Q2 Early-Stage Venture Report w/ Carta’s Head of Insights: Valuations, Round Sizes, Graduation Rates & more. | Peter Walker, Head of Insights at Carta

Carta is the backbone of most venture-backed startups. They have access to specific information about every single round, not just what's reported in TechCrunch. 

Today, Peter Walker, Carta's Head of Insights joins us to share the findings from Carta's Q2 reports. We go deep into data from pre-seed, seed and Series A rounds. We cover median valuations, time between rounds, graduation rates between rounds, the AI and repeat-founder premiums, and much more.

VCs know most of this data. Founders need to be equally well-informed. You won't want to miss this episode.

Why you should listen:

• What are the typical pre-seed, seed and Series A rounds.
• Why stacking SAFEs is very dangerous.
• How to minimize dilution in the early-stages
• What is standard founder ownership, founder equity splits and ESOP sizes.
• Why the graduation from Seed to Series A is so low and the bar for Series A so high.
• Many more data points for pre-seed to Series A Venture Capital and Startup data.

Keywords

startup ecosystem, fundraising trends, total fundraising, down rounds, bridge rounds, company shutdowns, pre-seed funding, seed funding, series A funding, valuations, round sizes, dilution, founder equity, early employees, equity compensation, seed round size, series A

Timestamps:
(00:00:00) Intro
(00:01:35)Findings from the Q2 Report
(00:06:12)Typical Pre-Seed Round
(00:07:29) Post Money Safe vs Pre-Money Safe
(00:11:54) AI and Repeat Founder Premiums
(00:15:03) Typical Seed Round
(00:17:07) Time & Graduation Rates Between Rounds
(00:22:08) Typical Series A
(00:28:14) Equity Splits
(00:35:02) Founder Ownership

Chapters

• 1:35 Findings from the Q2 Report
• 6:12 Typical Pre-Seed Round
• 7:29 Post Money Safe vs Pre-Money Safe
• 11:54 AI and Repeat Founder Premiums
• 15:03 Typical Seed Round
• 17:07 Time & Graduation Rates Between Rounds
• 22:08 Typical Series A
• 28:14 Equity Splits
• 35:02 Founder Ownership

Transcript

Pablo Srugo (00:00)
 I just had a great conversation with Peter Walker, who if you're a founder, if you're in a startup game, you've a hundred percent heard of this guy. Even if you don't recognize the name, you've probably seen one of the reports that he's put out on LinkedIn. He's the head of insights at Carta. He has access to startup data that frankly nobody else has. And he slices and dices it in a way that's unlike what you see just about anywhere else.
 
 So we went through kind of what he's seeing in the numbers, in the data over the last quarter and over the last couple of years, especially coming off of the COVID highs, what that's meant for like pre -seed, seed, series A funding, graduation rates from round to round. And we went through a bunch of tactical advice that you can use as a founder to get the most out of fundraising and lower your dilution as much as possible. Welcome to the product market fit show brought to you by Mistral, a seed stage firm based in Canada. I'm Pablo. I'm a founder turned VC. My goal is to help early stage founders like you find product market fit. Peter, welcome to the show.

Peter Walker (0:59)

Pablo, thanks very much for having me, man. Happy to be here.

Peter Walker (1:01) 

 So man, I'm looking forward to this. I mean, I've been following you on LinkedIn for a while.You always put out, I think, some of the best data that I've seen, at least on the startup world, and more of the data, like a lot of deeper insights. So I was thinking, let's do a bit of a kind of the State of the Union report, see what's going on in startup land from your perspective. Because obviously with Carta, you have, frankly, probably the best like...
 
 Atomic level unit level data that you can then build up from. I know you put out kind of the Q2 report recently. Maybe let's just start there. Like what were some of the main findings this time? 

Peter Walker (1:34) 

Yeah. So we do this report called the state of private markets every quarter, just kind of a review of everything that we know about happening within us startups. And CARTA does serve startups across the globe, but this sort of data set is going to be very US specific just so that any international founders who are listening to our online apologies upfront. A couple of things stand out from the last quarter. One, it's now been three quarters in a row where we've had an expansion in just total fundraising. So we aren't anywhere close to where we were in the boom times of 2021, but it does seem like things are getting slowly and steadily a little bit better every quarter in terms of total fundraising. So if you're a founder in between rounds and it's been a really struggling period, like hopefully there is some optimism on the horizon there. The other things that I would point to, this was actually probably the most optimistic I've been about the state of startups in a little while. So, couple points on that front. One, the number of down rounds is decreasing. So the share of all rounds on Cardo that were down rounds, it peaked at like one out of every four rounds on Cardo was a down round, which is obviously not where we wanna be, way above historical average. And that really declined from Q1 to Q2. So from 24 % to 17%, which is a big drop. Second point is that bridge rounds also declined outside of seed and seeded to zone little things. seed extension, seed plus, there's a lot of bridges and weird stuff going on in seed. But in later stages, bridge rounds declined across the board. And again, I think that just indicates that maybe venture capitalists are spending a little bit less time with current portfolio companies trying to keep them afloat and a little bit more time with making new bets on new companies, which is obviously good for the ecosystem as a whole. So, I'm actually kind of cautiously optimistic about what's happening in startups, but I understand that maybe there are some founders listening in who are quite annoyed with that representation because it has been a difficult time. 

