In December 2018, Carta announced a Series D preferred financing round raising $80M and valuing the Company at a Pre-Money of $800M. As valuation specialists, we wanted to take a deeper dive into the metrics surrounding this latest financing. Based on public information, we estimated Carta’s revenue for 2018 to be roughly $25M, which implies a 32.0x Price/Sales ratio, of which we estimate at least 50% is due to consulting services such as valuation, etc. We would expect a SaaS company to derive an ~10X sales multiple toward the high end of the range and a consulting firm to derive a significantly lower multiple, which puts our internal estimate of value for the Pre-Money below $250M. Given that context, we were perplexed about the supposed $800M Pre-Money valuation, which seemed rich even for a market as hyperinflated as Silicon Valley.
According to the same source that broke the news of the financing, the round is primarily a secondary transaction with Social Capital selling its shares to Tribe Capital (members from former Social Capital Partners). Given these circumstances, it does not appear to be an arms-length transaction given two parties involved are essentially related. Thus, it seems highly likely that the $800 million pre-money valuation is considerably inflated, and if so, it is even possible that Carta’s recent press may largely be a marketing gimmick.
In conjunction with its latest financing, Carta released the pitch deck it supposedly used to attract investors and there is no mention of Carta’s 409A valuation service line anywhere. After reading through the deck, we believe that Carta likely sees its clients’ capitalization tables and related data the same way Facebook views your profile – as a commodity to be monetized and used for benefit of Carta, not the customer. Based on these circumstances, combined with the fact that 409A valuations are not even mentioned in Carta’s market-facing deck, it would seem that Carta’s valuation offerings are an afterthought.
At Redwood Valuation, our interests are aligned with our clients to ensure they can attract and retain talent and receive the highest quality service and best experience possible. We are not a start-up, and we do not answer to investors. We do not see clients as “nodes”, we see them as individual companies with unique risks and opportunities that should be valued accordingly. Our success is dependent upon your success. If you currently use Carta or another “automated” provider for your 409A or business valuations, upgrade your experience and come join the 1,000+ companies that use Redwood instead of Carta. We would be happy to review your current 409A valuation report to ensure your valuation is being taken seriously.