An Interview With Chad Silverstein
Clear goals in mind: When setting out to design an equity plan, make sure you have clear company goals to map back to (e.g., fostering a culture of ownership, driving company growth, boosting employee engagement). This will help you customize a plan that fits your specific goals.
In a business landscape increasingly marked by employee entitlement and corporate greed, Employee Stock Ownership Plans (ESOPs) stand out as innovative outliers in business succession. ESOPs not only secure business continuity but also spread the wealth, tying a company’s success to employee well-being. This approach shifts the corporate success narrative towards participation, engagement, transparency, and collective prosperity. In this interview series, we are talking with forward-thinking leaders adopting ESOPs, despite the challenges. As a part of this series, I had the pleasure of interviewing Vrushali Paunikar.
Vrushali Paunikar is the Chief Product Officer at Carta where she leads the team that is responsible for developing new products and advancing existing solutions. Vrushali’s team delivers value to Carta’s more than 30,000 customers in the venture and startup ecosystem and generates growth for the overall business.
Before becoming CPO, Vrushali worked on building the valuation business and helped that business scale to software margins. She then went on to lead the Venture Capital business taking that business from zero to over $80M in ARR. She’s credited with envisioning Carta’s fund admin platform, known as Event Based Accounting, which today supports over $130B in assets under administration.
Before joining Carta, Vrushali served as a product leader at Applied Predictive Technologies, Dynamic Signal, and Rocket Lawyer. She has a Bachelor of Science from Carnegie Mellon University.
Thank you so much for joining us in this interview series! Before we dive in, our readers would love to “get to know you” a little bit about you. Can you tell us about your ‘backstory’ and how you got started?
Certainly! When I graduated from college, I followed a pretty typical career path for business majors who don’t know what to do next — strategy consulting. I joined Applied Predictive Technologies, a strategy consulting practice that was developing its own Test & Learn analytics software. As a power user of the software in a client facing role, I had a ton of insights on how the software could evolve to better meet the needs of our clients. I signed up to work as a product analyst part-time and helped our engineering team build new features.
Every day, I was able to connect my experience helping clients to how the software could better solve their problems and automate my job. This was invigorating. A few years later, when the firm formed its full-time product management team, I opted in. That gave me my start on the product management path, and I’ve worked on my craft for the last 15 years. Now, as the Chief Product Officer at Carta, I lead teams that share a similar passion for solving hard problems and serving customers.
How would you describe the culture at your company and what has been the biggest contributor?
One of my favorite pieces of Carta swag is a T-shirt that says “Equity Expert.” “Experts” is a good way of describing Cartans. We go deep to understand cap tables, compliance reporting, accounting, tax, and more in order to serve an ecosystem of builders. Cartans are so passionate. That passion is infectious.
Secondly, we are an ownership company made of owners. We show up as owners. Whenever there’s a customer issue, a bug, or any problem, people swarm to help. This ownership mindset shows up in almost every aspect of our company — how we build products, how we serve our customers, and how we treat each other.
And finally, underpinning that ownership culture, there’s an egalitarian and transparent approach to how the company is run. Our weekly Show and Tell company meetings allow anyone at the company to talk about something they are working on and what they’ve learned. A lot of ideas and initiatives are born out of Show and Tell. Then in our weekly Town Hall meetings, our CEO shares thoughts about company progress or future strategy, whatever is top of mind. Those two forums alone are such great ways to learn about company building. It’s empowering.
How would you explain what an ESOP is to someone who has never heard of it before?
ESOP stands for an employee stock ownership plan, which is a way for companies to issue stock options to their employees. With an ESOP, employees are granted the right to buy shares for a predetermined strike price at a time in the future. ESOPs can be hugely useful because they serve as an incentive that aligns employees with a company’s performance. ESOPs also often come with tax advantages for both employers and employees.
In terms of how ESOPs work, companies grant stock options via a contract that lays out the terms and conditions. The employee then reviews the contract for any questions or concerns before signing. A common condition of ESOPs is that they vest according to a schedule set out in a shareholder agreement, rewarding loyalty over time. Employees usually see returns on their ESOP during events like an IPO or a secondary transaction.
Looking back, what was the catalyst that made you start thinking about transitioning to an ESOP?
Carta was founded upon the core belief that company ownership should be democratized. We made our employees owners since day one. When you have a company of owners who have a true stake in the business’s success, they work better together toward a shared long-term vision. In fact, studies have recognized that when employees are partial owners of a company, they take greater responsibility over not only the success of the business but also the company culture. It creates a business that grows as a team, tackles challenges, and celebrates the successes of hard work together. That’s why at Carta, not only do our employees own a portion of what they build, but we’re building the infrastructure to make it as cheap and easy as possible for other companies to issue equity to their employees, too. By providing the infrastructure that fuels innovation, we can bring more global businesses into an era of true ownership.
Was there ever a point you doubted the ESOP route? What kept you motivated to push through those challenges?
Never. Employee ownership is integral to Carta’s fabric. We firmly believe in the financial, cultural, and societal benefits of employee ownership.
For business leaders debating whether to pursue the ESOP route, remember that overcoming any initial hurdles will be worth it in the long run in fueling company growth and employee retention. Giving employees ownership is simply the right thing to do. The U.S. is facing widespread wealth inequality, with assets concentrated among the wealthiest segments of the population. Building more employee equity programs can help address this problem. Research indicates that if private firms shift to 30% employee ownership, the bottom 90% of the population would see substantial gains in wealth.