Pablo Srugo (3:30) 

Do you have insights on company shutdowns, bankruptcy, stuff like that.

Peter Walker (3:33) 

Yeah, I do. It's never a fun data set to go exploring in, but when we look back to when all of this started really changing from boom times to difficult times, interest rates changing in the beginning of 2022. That’s quite a ways away at this point, right? That's two years that we've been dealing with this. So you would expect that companies would have sort of made their choices. Either they did the pivot, they changed the business and they're moving forward, or they did those things and it's not working and they would have shut down. What we're seeing though is that a lot of companies made really significant changes to their business through layoffs, software spend, maybe even pivoting business models occasionally, all this kind of stuff. So, they're still fighting, like they're still afloat and trying to make it work. And many of those won't end up actually working, but they're still on the path for it right now. So I think that if I looked at our shutdowns data, it's definitely still rising, but it's rising at a much slower pace than it was in 2023. So hopefully again, that's an indication that we're getting somewhere close to the end of this shutdown wave.
 
 Pablo Srugo (4:40) 

And by the way, back to your earlier point, like on COVID, the way that we look at it is, you know, COVID was really the exception. Cause if you zoom out and you look at the five or 10 year view, it seems like basically straight up, you know, lined up into the right at a certain slope and COVID was just this bomb that came and went. 

Peter Walker (4:58) 

Yeah, I think that's a very instructive way to look at it. As in don't take the peak to trough as what reality is, know, ignore the peak and just go from 2018 if you extend that line forward. The difference though is just in the quality of companies. I mean, you would know this better than I would even. The kinds of companies that are raising a seed or a Series A today are just materially further along in terms of whatever metric you want to judge them on, ARR, financial health, growth rates, et cetera, than many of those that we're raising in 2021. So I just think that the competition for the best, quote unquote, the best VC deals remains really high because the underlying founders are incredibly high quality. 

Pablo Srugo (5:43) 

I think one of the biggest questions I always get from founders and you know, this show’s really mainly about early stage founders. So maybe we focus on pre -seed seeder and series A is what's a typical pre -seed? What's a typical seed? What's like, what's great? What ARR should have all these sorts of things. So I don't know if you have the data right in front of you, maybe we go through each one. You're a pre -seed founder or you're thinking of raising a pre -seed. What stats should you have in the back of mind? What is typical revenue if there's any median? what's outlier, different terms that you're seeing?

Peter Walker (6:12) 

Yeah, so on the financial side, so at Carta because we run the cap table, we don't have a ton of financial information. So some of the data that I'm going to talk about here is in Carta data. It's just like anecdotal from having a ton of conversations with people, but we can tell you exactly like the good medians and valuations, et cetera, for valuations and round sizes. So, pre -seed first. Lots of different definitions of what pre -seed actually means. In our world, the way that we think about pre -seed is anyone who's raising between say like $500 ,000 and $2 million on a safe or a convertible. So if you're doing a price round, that's not really pre -seed. And by the way, if you're raising 500K on a price round, you should probably do that on safes anyways. You're gonna save a lot on legal costs for how big that round is. The median's right there. It's about...
 
 it's pretty easy to see in the data that if you're raising about a million dollars on a safe, the median valuation cap on Carta is a 10 million ValCap. So 10 million ValCap, one million raised. So that's a 10 % ownership stake for that safe investor in your business. And the other thing is that founders sometimes get really tripped up on safes and they continue using them and expanding the valuation caps and all this kind of stuff. Then it comes time to convert them all. It’s a  real headache and they own less of the business. 

Pablo Srugo (7:26) 

Well, let's just go on a tangent here for a second. We'll come back to this because I had this discussion with somebody else. It's funny. You look at this, the convertible debt evolution, because originally it was all price rounds and then it became convertible debt. Then it was like this pre-money safe. And then the pre-money safe was really good for founders because you just got to stack safes on top of each other and all the safe holders had to share that dilution. And then they got smarter at YC and they put out this post -money safe, which the funny thing for me on all that is because YC is the one that like did that and branded it and everybody trusts YC, it just becomes the de facto standard. But I don't think that many founders appreciate just how dilutive stacking post money saves can be. Like it is great for me as an investor, I prefer and I'm giving advice to those who say like, would rather invest on a post money safe because it includes all.
 Like all the dilution, not just from other fundraising, but from options, from everything is all baked in there. I know that if I put a million and 10 post on a post money, say I own 10%, no matter what happens, all the dilutions on the founder, I don't know if you've had a conversation with founders or have you seen this like surprise and kind of sticker shot. 

