Founded in 2017, H1 is a New York-based technology startup that is building a healthier future by democratizing access to global healthcare professional information, expertise, ground-breaking research, and connected insights. As of November 2021, the company had raised $180 million in venture capital, including an oversubscribed $100 million Series C round.
After the Series C financing, leaders at H1 decided to pursue a secondary liquidity transaction to achieve two goals: satisfy excess investor demand from the Series C and offer their employees an opportunity to sell some of their vested shares. The company wanted to complete the transaction by the end of 2021.
H1 partnered with Carta Liquidity to run a third-party tender offer. Throughout the process, Carta worked with H1 on their options for customizing the transaction and how to educate participants about their rights and obligations as sellers. As an existing Carta cap table customer, H1 was able to take advantage of the integration of the Carta Liquidity platform with Carta’s software and tax engine to streamline the process.
Joey Litman, general counsel
The CartaX team worked with us from the start to ensure we had a solid plan to meet our goal. We were happy to offer our employees an opportunity to realize some of the value of their shares, while also bringing on an additional strategic investor.
How H1 and Carta worked together
During each of the four steps of the tender offer, H1 relied on the Carta Liquidity team’s depth of experience in deal structuring for private secondary transactions. Carta partnered with H1’s leaders and educated employees on expectations when trading on the platform throughout the process.
Step 1: Structuring the deal
Carta engaged with H1 and the startup’s law firm, Cooley, to provide guidance on the deal’s parameters. These can include establishing the target number of shares to be transacted, determining which sellers will be invited to participate, and setting the offering price. Carta made sure that H1’s leadership team were aware of relevant tax, accounting, and legal considerations related to the parameters they chose for participation. The team also worked with H1 to set a transaction timeline and provided a checklist to help them get started.
The leadership team at H1 found that the Carta Liquidity team’s guidance made deal structuring easier to navigate.
Joey Litman, general counsel
Meeting with the CartaX team and establishing the structure for our tender offer was really helpful from the start. The level of detail they provided, such as a breakdown of taxes and regulations to be aware of, gave us confidence as we scoped out the process.
Step 2: Setting up the transaction
During setup, Carta built the transaction framework on the Carta Liquidity platform, conducted cap table quality assurance checks, and helped to educate and prepare the companies’ employees.
Carta Liquidity hosted a kickoff call with H1 to review and finalize the transaction parameters and timeline. To help them visualize participation and possible results of the tender offer, Carta showed the H1 leadership team an overview of the transaction model they built. “Carta Liquidity’s transaction model allowed my team to establish eligible participants for the offering, helping us get ahead of any recordkeeping or data issues—such as accidentally leaving someone out or misclassifying someone,” Joey says.
Deciding how many of their shares to sell and understanding the associated tax obligation can be overwhelming for employees. The Carta Liquidity team hosted an educational town hall to discuss what a tender offer is and how the H1 transaction would work—including the overall timeline and the potential tax implications of participating. To understand what the seller workflow process would look like when they placed their orders, employees also saw a demo of the Carta Liquidity platform.
“The town hall hosted by Carta was really useful in getting ahead of any questions or concerns for our employees,” says Joey. “It was also comprehensive, covering not only an overview of the tender offer, but information on what options are, how equity works, and other things germane to the process.”
Carta distributed the Carta Liquidity Tender Offer Sellers Guide and provided access to an online knowledge center with answers to frequently asked questions-including how to place a sell order, how one might prioritize which securities to sell first, what to expect at settlement, and the cost of exercising. Finally, sellers received the Carta Liquidity Tax Guide for Sellers.
Joey Litman, general counsel
We set out to offer our employees a seamless process where they could understand the value being delivered to them, and understand how to participate. The Carta Liquidity team did a great job at communicating and offering guidance throughout the process.
Cap table audit and quality assurance
The Carta Liquidity team conducted a quality assurance check on H1’s cap table. This audit, done in partnership with H1’s legal team and cap table administrator, verified that the company’s cap table reflected the latest and most accurate information. “The pre-transaction work done by the Carta Liquidity team to confirm cap table quality was very valuable,” Joey says. “The analysis offered was great, and the team was quick to find any answers we needed.” By doing this work up front, Carta was able to ensure the settlement process for H1 ran efficiently and quickly.
Step 3: Transaction period
At the start of the transaction period, shareholders received a formal invitation to place their sell orders during the ensuing 20-business day offering period. After the offering period ended, Carta matched sellers’ orders with buyer demand.
The Carta Liquidity platform was built to facilitate secondary transactions for private companies while easing the burden of recordkeeping after a liquidity event. The process is powered through an integration with Carta’s cap table software and tax engine, which allows for a seamless, end-to-end process during a secondary.
While the technology behind the platform is complex, the experience for H1 proved to be user-friendly. The interface includes clear instructions at each step of the selling process, and Carta shared guides and access to the Carta Liquidity team for more support.
H1’s participants found the proceeds breakdown calculator useful. It helped sellers visualize the potential profits and fees they would realize depending on how many shares they sell. “In a scenario like ours, sometimes receiving no feedback [from our employees] is actually a good thing,” Joey says. “There were no issues with wires, registering, or using the CartaX platform. From a process standpoint, nothing impeded H1 employees’ ability to participate in the tender offer process.”
Step 4: Settlement
The last step was settlement, which is when Carta finalized trade orders, provided tax withholding estimates to the company for approval, and facilitated the money movement between buyers and sellers.
Tax withholding calculations
To help employees navigate the taxes related to their sales, H1 provided Carta with their employees’ state and federal tax rates during the setup period. At settlement, Carta used those tax rates to provide withholding estimates to H1, who then confirmed the calculations on their end.
Joey says, “This was our first tender offer, and Carta was a real partner. They provided guidance and constructive feedback to our team on the reconciliation and tax withholding processes, which were validated by our external tax consultants. This made settlement a quick process.”
Cap table and valuation integrations
Since 2019, H1 has used Carta to manage the company’s cap table, valuations, and employee equity plans. Due to this existing relationship, the tender offer included extra features that made the transaction easier:
- Employees could use existing Carta account login information to access the Carta Liquidity platform;
- Proceeds from the sale were deposited into each sellers’ linked brokerage accounts; and
- The company’s cap table was automatically updated to reflect newly issued and canceled stock certificates.
Joey Litman, general counsel
Being an existing Carta customer made recordkeeping and back-end management of the tender offer process much easier for my team. It also meant that our employees were familiar with, and trusted, the brand from the beginning.
Carta and H1 met the company’s goal of completing the tender offer process by the end of 2021. H1 was also able to offer its employees the benefit of realizing some of the value they have built together.
“We set out to offer our employees a seamless process where they could understand the value being delivered to them, and understand how to participate,” Joey says. “I was very impressed by the level of service we got from Carta. They were responsive and knowledgeable throughout the entire process. We wouldn’t hesitate to partner with the team again if H1 were to pursue another tender offer.”