion, Razorfish. Today you can do that all on your own with like you see Goggins, noggins head commercials with Godaddy. I tell the AI and it builds it. So when you think about that like we need to get to that fast with AI so that we. I don't know the channel yet. Is it an aisi? You know we had to create cloud sis. We would have never. That building wouldn't exist without creating a new class of ecosystem partner. Same happens for AI. I don't know what it is yet. I don't know if it's the Intuit channel because all of those people touch small business like it's going to be someone that helps them with that piece and then it's a domino for them. I believe so I would love to join you. If you choose that journey. It's needed desperately.

[Peter Walker]

I'd love to have you, buddy.

[Unknown Host]

I think we get you funded too. I don't know.

[Peter Walker]

Yeah, I know a couple VCs. I'm not sure they're big fans of me, but maybe we can have at least an intro chat.

[Bobby Napletonia]

We can back them into a corner fundus or else.

[Peter Walker]

Fund us or else. I do like negotiating with blackmail. That's an exciting. That's a love of mine for sure. Right.

[Unknown Host]

Extortion works also.

[Bobby Napletonia]

No doubt you don't have a 90 day cycle. It's a nine hour, nine minute, nine second.

[Peter Walker]

Right, exactly. Exactly.

[Unknown Host]

Yeah. This has been a great conversation, Peter. You could tell we have a lot more that we could dig into and you're really great to, to chat with and spend time with us. I think a lot of the insights you've shared will be super helpful to a lot of the founders that have been there and done it or they're brand new to it and, and even to the overall ecosystem. So I appreciate your time tremendously. Keep doing what you do and promoting, you know, all this important data that, that gives us clues into finding the right path.

[Peter Walker]

Absolutely, yeah. Appreciate the time this morning guys. This has been fun.

[Bobby Napletonia]

Most certain, I'm looking forward to a follow up and I'm in the Bay Area quite often. I'd love to grab a coffee, a beer or a drink. And one thing I'll ask you to check out is the Failure Museum. My buddy Sean over at Norwest created it and what he's realized is you can turn more lessons learned out of failure than you can successes. And I bet you there's a correlation of some of the things that he's looked at and the knowledge and what you see in terms of data that there might even be a great collaboration between you two as it relates to some insights.

[Unknown Host]

Gosh, Bobby, we got to get him on the look back.

[Bobby Napletonia]

Going to be a look ahead because.

[Unknown Host]

Yeah, you got to look back to.

[Bobby Napletonia]

Look ahead most certainly to the point the data is real.

[Unknown Host]

I Peter, I told you this would be 30 minutes. But then Bobby, you know, forced himself onto the call so we belong. I apologize for keeping you late. Send me a bill for overtime.

[Peter Walker]

Absolutely. It's going to be a big bill, guys. I got to be honest, you know. But no, no, this has been really fun.

[Bobby Napletonia]

Enjoyed the time. Thank you so much.

[Peter Walker]

Absolutely. Cheers.