Peter Walker (8:40) 

It is an epidemic. And you hit on the key point, which is the switch from pre to post money was not a founder friendly thing. YC sometimes makes it sound as though that was in service of founders and you can make some case that it is more transparent, it's more certainty, et cetera, but that is primarily in the service of investors. Because as you mentioned, with the post money save, investors that invest on a following save do not share in the dilution. So if you were to do all of this stuff on price rounds, those investors would have already begun getting diluted alongside the founders as new money comes in. If it's all on saves, the founders and then eventually the employees are the ones who take that dilution when the price round happens. So, safes, this dilutive, this anti -dilution provision effectively that exists in post -money safes is a real headache for founders. Two, is a lot of founders feel as though safes are almost free money at the very beginning because it feels like you're getting this cash and you're not even giving up equity yet. So, it can feel really great and they overuse them. One of the things that we've seen, are companies on Carta that have raised on upwards of 15 different post-money valuation caps.
 
 Now that's an outlier, obviously that doesn't happen often, but quite a few companies are raising on two or three separate valuation caps, meaning that conversion will take some time when it comes to that first price round. So I love safes, they're great, but they're not great to continue to put off price deck. You should use them once, maybe twice, and then don't be afraid of price rounds, because they actually make, they clean the cap, they make everyone understand their ownership really succinctly. And then everyone shares in that dilution of the following fundraise.

Pablo Srugo (10:20)

The piece you said about anti -dilution, think is great because like, I can only imagine if I'm like talking to a pre -seed or seed stage founder and I'm like, okay, let's do a priced round, 10 money post. And I want complete anti-dilution, not weighted, not none of that stuff. Like the next round's real order. I'm getting that next price. They'd be like-

Peter Walker (10:37)

no way! 

Pablo Srugo (10:38) 

But that actually would- *laughs* right? Like you're nuts. But post -20 safe not only has that, it also protects me against other dilution from other money you're gonna raise from any options you're gonna grab beyond what's already in the ESOP. 

Peter Walker (10:47)

The simplicity of it belies the value that it brings to investors, I think a lot of the time, because investors can rightly point to that for founders and say, look, this is the easiest, most convenient, simplest way for you to raise cash. And founders who are not that interested in, you know, they wanna build their business, not spend all their time fundraising, they go, great, that sounds awesome, I'll use that. So, and it is like… YC doesn't even offer the pre-money safe on their site anymore. We do through Carta, you can do pre or post -money. But if you use pre, you should expect your investors to push back on it because they've become accustomed to post -money as the default access here. 

Pablo Srugo (11:21) 

think that's right. I think that's right. I think the worst case maybe you do one post-money and you find yourself fundraising again, then you try to do pre -money safe, but it's certainly a battle worth fighting. So that's helpful. So going back to it, one on 10, that's kind of the medium pre -seed.
 
 One of the questions I had as we go through this analysis, we always see a huge premium for certain things. So today in terms of sectors, AI gets a huge premium. And the other one that's consistently gone a big premium is like Pete founders, especially those who have had previous success. Do you have any insight on what that does?

Yeah, it's a major impact. So if you look at like, just take SaaS versus AI SaaS, so like non non AI versus AI, but in the single SaaS enterprise category. On that same valuation cap basis for a pre -seed round, the AI might be 1 million on 12, 1 million on 13 as the ValCap versus 1 million on nine or 10 for the Core SAS. And you see that across the stages. At seed, AI is valued more highly and the rounds are a little bit bigger. At series A, AI is valued more highly and the rounds are a little bit bigger. What I will note is that there are distinctions starting to happen within AI itself.
 There are some dev tools and foundational stuff that continues to be like rocket level, super high. Evaluations are pretty, you know, 2021 level boom times. And then there are parts of AI, maybe you call them AI enabled startups.You know, AI is more a part of the tech stack than it is the reason for being for this company. And those are kind of falling a little bit back towards the medians that we see at the regular sector level. And so I do think that while AI is definitely still the hype cycle, Investors have gotten a little bit more sophisticated about what quote unquote qualifies as a real AI company. Not to say that it isn't showing up in every pitch deck, because I'm sure it is. 

Pablo Srugo (13:13) 

Okay. But to the extent that you are really AI or can brand as such, it's probably a 30 to 40 % premium. 

Peter Walker (13:17) 

I think that's a good way to think about it. Yes. 