ESOP companies often have a distinctive culture and operational approach. What makes your company stand out from others, thanks to the ESOP structure?
As I mentioned, Cartans show up to work as owners. That means they deeply care about the success of the company and our customers. This shows up in so many of the ways they work and serve those customers. For example, in any work-related debate, you can align with your coworker(s) and say, “Hey, you and I want the same thing — the best for our customer. How do we go about figuring out what is best?” This is incredibly unifying.
I think the ESOP structure also makes Cartans critical thinkers. When you have an ownership stake in something big, you are not coming to work to check boxes. Every day you are learning, evaluating, asking questions, making bets, optimizing, and balancing trade-offs in service of the best outcomes for the company.
Great. Now, let’s dive into the heart of our interview. The transition to an ESOP involves a lot of challenges and opportunities to learn. Could you list the top “Five Things You Need to Successfully Leverage the Power of ESOPs”?
To structure a successful ESOP, the five key factors to keep at the forefront include:
- Clear goals in mind: When setting out to design an equity plan, make sure you have clear company goals to map back to (e.g., fostering a culture of ownership, driving company growth, boosting employee engagement). This will help you customize a plan that fits your specific goals.
- An accurate company valuation: It’s important to determine an accurate valuation of the company’s stock to set a fair market value for employee stock options. Use a third party, like Carta, to conduct a thorough analysis of the company’s financial statements — including balance sheets, income statements, and cash flow statements — to establish a reliable valuation.
- A clear POV on how much equity to set aside: The advice sometimes given to founders is that they should set aside 15 or 20% of the company upfront for employees. But when it comes to setting up an ESOP, bigger isn’t always better. Starting with about 10% can often suffice, and that allows startup founders to increase the pool as needed in later funding rounds. This approach keeps you from diluting your equity too early.
- Legal and regulatory compliance: Consult a lawyer who can help you roll out your equity plan and make sure you’re staying compliant along the way. Your law firm can help with essential activities like reviewing your existing company contracts, preparing waivers, drafting equity agreements, and more.
- Employee education: In an ESOP structure, when the company succeeds, employees succeed. The most impactful thing you can do is empower your employees to understand equity and its value. This can help motivate them and create that ownership mindset.
Financial literacy is crucial in an ESOP for employees to understand the value of their shares and how their actions impact the company’s success. What initiatives have you taken to educate your employees about financial aspects and the workings of the ESOP?
At Carta, we strongly believe that empowering ownership is also about providing equity education that teaches employees, entrepreneurs, and investors how to get the most out of their participation in the private markets. We provide a range of educational courses that are available to anyone and designed to educate and enable people to take control of their financial futures. The curriculum includes 10 interactive lessons to help people understand the value of equity and become more confident in managing it — from offers to grants to exercising options and beyond.
In addition, our Equity Blueprints step-by-step guide helps private company leaders understand the different types of employee ownership structures so they can choose a program that works the best for their business.
Employee ownership often changes the dynamics of engagement and participation. How have you seen employee involvement evolve in decision-making and daily operations since transitioning to an ESOP?
Cartans rank high on the “Give a D%$m spectrum.” As I mentioned, being co-owners of the company is a great way to align everyone. That allows us to move fast and solve for the right things. Employee compensation is linked to the long-term success of the company. This encourages employees to make decisions in service of that success and to get creative with ways to move the business forward.
Company culture and the ability to attract top talent are critical factors for business success. How has adopting an ESOP model impacted your company culture and your approach to recruiting and retaining employees? Do you believe the ESOP model has given you an advantage in the labor market?
ESOPs are a very common and necessary tool for recruitment and retention in the tech space. In fact, studies have shown that equity ownership programs boost employee retention, which helps reduce hiring costs and increase operational efficiencies associated with institutional memory and training. And even beyond the tech space, we’re seeing companies in different industries — like Fireclay Tile, a company making hand-crafted tile for kitchens, bathrooms, grocery stores, and other businesses — see great improvements in employee morale and engagement after adopting the ESOP model.
How can our readers further follow you or your company online?
They can follow me on LinkedIn and follow Carta on our website, Instagram, and LinkedIn. We’re frequently posting new educational content, research, and other helpful resources to aid startup founders in navigating equity management.
This was great. Thank you so much for the time you spent sharing with us.
About the Interviewer: Chad Silverstein, a seasoned entrepreneur with over two decades of experience as the Founder and CEO of multiple companies. He launched Choice Recovery, Inc., a healthcare collection agency, while going to The Ohio State University, His team earned national recognition, twice being ranked as the #1 business to work for in Central Ohio. In 2018, Chad launched [re]start, a career development platform connecting thousands of individuals in collections with meaningful employment opportunities, He sold Choice Recovery on his 25th anniversary and in 2023, sold the majority interest in [re]start so he can focus his transition to Built to Lead as an Executive Leadership Coach. Learn more at www.chadsilverstein.com
Vrushali Paunikar of Carta On Why ESOPs Are the Future of Business Succession was originally published in Authority Magazine on Medium, where people are continuing the conversation by highlighting and responding to this story.