As is our usual practice, this training helped our team to refresh our knowledge for those features of the Carta platform that we regularly use such as the Cap table, 409A valuation, electronic securities, and ASC 718 expense accounting. In addition, it made us more familiar with new platform features like financing scenario modeling and QSBS support that may be beneficial to our clients.
In our training session on November 20, 2024, we had a thorough presentation of the capabilities of the Carta equity software platform. Many start up companies become familiar with the Carta platform, initially for the Cap table maintenance features. In the early days, Carta was
often maintained by the client’s legal advisor. However, with successful evolution and growth in their business model, our clients find they need more of what the Carta platform has to offer and become more involved on the platform.
Here are some of those features and functionality the Carta platform offers that our clients find beneficial and necessary:
Cap table management
For all of our clients, it is particularly important to know the specific investors who participated in the common stock and preferred stock investment rounds, as well as the potential investors holding convertible instruments such as warrants, SAFE instruments, and convertible notes. In addition, the ownership position of employees (through restricted stock and option awards) is vital to accurately track the size and impact of the remaining employee equity plan pool available for future awards.
All of this is readily available through the Carta Cap table feature.
409A valuations
Every startup company knows the importance of periodic 409A valuation reporting to ensure that equity award grants are issued at fair value. It is also an important measure of the company’s progress in increasing or decreasing the value of its shares for the benefit of all equity holders. An outside valuation company is vital to assessing an independent and impartial view.
Expense accounting for equity awards
At some point, usually when the initial financial audit is in the near future, a startup company will want to implement the requirements of ASC 718 to recognize expense associated with equity awards, most notably option awards to employees. Carta has a module that will calculate the expense amounts to be recorded as well as the disclosure information required for the financial statement footnotes.
Scenario modeling for liquidity events
As part of the preparation for a financing event, our clients evaluate different scenarios that could potentially evolve in a financing round such as, but not limited to, the price per share of the next round, the number of shares to be issued, the form of securities along with significant terms, conditions of those securities, and the dilutive impact of the financing event on the existing company investors and employees. Since the Carta platform already has all the Cap table information and 409A reports, it provides the baseline data for financing scenario modeling.
Electronic securities
The Carta platform provides a portal for investors and employees to use. Electronic securities certificates can be issued to stakeholders online through the portal. Employees can view, accept, and exercise option awards online through the portal. They can also use the portal to periodically check into the status of their awards.
Qualified Small Business Stock (“QSBS”) support
QSBS designation could mean significant tax savings to equity holders in an M&A exit event. That is why knowing if a company qualifies for the QSBS tax exemption is so important. Carta’s platform offers a QSBS attestation process which leverages the detailed Cap table feature and the 409A valuation data to assist in the process.