Pablo Srugo (13:19) 

And what about the first time to repeat founder? Cause that's one that often gets lost because when founders will look at comps, they'll just look at, here's another company that's in a similar sector at a similar stage is what they raise. They forget who's behind that company and that's always a huge deal 

Peter Walker (13:35) 

giant deal. You're right to say that we don't have great data on whether or not you're a repeat founder or a first time founder. I will say that when we speak to investors or even when we speak to founders, this is one of the points that is potentially the most upsetting. You know, it's cause it could be that this repeat founder is fundraising in a similar space as you, but has no traction. They may not even have a product and you come in and you're like, have traction, a product, customer list, et cetera. And this person is getting a much higher valuation.
 
 

Pablo Srugo (14:02) 
 Yeah. I think the way that we look at it is if I can take less risk on a founder because the founder has already proven themselves in a past venture, then allow myself to take more risk on the market or the market opportunity, the traction and sort of thing. those risks can kind of be traded for one another. And frankly, there's a lot of data that supports this. There's this book that you probably familiar with called the super founders looks at repeat founders who've sold a business for $10 million or more. And it's there six times more likely. than first time founders to create a unicorn. So when you factor all that stuff in, you know, that's the reason for those differences. Okay. So anecdotally, what are you seeing in terms of revenue?

Peter Walker (14:38) 

 Yeah. So there are people that are investing at pre seed, pre revenue that does happen. I think it happens a lot less than it used to. You know, it's seed. You might be talking about a million bucks in ARR, maybe a little bit less at, and again, most of these data that I go out and talk about is, primarily like enterprise SaaS. There's a lot of different models for different kinds of sectors.
 
 

Pablo Srugo (14:59)

 Okay. And so moving on to seed then what's, what's a typical seed round? 

Peter Walker (15:02) 

So seed can happen either on safes or in price equity. It's kind of 50/50 muddy middle now. We only include seed. We only call around a seed round on safes if it's for 2 million or more dollars. One of the advantages of being the system of records here is that we can split out really easily primaries versus bridges and extensions. So because we see that actual information, we know if you'd already raised the seed that this is a seed to a seed plus, et cetera, and we can remove those from the medians. So it's not getting too messy. So proceed on Carta today. The median amount raised is about three to 3.5 million. And the median valuation, this is a pre -money valuation is 14. So if you add those up, that's, you know, call it 17 million post or so, 17 to 18 million. 

Pablo Srugo (15:49) 

So the lift, the lift for an investor is not a lot, right?

Peter Walker (15:52) 

 So I love your opinion on this. When an investor is making an investment into a pre -seed company, and obviously that's happening on a safe with evaluation cap, are they expecting that the first price round is going to come in double that VAL cap?

Pablo Srugo (16:06) 

I go into it, let's call it hoping or expecting … that it's a double just because of the risk. I think to myself, a lot of these pre -seed rounds that we're getting into is .. depending on the type of founder, it's a proven repeat founder. It's pre -revenue, pre anything. if it's like a first time founder, maybe it's going to be like 10, 20 K of MRR, handful of customers. The difference between that and your million dollar company that has like potentially a hundred customers or 15, 20 customers, depending on the ACV is material. Like you can call a lot of different customers, get a lot of reference points. have actual data on growth rates. so for you to only get like a 30 or 40 % markup, if I have the choice, I'm like, I'll just wait for that. I'll just wait for that seed round. So. That's kind of how I think about it is if I'm going to come in at 10 posts, I'm really hoping your next round is like 18. not realistically 20 or above, but you know, okay, fine. 18, 17. Okay. But I think it's like, what is the conversion rate and the time between pre -seeds and seeds? 

Peter Walker (17:07) 

It's gotten way more messy because of the rolling nature of fundraising on saves. In general though, what we've seen is that the time between a seed and an A…
 It used to be the standard advice was 18 to 24 months. The median is now over 24 months, over two years. So it will take longer than you think. that's the number one piece of advice that I can give founders right now is from the data, 18 to 24 months is out of date. It's more like 24 to 30. 

Pablo Srugo (17:39) 

that's from C to a 

Peter Walker (17:40) 

from pre -seed to seed. It's quicker. We're talking in the 18 month range, but it's happening. some are happening super fast, I mean within like six months and some are happening three years from now. There's a wide distribution between pre -seed and seed.

Pablo Srugo (17:57) 

 Let's call it 18 months between pre -seed and seed -ish on average. And 24 plus, is definitely, that's a change for sure because we were talking about 12 to 18. So okay, 24 plus seed to A. What about the conversion rates? 

Peter Walker (18:09) 

We have great sort of data on, we call it graduation rates but the interesting part there is obviously those have been deeply impacted by the just general change in the macro for startups. So if you slice it out by cohort, so each of these cohorts, we can discuss them as a group of companies that raised their seed round in a given quarter. In this case, we can look at say companies that raised their seed round in Q1 or Q2 of 2020. Something like 40 % of them had gotten to a series A within two years, which is a really, really high graduation rate. Usually the entire graduation rate from a cohort is something like 50%, not within two years, just total. How many of them get passed from their seed round to the A round at all? It's about 50%, give or take. So 40 % doing it in under two years in 2020 is like wildly fast, money was cheap, you know, that was the good times. Graduation rates for recent cohorts that have just passed their two year mark. So in this case, we can talk about this as, you know, Companies that raised their seed round in say Q2 of 2022. And then, so that was right at the tail end of the party before the punch bowl got taken away. And now they're dealing with this whole, you know, shenanigans since then. If you look at the two year mark for those companies, only 15 % have made it to A in two years. So it's a gigantic gap, right? It's a gigantic gap. It's one of the things that drives home is there are so many external factors that impact whether or not a founder is successful, timing is obviously the first one of them and timing takes into account this sort of macro conditions. But that applies to VC funds as well. This is why investing in one vintage, it's probably not gonna do very well because you're putting a ton at risk in that individual vintage, just based on whatever the heck is happening in the wider economy. So that's the graduation from C to A. For pre -C to CED, I would probably imagine that it's something similar. It's kind of tough to say given that there's a lot more companies trying for pre -seed, so maybe it's actually a little bit lower, but 50 % is the standard mark that we usually see. 

Pablo Srugo (20:20) 

Well, so just back to your earlier point, mean, if you think about it from an investor perspective and you say, okay, the median pre -seed to seed time is 18 months, and let's take the 50 % graduation rate, and then you say, okay, and the median lift is only 40%. So you get a 40 % return median in 18 months, so whatever, that's like 25 % return a year, let's say, ish, all that and half of them! And so like, we're really talking about like a 12 % annual return. Nothing there sounds like venture to me, at least in terms of that kind of pre -seed to seed piece.

Peter Walker (20:56) 

 I kind of agree. I think that there's a lot of skipping that's happening. So from like pre -seed to series A, nice rounds, et cetera. So that does happen with the best companies. But to your point, I mean, I think that the risk adjusted returns for lot of recent fund vintages are gonna be pretty low, because this is just not like an environment where it's very easy, and you see some investors trying to change strategy based on that. I mean, most of the strategies obviously dictated by the check size that they can write, so it's not like they can go b Series A investors when they raised a $20 million fund. just doesn't, the math doesn't work that way. They can't make enough investments. So you're kind of stuck a little bit in the part of the market in which you fundraised for your fund, but some of them have dramatically reduced the amount of investment that they're doing. They're deploying capital more slowly. may be opportunities or suggested opportunities to founders that like, maybe this strategic acquisition is actually a really good idea so I can return a little capital to my OPs. All of that stuff is happening as a background.

Pablo Srugo (21:58) 

And so let's go to that series eight piece just to finish this part of the storyline. What are you seeing, you said two to three million generally in terms of revenue, what kind of a round does that get you? 

Peter Walker (22:09) 

So the median cash on a Series A round is 10 million bucks for our US startups. And then the median valuation pre -money is 40 or 41. So post -money, that's a $50 million valuation for Series A. So that's a significant jump up. I think this part of the market, the jump between C and A is the biggest chasm right now in startup. There are just so many companies that are in the seed, seed plus, you know, pre -A world.

Pablo Srugo (22:38) 

 I think that's correct. I remember even a decade ago, them talking about that series A gap and just being so hard in general, pre -seed and seed, there's still so much of a narrative that's part of it. And so finding some investor somewhere that will kind of believe what you believe is just a lower bar than getting to $3 million in revenue. with the sort of growth rate. it's not going be 20 % of your growth. It's probably going to be a hundred percent on average. I'm sure some higher, some a bit lower, but that's just very hard to do. And the bar is really high and it gets you a very high, like 40 million. That's pre money valuation. That's a 40 million pre money, $10 million. Like that's just, it's just a big lift to go from three and a half at 18 post to 40 pre and $10 million. So it actually kind of makes sense.
 
 

Peter Walker (23:27)

that checkpoint is where some of the venture math starts being more rational to me, even with the value declines that we've seen at the later stages, 40 million for a pre -money for a series A up to like, call it, I don't know, between 100 and 110 million for a series B. Like now you're seeing the gaps between these, the markups make sense for those early stage investors. I agree with you, the messiness around pre -seed and seed, there may be some decline in the value to many investors there. 

Pablo Srugo (23:58) 

But how common then is like a seed plus or seed extension? Like should the founder almost assume like, odds adjusted if I raise a seed, like I'm probably raising a second seed before, just like when you raise a pre -seed, you assume I'll raise a seed before an A, you raise a seed, you're like, I'm probably gonna raise a seed before an A. 

Peter Walker (24:11) 

I mean, it's a huge portion of the markets of the priced seed rounds that happened on Carta last quarter. 42 % of them were actually extensions or bridges or seed plus. So that's a ton, right? Now this is above historical average and we are seeing that number dip down a little bit. it's, and which is I think good, you know, as an investor, you don't want to have to bridge every one of your companies. That doesn't make sense. But it is a much more common part of the early stage fundraising journey, which has significant impacts to the dilution that those founders are taking on.because dilution in a standard seed round is still right around 20 % for a founder. But if you do the bridge, that might be another eight or 9%. And then you're talking about having done 30 % in your seed. And that's a very high dilutive figure if you're trying to get all the way through the alphabet rounds. 

Pablo Srugo (25:04) 

Do you know what percent, I just assume you have like all the data you're thinking of.

Peter Walker (25:07) 

I like it. Haha , that's right. 

Pablo Srugo (25:09) 

Do you know what percent of companies that have raised the seed round also raised a seed extension. Like you said, 42 % of seed rounds were seed extensions. But if I'm a founder and I'm thinking about what are my odds of having to raise a seed extension? 

Peter Walker (25:25) 

Over the last two years, I think it's like just over a third. So that's quite high, but it's not everyone. And just for more founder advice here, typically, although not always, but very common, the people who are going to be giving you that seed extension are already on.
 
 It's mostly led by insiders who are already investors in your company and then maybe filled out by some new external investors. Interesting. I always wonder if that's like new, like seed stage investing as a category. It wasn't really a thing a decade ago. I wonder if seed plus investing as a category becomes a thing. 

Peter Walker (26:00) 

It's actually maybe a deeper point than you're making there, which is that venture as an asset class is getting more professionalized, right? And as that happens… there are subsegments within the venture ecosystem that become more standardized, and then it feels as though it's a little bit less Wild West and more venture companies hit standard checkpoints. That strikes me as something that will happen just by the nature of how much money is devoted to this asset class now. I'm not sure if that's always a good thing. I don't know if like having all of these little subsegmented slivers is...
 good or bad generally for the ecosystem. 

Pablo Srugo (26:35) 

What would be the bad? 

Peter Walker (26:36) 

Bad argument is that it makes founders think that they can't skip. So it's like, you actually don't need to follow that path at all. Some of the best companies, let's take Figma for an example, they were pre -revenue, pre -product, like building this thing for three years, then had a big A round and then were off to the races. Like there's other ways to do it where you jump around. It's not like you have to follow the standard alphabet.

Pablo Srugo (26:57) 

Well, I think that's a great point, but maybe having more of these slivers like in an ideal world, at least from the founder perspective, it's like, here's where I'm at, here's what I'm raising, call what you want to call it. who's interested, you know what I mean? versus, well that's not really quite a series A, so no. And they're like, well, that's too late for a seed, so no. And you're in like this weird no man's land, even though you actually have like more than you did at seed. And so you would think risk adjusted, it's a better profile. 

Peter Walker (27:25) 

I agree. Maybe that's a better way to say it is like, if you as a founder have a strong thoughtful case as to, I need this amount of money to execute on these things, then the name of the rounds, you know, it does, it only matters in so far as to finding the right people. It's not actually important. 

Pablo Srugo (27:39) 

So let's jump to another kind of area. talked a lot about kind of fundraisings and rounds. the other thing you have a lot of data on is like the equity splits, the equity splits, obviously with founders and investors, but also with employees. So not sure what you're seeing there, but that would be interesting. I think, you know, from a founder's perspective, the big questions are around. What is right? Cause everybody takes a different funding journey, but then you zoom out and you're like, okay, this is what I own and this is where I'm at. Like, am I good? Am I not good? It is also for the employee side, like what should I be giving depending on the role? you know, things you have on that.

Peter Walker (28:15) 

Absolutely. Yeah. So I think we have absolutely fantastic data in this segment. Let's a step back for a second before I jump into the founder side and just talk a little bit about how hiring is trending across startups, because this has been.
 one of the follow -on effects that we talk about it, but we mostly only talk about it in terms of layoffs, right? Layoffs get headlines and that sucks. And everyone, from Google on down, there's been a wave of layoffs through private tech and big tech. But when you get into the hiring for startups, put some numbers around this, 45 ,000 US startups on Carta. In the beginning of 2022, collectively, those companies hired nearly 60 ,000 people net of the people they lost. So 60 ,000 more people than the people who left their companies. Huge month of hiring. Everyone was growing super fast. Head count was really important to show off, et cetera. Like that was happening. In recent months, the last, let's call it nine, 12 months, basically net head count changes in Carta is effectively flat. Meaning they're not hiring, they're really maybe replacing the people who left, but they're not hiring the time. And that lack of hiring is the primary dynamic that goes into how much people are paid because there's a ton of great talent on the market right now. And so even though inflation is high and all of these things, startup salaries have basically remained flat over the last 18 months and startup equity packages are actually down over that same period because the supply and demand dynamic, there's just not as many people being hired. There's a ton of great people that are out there looking for a job. So that's the sort of like broad context under which we can talk about founder shares, equity for early employees, et cetera. Let's talk about
 founder equity to start with. So yeah, we get a ton of questions on this, as you can imagine. At the very earliest stages, I think there's a couple things that are pretty clear. First off, we did this analysis of 7,000 companies and we looked at how did the founders split equity before any fundraising, before any teams, just the founding team. How did they split up that pie amongst themselves? The first thing that we found, which is perhaps contrary to most people's assumptions is that most of them do not split equally. The standard thing that you hear from many accelerators and other people in the Valley, something like 58 % of two founder teams split unequally, so not 50 -50 something. It wasn't a huge gap from 50 -50. You the median split is something like 55 -45, but they did do something other than 50 -50 straight up. And then you can imagine if you have three or four or five co -founders like splitting 20, 20, 20, 20, 20  doesn't make a lot of sense. There's usually some differences in how you split equity there. So that was the first finding. The second finding is that we also looked into how they paid their earliest employees in equity. And there's a couple of interesting points there. The first one is we have some data on hires number one through hire number 10, how much equity they get. On a median basis, the first hire at a startup, the median is about 1 % of the company. But there's a huge range. It might be half a percent, it might be 4%, 5%, depending on who that person is. If they're a technical hire and it's a non -technical founding team, that person generally gets a little bit more equity. If the reverse is true, then maybe it's a little bit less. So a lot of range, but 1 % is the median for first hires. And then the biggest finding is that that just falls off super quickly. Hire number eight might get 0 .2%, maybe 0 .15%. And if you think about it, I think that's actually perhaps the most difficult risk -adjusted bet in startups is being employee number eight or 10 or 15, in that you're taking on a ton of risk, but you are not being compensated for that risk with equity in the same way that the founders and the earliest employees are. Not to say you should be equal. The founders are taking on more risk than you are for sure.
 But you are betting a portion of your career there and that equity value that you get is perhaps not quite, it's not necessarily relative too much to the risk that you're taking on. So maybe that's a little bit of an explanation of like the earliest part of the hiring journey. 

Pablo Srugo (32:38) 

It's true. Like if you're number 10 or 15, your risk feels lower than the founder, but it isn't because the company goes bankrupt, you're out. And if the company doesn't go bankrupt, but goes through really hard times, you also might be out, whereas the founder probably wouldn't. And so you have that risk on the, on the downside. Your pay's probably not going to be market unless the company is exceptionally well funded. And then it's like, you think about the risk reward. Like if this is truly an outlier, like in a billion dollar plus outcome, yeah, you're going to get rewarded. But if this is even like a successful a hundred million dollar, $200 million exit, and you do the math and then a dilution

Peter Walker (33:12)

 we talked to early employees a lot about this. my number one point is if your goal is to reliably make the most amount of money. Early stage startups are not it. Like on a risk adjusted basis, that's not a great bet. There are, I was employee number, I don't know, 11 or 12 at a startup. Like I wouldn't trade that experience for anything, but I didn't make a lot of money out of that. I learned so much, you know, cause you're actually wearing a hundred different hats and you're responsible for things that you would never be responsible for at a big company, but you just have to find smart people to do a thing. And that thing is always new and always exciting. So there are amazing reasons to join your early stage startups, but doing it specifically because you think that equity is going to be worth a ton is actually not a great. 

Pablo Srugo (33:54) 

Yeah. That's a great point. it's a career accelerant. It's a way to have impact. It's certainly fun, but yeah, not necessarily the biggest, the biggest amount of dollars for it. Okay. So what about just ESOP pools, in general-

Peter Walker (34:07) 

 like, ESOPs, for pre -seed companies on Carta started about 10%. This is actually something that we hear occasionally founders get pushback on from VCs. And I don't really understand it. Some VCs push for a much bigger pool. I mean, I guess I do understand it because they would not be diluting themselves. But at the earliest stages, it's 10%. And then as you fundraise, as your valuation grows, the median ESOP also grows. And this makes sense because as you come up to your Series A fundraise, you'll have discussions with your investors saying, look, we think in order to fuel the growth of the company, we need X, Y, or Z rolls. We think we can get those people for this much equity. So we need to expand the pool by this much. Once you get to about a unicorn, it's about 20%, 19 to 20 % of the company reserved for employees. And then at IPO, it's maybe 21 or 22 -ish. So it goes from 10 to 20, but it only grows pretty slowly as you. 

Pablo Srugo (35:02) 

What about founder ownership? That's one thing we tend to look at. Like there's a point at which we don't care, but there's a threshold where it's like, you raise, I've seen founders raising a seed round, but it's not the first seed round, obviously, but they're like at 15 % or like sub 20. That's challenging. It's really risky for us, like I have multiple, because I'm thinking the founder is always going to be motivated even if they own a small percent, but I'm also thinking , Whose is this really? This company is like 80 % somebody else.

Peter Walker (35:35) 

Definitely. And I think that many great VCs think the same way that you do, which is like, is actually very important for us to have a founder be properly incentivized to the long -term of this business, because especially at the earliest stages, that's what we're doing. We're betting on you. So you need to have a significant portion of equity. We still hear the general rule of founders are trying to hold on to… a majority or close to a majority of equity once they exit the series A raise, so post the series A raise, does the founding team as a whole own 51 % or more? That's still a benchmark that I hear thrown around a lot. I will say that there are many, many teams who do not hit that benchmark, so it's not like an unquestioned threshold that you can't miss. In general though, if you look at the dilution per round, you're talking 10 % in a pre -seed, you're talking 20 % in a seed and 20 % again in your Series A. Those are the median dilution marks. And then you know - 

Pablo Srugo (36:25) 

Plus anything in between. Plus ECIF, right?

Peter Walker (36:37)

 Which is like, again, we're thinking about this. This gets back to our earlier conversation, which is if you do this all on safes, that's coming out of you only, you don't want to do three or four rounds on safes and big, big money and then take on all that dilution for your first price. So like, have the investors in the price round take some dilution along with you. Cause it's, it definitely can add up pretty quickly. 

Pablo Srugo (36:48) 

Okay. And then maybe just to end on this, talked about dilution and I often talk about a lot of these founders that I've interviewed on, the show that have gone on to be, you know, unicorns are close to it have raised really small rounds. They boost draft beginning, but I saw posts the years, they got a lot of traction talking about not raising a small seed round. What's the point of driving it there? 

Peter Walker (37:07) 

People had really strong feelings about this post. The general gist of it was that if you raise a small seed round, that is less highly correlated with your ability to raise an A round. So it looks to be that the smallest, and there's a bell curve here where the smallest seed rounds tend to make it to A, the companies that do so tend to make it to A less frequently, but the biggest, biggest seed rounds don't have some sort of magical, meaningful impact on the A's. It kind of levels off. So what are the key actual takeaways there? It's not that raising a tiny seed round is in all cases bad. What it is is that probably what the data is showing is that the founders for whom it's only possible to raise a very small round are probably less well positioned to make it to the A in the first place. So there's a little bit of chicken or egg in that data. But I do think it matters for founders to take a look at, for instance, the timelines between rounds and realize if you sell 15 to 20 % of your company for a million bucks, two things happen. One, that's a pretty low valuation for your company, but two, you have to get to the next round with only a million bucks. And that can be really hard. And then if you come back to the same investors, they're probably gonna demand more equity if they're going to fundraise or help you fundraise again. So too little upfront can make it really hard. You're butting up against those timelines really, really tightly.
 
 Pablo Srugo (38:42.252)
 That makes sense. I think the other thing that's probably baked into that correlation is just besides the likelihood of the company itself to make the series A's is the ability of the founder to fundraise. I mean, generally speaking, those who are great at fundraising tend to raise more. That goes, that's true for a seed and that's true for a series A. And honestly, it's a big part of who ends up closing money. Like as much as the numbers definitely matter and they start to matter more, like certainly by the time you go public, like it's going to be a lot about the numbers, matter how good of a storyteller you are.
 
 In a pre -seed, it's all about the story. so that kind of, you know, that kind of trade one for the other as you move through your stages. 

Peter Walker (39:19) 

I think that's very well said. And there's also, to your point, there are a lot of companies that are just kind of looking at venture as a whole and saying, maybe I do that down the road, right? Maybe I try to bootstrap this into something that's a little bit more of a bigger business. And then I actually only take on external capital when I feel like I'm ready to pour fuel on the fire really deep. That's an amazing path. if you can take it, a lot of founders are experimenting with either not taking venture at all, or maybe one or two rounds of venture and then get off. There's like a diversity of models I think they're going to pop up. We'll see if LPs want to fund all of those models. But I think on the founder side, I think it makes sense to like, what is this business really and try to right size your fundraising to what you think this business really is. 

Pablo Srugo (40:02) 

Yes, 100%. Cool. Well, Peter, it's been amazing having you on the show. You have tons of data, clearly, and I think… You know, a lot of this is really illuminating for founders because as a founder, like you, first of all, you don't have the time to go through and read all these reports most of the time until like it really matters and you read it and then it's too late. So you really, what you see mainly is like the headlines, the tech crimes that this person raises. And it tends to be like the outlier stuff that comes out. 

Peter Walker (40:29) 

I love it, man. Yeah. And not to say that any, know, you don't need to raise the median round because it's the median round, but it's good to walk in with conversations with VCs feeling like you understand the market. So that's our old goal.